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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.           )

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Check the appropriate box:

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Preliminary Proxy Statement

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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

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Definitive Proxy Statement

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Definitive Additional Materials

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Soliciting Material Pursuant to §240.14a-12

United States Steel Corporation

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
         
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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.

 

 

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US STEEL LOGO   United States Steel Corporation

Notice of Annual Meeting
of Stockholders and Proxy Statement

2005

Tuesday, April 26, 2005
10:00 a.m. Eastern Time

Room 1000
Tenth Floor
Two Mellon Bank Center
501 Grant Street
Pittsburgh, PA 15219

Please vote promptly either by:

--> telephone,

--> the Internet, or

--> marking, signing and returning your proxy or voting instruction card.


US STEEL LOGO

United States Steel Corporation
600 Grant Street
Pittsburgh, PA 15219-2800
  John P. Surma
President
and Chief Executive Officer

March 11, 2005

Dear Fellow U. S. Steel Stockholder,

We will hold the annual meeting of stockholders of United States Steel Corporation in Room 1000, Two Mellon Bank Center, 501 Grant Street, Pittsburgh, Pennsylvania, on Tuesday, April 26, 2005, at 10:00 a.m. Eastern Time.

We will elect directors and an independent registered public accounting firm at the meeting. The Board of Directors has nominated four of our 11 current directors, as well as a fifth nominee, for election this year. You can read about them, and about the other directors who will continue in office, on pages 16-22 of the proxy statement.

The Board is also recommending the approval of a new 2005 Stock Incentive Plan and the approval of a new 2005 Annual Incentive Compensation Plan.

We hope you will vote either by telephone, over the Internet or by marking, signing and returning your proxy or voting instruction card as soon as possible, whether or not you plan to attend the meeting.

Sincerely,

GRAPHIC


Table of Contents

Notice of Annual Meeting of Stockholders   4

Proxy Statement

 

5
 
Questions and Answers

 

5
 
The Board of Directors and its Committees

 

7
 
Communications from Security Holders

 

11
 
Compensation of Directors

 

12
 
Transactions

 

13
 
Proposals of the Board

 

 
   
Proposal No. 1

 

 
    Election of Directors   14
    Nominees for Director   16
    Continuing Directors   19
   
Proposal No. 2

 

 
    Election of Independent Registered Public Accounting Firm   22
   
Proposal No. 3

 

 
    Approval of 2005 Stock Incentive Plan   23
   
Proposal No. 4

 

 
    Approval of 2005 Annual Incentive Compensation Plan   30
 
Audit & Finance Committee Report

 

33
 
Information Regarding the Independence
of the Independent Registered Public Accounting Firm

 

34
 
Security Ownership of Certain Beneficial Owners

 

35
 
Security Ownership of Directors, Nominees
and Executive Officers

 

36
 
Executive Compensation

 

37
   
Compensation & Organization Committee
Report on Executive Compensation

 

41
   
Shareholder Return Performance Presentation

 

45
   
Pension Benefits

 

46
   
Change in Control Arrangements
and Employment Contracts

 

48
 
Statement Regarding the Delivery of a Single Set of Proxy Materials to Households With Multiple U. S. Steel Shareholders

 

51
 
Solicitation Statement

 

51
 
Website

 

51
 
Appendix A - Audit & Finance Committee Charter

 

52
 
Appendix B - 2005 Stock Incentive Plan

 

57
 
Appendix C - 2005 Annual Incentive Compensation Plan

 

72

3



Notice of Annual Meeting of Stockholders
on April 26, 2005

We will hold our 2005 annual meeting of stockholders in Room 1000 on the tenth floor of Two Mellon Bank Center, 501 Grant Street, Pittsburgh, Pennsylvania 15219 on Tuesday, April 26, 2005, at 10:00 a.m. Eastern Time, in order to:

elect four Class I directors and one Class III director,

elect an independent registered public accounting firm for 2005,

approve the 2005 Stock Incentive Plan,

approve the 2005 Annual Incentive Compensation Plan, and

transact any other business that properly comes before the meeting.

You are entitled to vote at the meeting if you were an owner of record of United States Steel Corporation common stock at the close of business on February 25, 2005. If your ownership is through a broker or other intermediary, you will need to have proof of your stockholdings in order to be admitted to the meeting. A recent account statement, letter or proxy from your broker or other intermediary will suffice.

By order of the Board of Directors,

Dan D. Sandman
Secretary

Dated: March 11, 2005

United States Steel Corporation
600 Grant Street
Pittsburgh, PA 15219-2800

4



Proxy Statement

We have sent you this proxy statement because the Board of Directors is asking you to give your proxy (that is, the authority to vote your shares) to our proxy committee so they may vote your shares on your behalf at our annual meeting of stockholders. The members of the proxy committee are Thomas J. Usher, John P. Surma and Dan D. Sandman. They will vote your shares as you instruct.

We will hold the meeting on April 26, 2005 in Room 1000, Two Mellon Bank Center, 501 Grant Street, Pittsburgh, Pennsylvania. The proxy statement contains information about the matters being voted on and other information that may be helpful to you.

We began the mailing of the proxy statement, the proxy card and the 2004 annual report on or about March 11, 2005.

Questions and Answers


/*/  Who may vote?

You may vote if you were a holder of United States Steel Corporation ("U. S. Steel" or the "Corporation") common stock at the close of business on February 25, 2005.

/*/  What may I vote on?

You may vote on:

/*/  How does the Board recommend I vote?

The Board recommends that you vote:

/*/  How do I vote?

You may vote by telephone or over the Internet by following the instructions on the enclosed proxy card (or, if you own your shares through a broker or other intermediary, on the enclosed voting instruction card). You may also vote by marking, signing and dating the enclosed proxy card or voting instruction card and returning it in the prepaid envelope. The proxy committee will vote your shares in accordance with your directions. If you return a proxy card but do not mark the boxes showing how you wish to vote, the proxy committee will vote your shares FOR each proposal, but only if you have signed and dated the card. Unsigned proxy cards will not be voted at all. If you are a stockholder of record (that is, if you are registered on our books), you may also vote in person by attending the meeting.

/*/  May I change my vote?

If you are a stockholder of record, you may change your vote or revoke your proxy at any time before your shares are voted at the meeting by:

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/*/  How many outstanding shares are there?

At the close of business on February 25, 2005, which is the record date for the meeting, there were 114,159,460 shares of U. S. Steel common stock (each share representing one vote and collectively representing 114,159,460 votes) outstanding.

/*/  How big a vote do the proposals need in order to be adopted?

Directors are elected by a plurality of the votes of the shares present in person at the meeting or represented by proxy and entitled to vote; that is, those receiving the most votes are elected, even if they receive less than a majority of the votes present. The independent registered public accounting firm is elected by a majority of the votes of the shares present in person at the meeting or represented by proxy and entitled to vote. Approval of each of the 2005 Stock Incentive Plan and the 2005 Annual Incentive Compensation Plan requires a majority of the votes of the shares present in person at the meeting or represented by proxy and entitled to vote. Abstentions are counted as votes present and entitled to vote and have the same effect as votes against a proposal. Broker non-votes are not counted as either votes for or votes against a proposal. Both abstentions and broker non-votes are counted in determining that a quorum is present for the meeting.

/*/  What are broker non-votes?

The New York Stock Exchange permits brokers to vote their customers' shares on routine matters when the brokers have not received voting instructions from their customers. The election of directors and the election of independent auditors are examples of routine matters on which brokers may vote in this way. Brokers may not vote their customers' shares on non-routine matters such as employee stock compensation plans, including the 2005 Stock Incentive Plan, mergers and contested proposals unless they have received voting instructions from their customers. Non-voted shares on non-routine matters are called broker non-votes.

/*/  What constitutes a quorum?

Under our by-laws, a quorum is one-third of the voting power of the outstanding shares of stock entitled to vote.

/*/  Will my vote be confidential?

All voting records which identify stockholders are kept permanently confidential except as necessary to meet legal requirements and in other limited circumstances such as proxy contests. The vote tabulators, who are U. S. Steel employees, and the inspector of election, who is independent, are required to execute confidentiality agreements.

/*/  How will voting be conducted on other matters raised at the meeting?

If any matters are presented at the meeting other than the proposals on the proxy card, the proxy committee will vote on them using their best judgment. Your signed proxy card, or your telephone or Internet vote, gives them the authority to do this. Under our by-laws, notice of any matter to be presented by a stockholder for a vote at the meeting must have been received by our Corporate Secretary on or after December 27, 2004, and no later than January 26, 2005, and it must have been accompanied by certain information about the stockholder presenting it. We have not received notice of any matter to be presented other than those on the proxy card.

/*/  When must shareholder proposals be submitted for the 2006 annual meeting?

Shareholder proposals submitted for inclusion in our 2006 proxy statement must be received in writing by our Corporate Secretary no later than 5:00 P.M. Eastern Time on November 11, 2005. Shareholder proposals submitted outside the process for inclusion in the proxy statement must be received from stockholders of record on or after December 26, 2005 and no later than January 25, 2006 and must be accompanied by certain information about the stockholders making the proposals, in accordance with our by-laws.

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The Board of Directors and its Committees

Under our by-laws and the laws of Delaware, U. S. Steel's state of incorporation, the business and affairs of U. S. Steel are managed under the direction of the Board of Directors. The Board met nine times in 2004. The non-employee directors hold regularly scheduled executive sessions without management. The chair for these sessions is rotated among the committee chairmen. The directors spend considerable time preparing for Board and committee meetings, and they attend as many meetings as possible. The directors' attendance at meetings of the Board and its committees averaged 99 percent in 2004. The Board has three principal committees, all the members of which are independent within the definitions of independence of both the New York Stock Exchange listing standards and the Securities and Exchange Commission's standards for audit committee members. Each committee may hire outside advisors, including counsel, at the Corporation's expense. The Board also has an Executive Committee made up of Messrs. Usher, Surma and Sandman, the role of which is to act on, and report to the Board on, significant matters that may arise between Board meetings. The directors are expected to attend the annual meetings of stockholders. All directors who were on the Board at the time attended the 2004 meeting. The table below shows the current committee memberships of each independent director and the number of meetings that each principal committee of the Board held in 2004.

Board Committee
Memberships


            Director

  Audit & Finance
Committee

  Compensation
& Organization
Committee

  Corporate
Governance
& Public Policy
Committee

 

J. Gary Cooper   X       X *  

Robert J. Darnall

 

X

 

X

 

 

 

John G. Drosdick   X       X  

Shirley Ann Jackson

 

X

 

 

 

X

 

Charles R. Lee   X  * X      

Frank J. Lucchino

 

X

 

 

 

X

 

Seth E. Schofield   X   X  *    

Douglas C. Yearley

 

X

 

X

 

 

 

Number of Meetings in 2004   6   9   4  

   * Chairman


Audit & Finance
Committee


The Audit & Finance Committee (the "Committee") has a written charter adopted by the Board, which is attached as Appendix A to this proxy statement and is available on the Corporation's website (www.ussteel.com) under "Investors" then "Corporate Governance". All the members of the Committee are independent (as defined by the New York Stock Exchange and the Securities and Exchange Commission (the "SEC")). The charter describes the Committee's purpose as follows:

assisting the Board in oversight of

a. the integrity of the Corporation's financial statements,

b. the Corporation's compliance with legal and regulatory requirements,

c. the independent auditor's qualifications and independence, and

d. the performance of the Corporation's internal audit function and of the independent auditor;

7


preparing the audit committee report required by the rules of the Securities and Exchange Commission to be included in the Corporation's annual proxy statement; and

being directly responsible for the appointment (subject to shareholder election), compensation, retention and oversight of the work of the Corporation's independent auditor, which reports directly to the Committee, and having the sole authority to approve all audit engagement fees and terms, as well as all non-audit engagements with the independent auditor.

The charter describes the Committee's duties and responsibilities as including:

discussing the annual audited financial statements and quarterly financial statements with management and the independent auditor, including the Corporation's disclosures under "Management's Discussion and Analysis", and reviewing and approving the annual financial statements, the annual report to stockholders and the Form 10-K annual report, giving special consideration in such review to any material changes in accounting policy;

discussing earnings press releases, as well as financial information and earnings guidance (if any) provided to analysts and rating agencies;

overseeing and reviewing the adequacy of procedures that have been established by the Committee for the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls, or auditing matters, as well as for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters;

being directly responsible for the appointment (subject to shareholder election), compensation, retention, and oversight of the work of the Corporation's independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting), while possessing the sole authority to pre-approve all audit engagement fees and terms as well as all non-audit engagements with the independent auditor;

at least annually, obtaining and reviewing a report by the independent auditor describing: the independent auditing firm's internal quality-control procedures; any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues; and (in order to assess the auditor's independence) all relationships between the independent auditor and the Corporation;

reviewing: (1) with the independent auditor, any audit problems or difficulties and management's response, including any restrictions on the scope of the independent auditor's activities or on access to requested information, and any significant disagreements with management (the Committee having the direct responsibility to resolve such disagreements regarding financial reporting practices) and (2) the responsibilities, budget and staffing of the Corporation's internal audit function;

overseeing and reviewing the adequacy of hiring policies that have been established by the Committee for employees or former employees of the independent auditor, taking into account the pressures that may exist for auditors consciously or subconsciously seeking a job with the company they audit;

annually reviewing the independence letter issued by the independent auditor under Independence Standards Board Standard No. 1, actively engaging in a dialogue with the independent auditor with respect to any relationships disclosed in that letter, and reporting to the Board of Directors any appropriate action necessary to maintain the independent auditor's continuing independence;

meeting periodically and separately in executive session with management, internal audit, the independent auditor, and the General Counsel;

reviewing and discussing the appropriate capital structure and financial policies of the Corporation;

making recommendations to the Board concerning dividends;

8


discussing policies with respect to risk assessment and risk management; and

reporting regularly to the Board and reviewing with the Board any issues that arise with respect to the quality or integrity of the Corporation's financial statements, the Corporation's compliance with legal or regulatory requirements, the performance and independence of the independent auditor, or the performance of the internal audit function.

The charter requires the Committee to conduct an annual self-evaluation and to review the charter at the Committee's first meeting of each calendar year. It also requires that, to the extent practicable, all eligible (i.e. financially literate) independent directors shall be members of the Committee and that no director who serves on the audit committees of more than two other public companies may serve on the Committee unless the Board determines that such simultaneous service will not impair the ability of such director to effectively serve on the Committee.

The Committee has a number of members who meet the SEC's definition of audit committee financial expert. The Board has decided to name one of them, Charles R. Lee, the Committee's chairman, as the audit committee financial expert within the SEC's definition. Mr. Lee is independent as that term is defined by the New York Stock Exchange and the SEC.


Compensation
& Organization
Committee


The Compensation & Organization Committee (the "Committee") has a written charter adopted by the Board which is available on the Corporation's website (www.ussteel.com) under "Investors" then "Corporate Governance". The charter describes the Committee's purpose as including:

discharging the responsibilities of the Board respecting the compensation of the Corporation's executives;

producing an annual report on executive compensation for inclusion in the Corporation's proxy statement, in accordance with applicable rules and regulations; and

reviewing and discussing the Corporation's employee benefit plans.

The charter requires that the Committee be comprised solely of directors who are independent and qualified under standards established by the New York Stock Exchange and who, in the opinion of the Board, are free of any relationship that would interfere with their exercise of independent judgment as members of the Committee. It further requires that the Committee consist of at least three members, each of whom shall be appointed by the Board, and that the Board select, as Committee members, directors whose experience and expertise will enable them to make substantial contributions to the Committee's endeavors.

The charter gives the Committee the following duties and responsibilities:

making recommendations to the Board and to the boards of subsidiaries on all matters of policy and procedures relating to executive compensation, including incentive-compensation plans and equity-based compensation plans,

reviewing and approving corporate goals and objectives relevant to the CEO's compensation,

with the Board, annually reviewing the Corporation's executive management succession plans and regularly reviewing policies and procedures for the selection and performance review of the CEO, as well as the policies regarding succession in the event of an emergency or the retirement of the CEO,

evaluating the CEO's performance in light of the approved goals and objectives, and, either as a committee or together with the other independent directors (as directed by the Board), determining and approving the CEO's compensation level based on such evaluation, giving consideration with respect to the long-term incentive component of such compensation to the Corporation's performance and relative shareholder return, the value of similar incentive awards to CEOs at

9


approving the salaries of the other officers of the Corporation,

administering the Annual Incentive Compensation Plan and the Senior Executive Officer Annual Incentive Compensation Plan,

administering the plans under which long-term incentives are granted and approving grants of options, stock appreciation rights, restricted stock and other incentives under those plans,

timely certifying as to the meeting of applicable performance levels under the foregoing plans,

producing the committee report on executive compensation for inclusion in the proxy statement,

making recommendations to the Board with respect to non-CEO compensation, incentive-compensation plans and equity-based compensation plans,

adopting and amending employee benefit plans,

making recommendations to the Board concerning policy matters relating to employee benefits,

approving the retention and termination of any consulting firm retained to assist in the evaluation of director, CEO or senior executive compensation, and approving the consulting firm's fees and other retention terms. The Committee also may, in appropriate circumstances and at Corporation expense, hire independent advisors, including counsel,

conducting an annual self-evaluation of the Committee's performance,

at its first meeting of each calendar year, reviewing its charter, and

performing such other duties and responsibilities as may be assigned to the Committee by the Board or designated in plans approved by the shareholders. The Committee has the authority to delegate matters to subcommittees.

The Committee meets at least three times annually. It reports to the Board on all matters relevant to the Committee's discharge of its responsibilities, and makes such recommendations to the Board as the Committee deems appropriate.


Corporate Governance
& Public Policy
Committee


The Corporate Governance & Public Policy Committee (the "Committee") serves as the Corporation's nominating committee. It has a written charter, adopted by the Board, which is available on the Corporation's website (www.ussteel.com) under "Investors" then "Corporate Governance". The charter gives the Committee the following duties and responsibilities:

identifying and evaluating nominees for director and selecting, or recommending that the Board select, the director nominees for the next annual meeting of shareholders, while acknowledging that the CEO exercises the initiative to identify and recruit candidates with the knowledge and consent of the Committee,

considering nominees recommended by shareholders for election as directors in the same manner as nominees recommended by the Committee,

making recommendations to the Board concerning the appropriate size and composition of the Board, including (a) the composition and functions of Board committees, (b) the compensation of non-employee directors, and (c) all matters relating to the effective functioning of the Board,

recommending to the Board a set of corporate governance principles applicable to the Corporation, reviewing such principles at the Committee's first meeting of each calendar year and recommending appropriate changes to the Board,

reviewing matters bearing on the relationship between management and present or potential stockholders with emphasis on policy and major programs affecting ownership of the Corporation,

reviewing communications to and from the investment community, particularly the Corporation's stockholders,

10


reviewing legislative and regulatory issues affecting the Corporation's businesses and operations,

reviewing public issues identified by management as likely to generate expectations of the Corporation by its constituencies, including stockholders, employees, customers, vendors, governments and the public,

reviewing the Corporation's position regarding identified public issues including, but not limited to, employee health and safety, environmental, energy and trade matters,

reviewing the Corporation's efforts to affect identified public issues through research, analysis, lobbying efforts and participation in business and government programs,

reviewing and approving codes of conduct applicable to employees of the Corporation and its principal operating units, and

assessing and making recommendations concerning overall corporate governance to the extent specific matters are not the assigned responsibility of other board committees.

The Committee's goals and responsibilities include establishing criteria for selecting new directors, and exercising oversight of the evaluation of the Board and management. The criteria for selecting new directors include (a) their independence, as defined by applicable law, stock exchange listing standards and the categorical standards listed in the Corporation's Corporate Governance Principles, (b) their business or professional experience, (c) their integrity and judgment, (d) their records of public service, (e) their ability to devote sufficient time to the affairs of the Corporation, (f) the diversity of backgrounds and experience they will bring to the Board, and (g) the needs of the Corporation from time to time. The Committee's charter provides that all directors should be individuals of substantial accomplishment with demonstrated leadership capabilities and that they should represent all shareholders and not any special interest group or constituency. The Corporation has an agreement with the United Steelworkers of America (the "USWA") that permits the USWA to suggest two individuals for consideration for Board membership. Messrs. Lucchino and Gephardt were recommended in this manner. The agreement recognizes that every director has a fiduciary duty to the Corporation and all of its stockholders, and that each individual recommended by the USWA must meet the criteria described above. The Committee's charter gives the Committee the sole authority to retain and terminate any search firm to be used to identify director candidates, including sole authority to approve the search firm's fees and other retention terms.

The charter requires the Committee to perform an annual self-evaluation and also to oversee the process of evaluation of the Board, its committees, and management. It also requires that all committee members be independent directors and that they, including the chairman, be appointed by the Board. The Committee has the authority to delegate tasks to subcommittees, and it is required to give regular reports to the Board.

The Committee reviews its charter during its first meeting of each calendar year.



Communications from Security Holders

Security holders may send communications to the Board, the Committee chairmen (who preside over executive sessions of the outside directors on a rotating basis), or the outside directors as a group through the Secretary of the Corporation. The Secretary will collect, organize and forward to the directors all communications that, in his or her judgment, are appropriate for consideration by the directors. Examples of communications that would not be considered appropriate for consideration by the directors include solicitations for products or services, employment matters, and matters not relevant to the shareholders, to the functioning of the Board, or to the affairs of the Corporation.

11


Compensation of Directors

Our by-laws provide that each non-employee director shall be paid allowances and attendance fees as the Board may from time to time determine. Directors who are employees of U. S. Steel receive no compensation for their service on the Board. We pay our non-employee directors (with the exception of Mr. Usher) as follows:

Annual Retainer   $60,000

Annual Grant of Common Stock Units

 

$40,000

Committee Membership Fees:

 

 
  Audit & Finance   $10,000 ($11,000 for chairman)

    Compensation & Organization
    and Corporate Governance &
    Public Policy

 

$5,000 ($6,000 for chairmen)

Meeting Fee (for each Board or committee meeting)

 

$2,000

Under our Deferred Compensation Plan for Non-Employee Directors, non-employee directors (with the exception of Mr. Usher) may defer some or all of their annual retainers in the form of Common Stock Units. Each participating director is strongly encouraged to defer at least half of his or her retainer in the form of Common Stock Units, and some have deferred their entire retainers in this way. A Common Stock Unit is what is sometimes referred to as "phantom stock" because initially no stock is actually issued. Instead, we keep a book entry account for each director that shows how many Common Stock Units he or she has. When a director leaves the Board, he or she must take actual shares of common stock corresponding to the number of Common Stock Units in his or her account. We believe this is an effective way to increase the directors' equity interests in U. S. Steel and thereby further align their interest with that of the stockholders. We credit each participating director's deferred stock account with Common Stock Units every January. The ongoing value of each Common Stock Unit equals the market price of the common stock. When dividends are paid on the common stock, we credit each account with equivalent amounts in additional Common Stock Units. If U. S. Steel were to undergo a change in control resulting in the removal of a non-employee director from the Board, that director would receive a cash payment equal to the value of his or her deferred stock account.

In addition to the Common Stock Units credited to the directors under the Deferred Compensation Plan for Non-Employee Directors, each non-employee director (other than Mr. Usher) is annually granted Common Stock Units valued at $40,000. When the director leaves the Board, he or she is paid, in cash, the value of these Common Stock Units at that time.

Under our Non-Employee Director Stock Plan, each current non-employee director (other than Mr. Usher) received a grant of up to 1,000 shares of common stock. In order to qualify, each director must first have purchased an equivalent number of shares in the open market during the 60 days following the first date of his or her service on the Board. This plan has been suspended.

12


Mr. Usher's compensation as non-employee Chairman of the Board is governed by the terms of the Employment and Consulting Agreement between U. S. Steel and Mr. Usher described on pages 49 and 50. For his service as non-employee Chairman for the last three months of 2004, Mr. Usher received $275,000 in salary, and benefits valued at $36,501 in incremental cost to the Corporation. The benefits were occasional personal use of corporate aircraft, club memberships, a parking space, financial planning and tax preparation assistance, a home security system, occasional use of corporate-owned properties, and occasional use of corporate-owned sports and cultural tickets.

Our by-laws require non-employee directors to retire at the end of the month in which they turn 72, even if their terms have not expired. Employee directors must retire from the Board when they retire as employees, except that the CEO may remain on the Board, at the Board's request, through the month in which he or she turns 70. Under the terms of his Employment and Consulting Agreement, Mr. Usher will retire from the Board in April 2007, at age 64. Our by-laws also provide that directors who undergo a significant change in their business or professional careers should volunteer to resign from the Board.



Transactions

In the regular course of its business since January 1, 2004, U. S. Steel and its subsidiaries have had transactions with entities with which certain directors were affiliated. Such transactions were in the ordinary course of business and at competitive prices and terms. We do not consider any such director to have a material interest in any such transaction. We anticipate that similar transactions will occur in 2005.

13


Proposals of the Board

The Board will present the following proposals at the meeting:

Proposal No. 1


Election of Directors

U. S. Steel's Certificate of Incorporation divides the directors into three classes: Class I, Class II and Class III. Each class must consist, as nearly as possible, of one-third of the directors, which is one reason for the Board's recommendation that Mr. Usher be moved to Class III as described below. Once elected, directors serve for a term of three years and until their successors are duly elected and qualified. At each annual meeting, directors who are elected to succeed directors whose terms have expired are identified as being of the same class as those they succeed. A director elected to fill a vacancy is elected to the same class as the director he or she succeeds, and a director elected to fill a newly created directorship holds office until the next election of the class to which he or she is elected.

The current four Class I directors are nominees for election this year. The Board is recommending three of them, as well as Mr. Richard A. Gephardt, for a three-year term that will expire at the 2008 annual meeting, and one of them, Mr. Usher, for a two-year term that will expire in April 2007 as a member of Class III. Of the 11 current directors, two are officers of U. S. Steel; one, Mr. Usher, is a former CEO of U. S. Steel; five have top executive experience with a wide variety of other businesses; one had a distinguished career in the military and the diplomatic corps before entering business; one has had a distinguished career in academia, business and government; and one has had a distinguished career in public service including the judiciary. A brief statement about the background of each nominee and each continuing director is given on the following pages. If any nominee for whom you have voted becomes unable to serve, your proxy may be voted for another person designated by the Board.

The Board has affirmatively determined that no non-employee director or nominee other than Mr. Usher has a material relationship with the Corporation (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Corporation). The Board made such determination based on all relevant facts and circumstances, including the categorical standards for independence adopted by the Board. Under those standards, no director is independent if:

a.
within the previous three years:

1.
he or she has been an employee, or an immediate family member (as defined below) has been an executive officer, of the Corporation;

2.
he or she, or an immediate family member, has received more than $100,000 in any twelve-month period in direct compensation from the Corporation, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service); or

3.
he or she has been employed, or an immediate family member has been employed, as an executive officer of another company where any of the Corporation's present executives serve on that company's compensation committee;

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b.
he or she is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from, the Corporation for property or services in an amount which, in any of the last three fiscal years, exceeded the greater of $1 million or 2% of such other company's gross revenues; or

c.
(1) he or she or an immediate family member is a current partner of a firm that is the Corporation's internal or external auditor; (2) he or she is a current employee of such a firm; (3) he or she has an immediate family member who is a current employee of such a firm and who participates in the firm's audit, assurance or tax compliance (but not tax planning) practice; or (4) he or she or an immediate family member was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on the Corporation's audit within that time.

"Immediate family member" includes a person's spouse, parents, children, siblings, mother and father-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who shares such person's home. It does not include individuals who are no longer immediate family members as a result of legal separation or divorce, or those who have died or become incapacitated.

Our by-laws describe the procedures that must be used in order for someone nominated by a stockholder of record to be eligible for election as a director. They require that notice be received by the Secretary at least 45 days, but not more than 75 days, before the first anniversary of the date on which we first mailed our proxy materials for the preceding year's annual meeting of stockholders. The notice must contain certain information about the nominee, including his or her age, address, occupation and share ownership, as well as the name, address and share ownership of the stockholder giving the notice.

The Board recommends a vote for the election of each nominee.

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Nominees for Four Class I Directors (Terms Expire 2008) and One Class III Director (Term Expires 2007)

Nominees for Class I Director

RICHARD A. GEPHARDT PHOTO   Richard A. Gephardt                                                                                              Age 64
Retired United States Congressman

Congressman Gephardt received a Bachelor of Science degree from Northwestern University and a Juris Doctor degree from the University of Michigan Law School. After serving as a Democratic committeeman and alderman in his native St. Louis, he was elected to the United States House of Representatives in 1976, representing Missouri's Third District. He was re-elected 13 times. While in the House, Congressman Gephardt served on the Budget Committee and on the Ways and Means Committee. He was elected Chairman of the House Democratic Caucus in 1984; and he served as majority leader from 1989 to 1994. In 1994 he was elected House Democratic Leader, the top Democratic leadership position in the House. He served as minority leader from 1995 to 2003. After deciding not to seek re-election, Congressman Gephardt retired from the House on January 3, 2005. He serves on the boards of the St. Jude Children's Hospital and the Children's Inn at the National Institutes of Health.


 

SHIRLEY A. JACKSON PHOTO   Shirley Ann Jackson                             Director since 2001                               Age 58
President, Rensselaer Polytechnic Institute

Dr. Jackson received a BS degree in physics in 1968, and a Ph.D. in theoretical elementary particle physics in 1973, from the Massachusetts Institute of Technology. She was a research associate at the Fermi National Accelerator Laboratory, a visiting scientist at the European Center for Nuclear Research and, from 1976 to 1991, a theoretical physicist at the former AT&T Bell Laboratories. She was a professor of theoretical physics at Rutgers University from 1991 to 1995. After nomination by President Clinton and confirmation by the U.S. Senate, she was Chairman of the U.S. Nuclear Regulatory Commission from 1995 to 1999. Dr. Jackson became President of Rensselaer Polytechnic Institute in 1999. Dr. Jackson is a director of Marathon Oil Corporation, Federal Express Corporation, AT&T (whose board she will leave on May 18, 2005), Medtronic, Inc., and Public Service Enterprise Group. She also is a director of the New York Stock Exchange. She is a member of the Council on Foreign Relations, a Fellow of the American Academy of Arts and Sciences and a Fellow of the American Physical Society. She is Chair of the Board and Past-President of the American Association for the Advancement of Science. She holds 31 honorary degrees, was awarded the New Jersey Governor's Award in Science in 1993, and was inducted into the National Women's Hall of Fame in 1998. In 2003 Dr. Jackson was named by ESSENCE magazine as one of the 50 most inspiring African-Americans. She has also been named by Discover magazine as one of the top 50 women in science.

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DAN D. SANDMAN PHOTO   Dan D. Sandman                                   Director since 2001                               Age 56
Vice Chairman and Chief Legal & Administrative Officer, General Counsel and Secretary
United States Steel Corporation

Mr. Sandman graduated from Ohio State University with a BA in 1970 and a law degree in 1973. He attended the Stanford Executive Program in 1989 and is a member of the Ohio and Pennsylvania bar associations. He began working for Marathon Oil Company in 1973 and served in a series of positions in the marketing, antitrust and oil & gas law areas in Findlay, Ohio; Houston, Texas; and London, England. In 1981 he was named senior marketing counsel, and he was promoted to general attorney, refining & marketing in 1983. Mr. Sandman was named general attorney, U.S. exploration & production law in February 1986 and elected general counsel and secretary of Marathon Oil Company later that year. He was elected secretary and assistant general counsel of USX Corporation in December 1992 and general counsel and secretary in February 1993. In 1998 he assumed responsibility for public affairs. Mr. Sandman was elected Vice Chairman and Chief Legal & Administrative Officer, General Counsel and Secretary of U. S. Steel effective December 31, 2001. In 2002 he assumed responsibility for governmental affairs and environmental affairs. Mr. Sandman has been a director of Roppe Corporation in Fostoria, Ohio since 1989.


 

DOUGLAS C. YEARLEY PHOTO   Douglas C. Yearley                                Director since 2001                               Age 69
Chairman Emeritus, Phelps Dodge Corporation and Non-Executive Chairman, Lockheed Martin Corporation

Mr. Yearley graduated from Cornell University with a Bachelor's degree in metallurgical engineering and attended the Program for Management Development at Harvard Business School. He joined Phelps Dodge in 1960 in project development. He held several key positions before being elected Executive Vice President and a director in 1987, Chairman and Chief Executive Officer in 1989 and President in 1991. He retired in May, 2000. He is a director of Marathon Oil Corporation, Lockheed Martin Corporation and Heidrick & Struggles International, Inc. He was a director of J.P. Morgan & Co. Incorporated and Morgan Guaranty Trust Company of New York from 1993 to 2000, and Southern Peru Copper Corporation from 1991 to 2000. He is a member of the National Council of the World Wildlife Fund and a graduate member of The Business Council.

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Nominee for Class III Director

THOMAS J. USHER PHOTO   Thomas J. Usher                                    Director since 2001                               Age 62
Chairman of the Board of Directors
United States Steel Corporation

Mr. Usher graduated from the University of Pittsburgh with a BS degree in industrial engineering, an MS degree in operations research and a Ph.D. in systems engineering. He joined U. S. Steel in 1965 and held various positions in industrial engineering. From 1975 through 1979, he held a number of management positions at U. S. Steel's South and Gary Works. He was elected Executive Vice President-Heavy Products in 1986, President-U. S. Steel Group and director of USX in 1991, President & Chief Operating Officer of USX in 1994 and Chairman of the Board & Chief Executive Officer of USX effective July 1, 1995. He became Chairman & CEO of U. S. Steel effective December 31, 2001 and retired as CEO on September 30, 2004. He is Chairman of the Board of Directors of Marathon Oil Corporation and a director of H. J. Heinz Co., PNC Financial Services Group, and PPG Industries, Inc.
  
If re-elected to the Board, Mr. Usher will be moved into Class III, which currently has only three directors. U. S. Steel's Certificate of Incorporation requires that each class of directors must consist, as nearly as possible, of one-third of the directors. Because of the Board's desire to present Mr. Gephardt to the shareholders for a vote this year, he was nominated by the Board for membership in Class I, which would give Class I five of the 12 directors. Moving Mr. Usher to Class III would correct this imbalance by placing four directors in each class. At the same time, it would cause the expiration of Mr. Usher's term to coincide with his scheduled retirement from the Board under the terms of his Employment and Consulting Agreement (see pages 49-50).

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Continuing Class II Directors
Terms Expire 2006

J. GARY COOPER PHOTO   J. Gary Cooper                                       Director since 2001                               Age 68
Chairman and Chief Executive Officer, Commonwealth National Bank
(commercial bank)

Ambassador Cooper graduated from the University of Notre Dame with a BS degree in finance and attended Harvard University's Senior Managers in Government program. He was awarded an honorary doctor of law degree from Troy University. A retired Major General in the U.S. Marine Corps, Ambassador Cooper was twice elected to the Alabama legislature, was commissioner of the Alabama Department of Human Resources and was appointed Assistant Secretary of the Air Force during the George H. W. Bush administration. He was the United States Ambassador to Jamaica from 1994 to 1997. Ambassador Cooper is a director of PNC Financial Services Group, GenCorp Inc. and Protective Life Corporation.


 

FRANK J. LUCCHINO PHOTO   Frank J. Lucchino                                  Director since 2003                               Age 65
Judge, Orphans' Court Division, Court of Common Pleas, Allegheny County, Pennsylvania

Judge Lucchino earned a Bachelor's degree in engineering in 1961, and a law degree in 1964, from the University of Pittsburgh. He is an alumnus of Harvard Business School's Executive Education program on corporate governance. He served on the boards of National Steel Corporation and Allegheny Teledyne Incorporated. Judge Lucchino currently serves as a judge in the Orphans' Court Division of the Court of Common Pleas in Allegheny County, Pennsylvania. Prior to being elected to the Court, he was a senior partner at the law firm of Grogan, Graffam, McGinley and Lucchino in Pittsburgh, Pennsylvania. He also served five four-year terms as Allegheny County Controller, an elected position. In 1993, Judge Lucchino was named to the United States National Commission on Libraries and Information Science (NCLIS) by President Clinton and was confirmed by the Senate. He served on the Commission until July 1999.

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SETH E. SCHOFIELD PHOTO   Seth E. Schofield                                   Director since 2001                               Age 65
Retired Chairman and Chief Executive Officer, USAir Group

Mr. Schofield graduated from the Harvard Business School Program for Management Development in 1975. He served in various corporate staff positions after joining USAir in 1957 and became Executive Vice President-Operations in 1981. Mr. Schofield served as President and Chief Operating Officer from 1990 until 1991. He was elected President and Chief Executive Officer in 1991 and became Chairman of the boards of USAir Group and USAir, Inc. in 1992. He retired in January 1996. Mr. Schofield is a director of Marathon Oil Corporation and Calgon Carbon Corporation. He is also an Advisory Board member of Desai Capital Management.


 

JOHN P. SURMA PHOTO   John P. Surma                                        Direct or since 2001                               Age 50
President and Chief Executive Officer
United States Steel Corporation

Mr. Surma received a BS degree in accounting from Pennsylvania State University in 1976 and joined Price Waterhouse LLP at that time. He joined Marathon Oil Company in February, 1997 as Senior Vice President, Finance and Accounting. He was named Senior Vice President, Finance & Administration in January 1998; President of Speedway SuperAmerica LLC in September 1998, and Senior Vice President, Supply & Transportation in January 2000. Effective January 1, 2001 he became President of Marathon Ashland Petroleum LLC, and in September 2001 Mr. Surma was elected Assistant to the Chairman of USX Corporation. He became Vice Chairman and Chief Financial Officer of U. S. Steel effective December 31, 2001, President and Chief Operating Officer effective March 1, 2003 and President and Chief Executive Officer effective October 1, 2004. Mr. Surma is a director of Calgon Carbon Corporation and Mellon Financial Corporation. He is also Chairman of the American Iron and Steel Institute, a member of the Executive Committee of the International Iron and Steel Institute, a member of the Board of Directors of the National Association of Manufacturers, a member of the Board of Directors and of the Executive Committee of the Allegheny Conference on Community Development, a member of the Board of Visitors of the Smeal College of Business at Penn State University, a member of the Board of Visitors of the Katz School of Business of the University of Pittsburgh, and a member of the American Institute of Certified Public Accountants.

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Continuing Class III Directors
Terms Expire 2007

ROBERT J. DARNALL PHOTO   Robert J. Darnall                                   Director since 2001                               Age 66
Retired Chairman and Chief Executive Officer, Inland Steel Industries

Mr. Darnall graduated from DePauw University with a BA degree in mathematics, from Columbia University with a BS degree in civil engineering and from the University of Chicago with an MBA. He began his career with Inland Steel Industries in 1962. He was elected Executive Vice President in 1982 and at that time joined Inland's Board of Directors. In 1986 Mr. Darnall became President and Chief Operating Officer. In 1992 he became Chairman, President and Chief Executive Officer. He retired as Chairman and Chief Executive Officer in 1998 and immediately joined Ispat International N.V., which acquired Inland Steel Company in 1998, as head of their North American operations. Mr. Darnall left Ispat in 2000 and soon thereafter became Chairman and Interim CEO of Prime Advantage Corporation, a procurement services startup. He left Prime Advantage in January 2002. Mr. Darnall is a director of Cummins, Inc., HSBC Finance Corporation (whose board he will leave on March 15, 2005), HSBC North American Holdings Inc., Pactiv Corporation and Sunoco, Inc. He is also former Chairman of the American Iron and Steel Institute.


 

CHARLES R. LEE PHOTO   Charles R. Lee                                       Director since 2001                               Age 65
Retired Chairman, Verizon Communications (telecommunications)

Mr. Lee received a Bachelor's degree in metallurgical engineering from Cornell University and an MBA with distinction from the Harvard Graduate School of Business. He served in various financial and management positions before becoming Senior Vice President-Finance for Penn Central Corporation and then Columbia Pictures Industries Inc. In 1983 he joined GTE Corporation (which merged with Bell Atlantic Corporation to form Verizon Communications in 2000) as Senior Vice President of Finance and in 1986 was named Senior Vice President of Finance and Planning. He was elected President, Chief Operating Officer and director in December 1988 and was elected Chairman of the Board and Chief Executive Officer of GTE in May 1992. Mr. Lee served as Chairman and Co-CEO of Verizon from June 2000 to March 2002 and as Non-Executive Chairman until December 31, 2003. Mr. Lee is a director of Marathon Oil Corporation, The Procter & Gamble Company, United Technologies Corporation and DirecTV Group.

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JOHN G. DROSDICK PHOTO   John G. Drosdick                                   Director since 2003                               Age 61
Chairman, Chief Executive Officer and President, Sunoco, Inc.
(petroleum and petrochemical products)

Mr. Drosdick graduated from Villanova University with a BS degree in chemical engineering and received a Master's in chemical engineering from the University of Massachusetts. Mr. Drosdick began his career with Exxon Corporation in 1968 and held a wide variety of management positions. He was named President of Tosco Corporation in 1987 and President of Ultramar Corporation in 1992. In 1996 Mr. Drosdick became President and Chief Operating Officer of Sunoco and was elected Chairman in May 2000. He is a director of Lincoln National Corporation and Chairman of the Board of Sunoco Partners LLC, which is the general partner of Sunoco Logistic Partners L.P., a master limited partnership in which Sunoco, Inc. has a 62.6% interest.

Proposal No. 2


Election of Independent Registered Public Accounting Firm

PricewaterhouseCoopers LLP (PwC) has served as the independent auditor (now referred to as the independent registered public accounting firm) of U. S. Steel since its creation in 2001 and served as the independent auditor of USX Corporation, which included the U. S. Steel Group, for many years. We believe that their knowledge of U. S. Steel's business and its organization gained through this period of service is quite valuable. Partners and employees of PwC assigned to the U. S. Steel engagement are periodically rotated, thus giving U. S. Steel the benefit of new thinking and approaches in the audit area. We expect representatives of PwC to be present at the meeting with an opportunity to make a statement if they desire to do so and to be available to respond to appropriate questions.

For the year 2004, PwC performed professional services for U. S. Steel in connection with audits of the financial statements of U. S. Steel, and of U. S. Steel's internal control over financial reporting as of December 31, 2004, and audits of certain subsidiaries and certain pension and other employee benefit plans. PwC has also reviewed quarterly reports and other filings with the Securities and Exchange Commission and other agencies.

The Board recommends a vote for the election of PwC as our independent registered public accounting firm.

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Proposal No. 3


Approval of 2005 Stock Incentive Plan

The Board recommends the 2005 Stock Incentive Plan (the "Stock Plan") for your approval. If approved by stockholders, the Stock Plan will be available for awards to employees, non-employee directors and other service providers of U. S. Steel, its subsidiaries and affiliates. The affirmative vote of the stockholders is required for approval of the Stock Plan.

The Stock Plan will be used in addition to the United States Steel Corporation 2002 Stock Plan (the "2002 Plan"). In that regard, the Board has amended the 2002 Plan, contingent and effective upon your approval of the Stock Plan. The amendment will reduce the number of shares of U. S. Steel common stock which may be issued under the 2002 Plan to 1,000,000 shares, of which no more than 125,000 may be granted in the form of restricted stock and other non-option forms of awards. The 2002 Plan will terminate on December 31, 2006.

The Board of Directors believes that you should approve the Stock Plan because it encourages eligible participants to increase their efforts to help make U. S. Steel more successful and aligns their interests with those of U. S. Steel's stockholders.

The following is a summary of the main features of the Stock Plan; however, before voting, you may want to read the entire Stock Plan, which is attached hereto as Appendix B.

Summary of the 2005 Stock Incentive Plan

The purposes of the Stock Plan are

Employees, non-employee directors and other service providers of U. S. Steel or any subsidiary or affiliate are eligible to receive awards under the Stock Plan.

The aggregate number of shares of U. S. Steel common stock which may be issued under the Stock Plan is 6,750,000 shares, subject to proportionate adjustment in the event of stock splits and similar events. For purposes of measuring the number of shares issued under the Stock Plan pursuant to awards granted, a share issued under the Plan pursuant to an award other than a stock option or purchase right, in which the participant pays the fair market value for such share measured as of the grant date, or appreciation right which is based on the fair market value of a share as of the grant date, will reduce the number of shares available under the Stock Plan by 1.42 shares. No awards may be granted under the Stock Plan subsequent to April 25, 2015.

Administration

Except in the case of awards to non-employee directors, the Stock Plan will be administered by a committee of the Board consisting of at least three members of the Board. Each member of the committee must be an "outside director" as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), a "non-employee director" as defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and an "independent" director under the rules of the New York Stock Exchange. In the case of awards to non-employee directors, the Stock Plan will be administered by the Board. As used in this proposal, the term "Committee" is used to refer to the Board in the case of awards to non-employee directors, or the three-member committee described above in the case of awards to employees and other service providers.

The Committee has full authority, in its discretion, to interpret the Stock Plan and to determine the persons who will receive awards and the number of shares to be covered by each award. It is expected that all employees and all non-employee directors will be eligible

23



for participation under the Stock Plan. Currently U. S. Steel has approximately 43,000 employees and nine non-employee directors.

The types of awards which the Committee has authority to grant are (1) stock options, (2) restricted stock, (3) performance awards and (4) other stock-based awards. Each of these types of awards is described below.

Stock Options

The Stock Plan provides for the grant of stock options. The option price for each stock option may not be less than 100% of the fair market value of U. S. Steel's common stock on the date the stock option is granted. Fair market value, for purposes of the Stock Plan, is generally the mean between the publicly reported high and low sale prices per share of U. S. Steel's common stock for the date as of which fair market value is to be determined. On February 28, 2005 the fair market value of a share of U. S. Steel's common stock, as so computed, was $62.67.

A stock option becomes exercisable at such time or times and/or upon the occurrence of such event or events as the Committee may determine. No stock option may be exercised after the expiration of ten years from the date of grant.

The option price for each stock option will be payable to U. S. Steel in full in cash at the time of exercise; however, in lieu of cash the holder of an option may, if authorized by the Committee, pay the option price in whole or in part by delivering to U. S. Steel shares of U. S. Steel's common stock having a fair market value on the date of exercise of the stock option equal to the option price for the shares being purchased, except that any portion of the option price representing a fraction of a share must be paid in cash, and no shares of U. S. Steel's common stock which have been held less than six months may be delivered in payment of the option price of a stock option.

No stock option granted under the Stock Plan is transferable other than by will or by the laws of descent and distribution, and a stock option may be exercised during an optionee's lifetime only by the optionee.

The maximum aggregate number of shares of U. S. Steel's common stock which shall be available for the grant of stock options to any one individual under the Stock Plan during any calendar year shall be limited to 1,000,000 shares.

Subject to the foregoing and the other provisions of the Stock Plan, stock options granted under the Stock Plan to participants may be exercised at such times and in such amounts and be subject to such restrictions and other terms and conditions, if any, as shall be determined, in its discretion, by the Committee.

Restricted Stock

Restricted shares of U. S. Steel's common stock awarded by the Committee will be subject to such restrictions (which may include restrictions on the right to transfer or encumber the shares while subject to restriction) as the Committee may impose and will be subject to forfeiture in whole or in part if certain events (which may, in the discretion of the Committee, include termination of employment and/or performance-based events) specified by the Committee occur prior to the lapse of the restrictions. The restricted stock agreement between U. S. Steel and the awardee will set forth the number of shares of restricted stock awarded to the awardee, the restrictions imposed thereon, the duration of such restrictions, the events the occurrence of which would cause a forfeiture of the restricted stock in whole or in part and such other terms and conditions as the Committee in its discretion deems appropriate. The restriction period applicable to restricted stock may not be less than three years, with ratable vesting over such period, in the case of a time-based restriction, or one year in the case of a performance-based restriction.

Following a restricted stock award and prior to the lapse or termination of the applicable restrictions, share certificates for the restricted stock will be held in escrow. Upon the lapse or termination of the restrictions (and not before), the share certificates will be delivered

24



to the awardee. From the date a restricted stock award is effective, however, the awardee will be a stockholder with respect to the restricted stock and will have all the rights of a stockholder with respect to such shares, including the right to vote the shares and to receive all dividends and other distributions paid with respect to the shares, subject only to the restrictions imposed by the Committee.

Performance Awards

A performance award granted by the Committee under the Stock Plan shall represent a right to receive shares of U. S. Steel's common stock, based on the achievement, or the level of achievement, during a specified performance period of one or more performance goals established by the Committee at the time of the award.

At or prior to the time a performance award is granted, the Committee shall set forth in writing (1) the performance goals applicable to the award and the performance period during which the achievement of the performance goals shall be measured, (2) the amount which may be earned by the participant based on the achievement, or the level of achievement, of the performance goals or the formula by which such amount shall be determined and (3) such other terms and conditions applicable to the award as the Committee may, in its discretion, determine. The terms so established by the Committee shall be objective such that a third party having knowledge of the relevant facts could determine whether or not any performance goal has been achieved, or the extent of such achievement, and the amount, if any, which has been earned by the participant based on such performance. The Committee may retain the discretion to reduce (but not to increase) the amount of a performance award which will be earned based on the achievement of performance goals. When the Performance Goals are established, the Committee shall also specify the manner in which the level of achievement of such Performance Goals shall be calculated and the weighting assigned to such Performance Goals. The Committee may determine that unusual items or certain specified events or occurrences, including changes in accounting standards or tax laws and the effects of non-operational items or extraordinary items as defined by generally accepted accounting principles, shall be excluded from the calculation to the extent permitted in Section 162(m).

Performance goals shall mean one or more preestablished, objective measures of performance during a specified performance period, selected by the Committee in its discretion. Performance goals may be based on one or more of the following objective performance measures and expressed in either, or a combination of, absolute or relative values: safety performance, earnings per share, earnings per share growth, return on capital employed, costs, net income, net income growth, operating margin, revenues, revenue growth, revenue from operations, expenses, income from operations as a percent of capital employed, income from operations, income from operations per ton shipped, tons shipped, cash flow, market share, return on equity, return on assets, earnings (including EBITDA and EBIT), operating cash flow, operating cash flow as a percent of capital employed, economic value added, gross margin, total shareholder return, toxic emissions improvement, workforce diversity, number of accounts, workers' compensation claims, budgeted amounts, cost per hire, turnover rate, and/or training costs and expenses. Performance goals based on such performance measures may be based either on the performance of U. S. Steel, a subsidiary or subsidiaries, any branch, department, business unit or other portion thereof under such measure for the performance period and/or upon a comparison of such performance with the performance of a peer group of corporations, prior performance periods or other measure selected or defined by the Committee at the time of making a performance award. The Committee may in its discretion also determine to use other objective performance measures as performance goals.

Following completion of the applicable performance period, and prior to any payment of a performance award to the participant, the Committee shall determine in accordance with the terms of the performance award and shall certify in writing whether the applicable performance goal or goals were achieved, or the level of such achievement, and the amount, if any, earned by the participant based upon such performance. Performance

25



awards are not intended to provide for the deferral of compensation. Accordingly, payment of performance awards will be made within two and one-half months following the end of the calendar year in which the performance period ends or such other time period if and to the extent as may be required to avoid characterization of such awards as deferred compensation. Performance periods under the Stock Plan will be each calendar year, unless otherwise determined by the Committee in its discretion. The first performance period under the Stock Plan will begin on January 1, 2006.

In any one calendar year, the maximum amount which may be earned by any single participant under performance awards granted under the Stock Plan shall be limited to 1,000,000 shares. In the case of multi-year performance periods, the amount which is earned in any one calendar year shall be the amount paid for the performance period divided by the number of calendar years in the period. In applying this limit, the number of shares of common stock earned by the participant shall be measured as of the close of the applicable calendar year which ends the performance period, regardless of the fact that certification by the Committee and actual payment to the participant may occur in a subsequent calendar year or years.

Performance awards granted by the Committee under the Stock Plan are intended to qualify for the "performance based compensation" exception from the $1 million cap on deductibility of executive compensation imposed by Section 162(m) of the Code. Because U. S. Steel has retained the discretion to change specific performance targets, shareholder re-approval of the Stock Plan will be required in the future under regulations issued pursuant to Section 162(m) of the Code, currently every five years. Thus, absent additional stockholder approval, no performance award may be granted under the Stock Plan subsequent to U. S. Steel's annual meeting of stockholders in 2010.

Other Stock-Based Awards

The Committee shall be authorized, subject to limitations under applicable law, to grant to eligible employees, in lieu of salary or cash bonus, such other awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, shares of common stock, as deemed by the Committee to be consistent with the purposes of the Stock Plan, including, without limitation, purchase rights, appreciation rights, shares of common stock awarded without restrictions or conditions, convertible securities, exchangeable securities or other rights convertible or exchangeable into shares of common stock, as the Committee in its discretion may determine. In the discretion of the Committee, such other stock-based awards, including shares of common stock, or other types of awards authorized under the Stock Plan, may be used in connection with, or to satisfy obligations of U. S. Steel or a subsidiary under, other compensation or incentive plans, programs or arrangements of U. S. Steel or any subsidiary for eligible employees, including without limitation the 2005 Annual Incentive Compensation Plan, the Deferred Compensation Plan for Non-Employee Directors, the Non-Employee Director Stock Plan or other successor programs and executive contracts.

The Committee shall determine the terms and conditions of other stock-based awards. Any shares of common stock or securities delivered pursuant to a purchase right granted under the Stock Plan shall be purchased for such consideration, paid for by such methods and in such forms, including, without limitation, cash, shares of common stock, or other property or any combination thereof, as the Committee shall determine. However, the value of such consideration shall not be less than the fair market value of such shares of common stock or other securities on the date of grant of the purchase right. Appreciation rights may not be granted at a price less than the fair market value of the underlying shares on the date of grant.

Change of Control

Unless otherwise determined by the Committee, if the stockholders of U. S. Steel shall approve a transaction which upon consummation would constitute a change of control, as defined in the Stock Plan, or if any change of control not subject to stockholder approval

26



shall occur (1) all outstanding stock options, and other awards under which the participant may have rights the exercise of which is restricted or limited, shall become fully exercisable, (2) all restrictions or limitations, including risks of forfeiture and deferrals, on restricted stock or other awards subject to restrictions or limitations under the Stock Plan shall lapse and (3) all performance goals applicable to performance awards, and any other conditions to payment of any awards under which payment is subject to conditions shall be deemed to be achieved or fulfilled and shall be waived by U. S. Steel.

Additional Rights in Certain Events

If within three years after any change of control the employment of a participant is terminated voluntarily or involuntarily for any reason other than for cause, as defined in the Stock Plan, then unless otherwise provided in the participant's award agreement, and in addition to any other rights of post-termination exercise which may be applicable, any stock option or other award outstanding on the date of the change of control the payment or receipt of which is dependent upon exercise by the holder of the award shall be exercisable following the date of termination of employment until the expiration date of the option or other award.

Possible Anti-Takeover Effect

The provisions of the Stock Plan providing for the acceleration of the exercise date of stock options, and the lapse of restrictions applicable to awards upon the occurrence of a Change of Control and for the extension of the period during which stock options and other awards may be exercised upon termination of employment following a Change of Control may be considered by some as having an anti-takeover effect.

Miscellaneous

Except to the extent otherwise determined by the Committee, no award and no rights or interests therein shall be assignable or transferable by a participant otherwise than by will or the laws of descent and distribution, and any stock option or other right to purchase or acquire shares of common stock granted to a participant under the Stock Plan shall be exercisable during the participant's lifetime only by such participant.

The Board of Directors may amend, suspend or terminate the Stock Plan at any time without stockholder approval except to the extent that stockholder approval is required by law or stock exchange rules or if the amendment, alteration or other change materially increases the benefits accruing to participants, increases the number of shares available under the Stock Plan or modifies the requirements for participation under the Stock Plan or if the Board determines that stockholder approval is advisable. Without the consent of the participant, no amendment, suspension or termination of the Stock Plan or any award may materially and adversely affect the rights of such participant under any previously granted award.

Nothing contained in the Stock Plan shall prevent U. S. Steel from adopting other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases.

New Plan Benefits

The actual amount of awards to be received by or allocated to participants or groups under the Stock Plan is not determinable in advance because the selection of participants who receive awards under the Stock Plan, and the size and type of awards, are generally determined by the Committee in its discretion.

27


Equity Compensation Plan Information

Plan Category

  (a) Number of
securities to
be issued upon
exercise of
outstanding options,
warrants and rights

  (b) Weighted-average
exercise price of
outstanding options,
warrants and rights

  (c) Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected
in column (a))


Equity compensation plans approved by security holders (see Note (i))

 

2,280,255

 

$30.08

 

7,112,857
(see Note ii)

 

 

 

 

 

 

 

Equity compensation plans not approved by security holders (see Note (iii))

 

52,096

 

(see Note (iii))

 

(see Note (iii))

 

 



 

 

 



Total

 

2,332,351

 


 

(see Note (iii))

 

 



 

 

 



Note (i):   The numbers in columns (a) and (b) of this row reflect all shares that could potentially be issued under the U. S. Steel 2002 Stock Plan as of December 31, 2004. (Because the outstanding options under the USX Corporation 1990 Stock Plan were converted to options under the U. S. Steel 2002 Stock Plan at the time of separation from Marathon Oil Corporation (formerly USX Corporation), these numbers include shares that may be issued as a result of grants originally made under the USX 1990 Stock Plan.)

Note (ii):

 

On February 22, 2005, U. S. Steel's Board of Directors amended the 2002 Stock Plan to reduce the number of shares available for grants under the Plan to 1,000,000 shares (from 7,112,857 shares) with no more than 125,000 shares of the 1,000,000 shares to be granted in any form other than options. This amendment is subject to and effective upon shareholder approval of the 2005 Stock Incentive Plan as submitted to shareholders in this proxy statement.

Note (iii):

 

At December 31, 2004, U. S. Steel had three equity compensation plans that had not been approved by security holders; they were (1) the Deferred Compensation Plan for Non-Employee Directors, (2) the Non-Employee Director Stock Plan and (3) the Non-Officer Restricted Stock Plan. The weighted average exercise price for the Deferred Compensation Plan for Non-Employee Directors is one for one; that is, one share of common stock will be given in exchange for each unit of phantom stock accumulated through the date of the director's retirement. A number of securities available for future issuance under the plans cannot be included in column (c) because the plans do not limit the number of shares authorized for issuance other than by the formulas pursuant to which shares are issued under the plans.

 

 

The Non-Employee Director Stock Plan provides that each new non-employee director may receive a grant of up to 1,000 shares of U. S. Steel common stock. In order to qualify, a director must first purchase an equivalent number of shares in the open market during the 60 days following the first date of his or her service on the Board.

 

 

The Non-Employee Director Stock Plan and the Non-Officer Restricted Stock Plan have been suspended for purposes of future grants.

28


Federal Income Tax Consequences

The following is a brief summary of the principal Federal income tax consequences of the grant and exercise of awards under present law.

        Nonstatutory Stock Options.    An optionee will not recognize any taxable income for Federal income tax purposes upon receipt of a nonstatutory stock option. Upon the exercise of a nonstatutory stock option the amount by which the fair market value of the shares received, determined as of the date of exercise, exceeds the option price will be treated as compensation received by the optionee in the year of exercise. If the option price of a nonstatutory stock option is paid in whole or in part with shares of U. S. Steel's common stock, no income, gain or loss will be recognized by the optionee on the receipt of shares equal in value on the date of exercise to the shares delivered in payment of the option price. The fair market value of the remainder of the shares received upon exercise of the nonstatutory stock option, determined as of the date of exercise, less the amount of cash, if any, paid upon exercise will be treated as compensation income received by the optionee on the date of exercise of the stock option.

Except as described in "Other Tax Matters" below, U. S. Steel or one of its subsidiaries generally will be entitled to a deduction for compensation paid in the same amount treated as compensation received by the optionee.

        Restricted Stock.    An awardee of restricted stock will not recognize any taxable income for Federal income tax purposes in the year of the award, provided the shares are subject to restrictions (that is, they are nontransferable and subject to a substantial risk of forfeiture). However, an awardee may elect under Section 83(b) of the Code to recognize compensation income in the year of the award in an amount equal to the fair market value of the shares on the date of the award, determined without regard to the restrictions. If the awardee does not make a Section 83(b) election, the fair market value of the shares on the date the restrictions lapse will be treated as compensation income to the awardee and will be taxable in the year the restrictions lapse. Except as described in "Other Tax Matters" below, U. S. Steel or one of its subsidiaries generally will be entitled to a deduction for compensation paid in the same amount treated as compensation income to the awardee.

        Performance Awards.    An employee who receives a performance award will not recognize any taxable income for Federal income tax purposes upon receipt of the award. Any shares of common stock received pursuant to the award will be treated as compensation income received by the employee generally in the year in which the employee receives such shares of common stock. U. S. Steel generally will be entitled to a deduction for compensation paid in the same amount treated as compensation income to the awardee.

        Other Tax Matters.    The exercise by an employee of a stock option, the lapse of restrictions on restricted stock, or the deemed achievement or fulfillment of performance awards following the occurrence of a change of control, in certain circumstances, may result in (i) a 20% Federal excise tax (in addition to Federal income tax) to the awardee on certain payments of common stock resulting from such exercise or deemed achievement or fulfillment of performance awards or, in the case of restricted stock, on all or a portion of the fair market value of the shares on the date the restrictions lapse and (ii) the unavailability of a compensation deduction which would otherwise be allowable to U. S. Steel as explained above. Except for stock options and performance awards that meet the requirements of the Stock Plan and are based on the performance measures described therein, U. S. Steel may not be eligible for a compensation deduction which would otherwise be allowable for compensation paid to any employee if, as of the close of the tax year, the employee is the chief executive officer of U. S. Steel or is among the four other highest compensated officers for that tax year for whom compensation is required to be reported to stockholders under the Securities Exchange Act, as amended, to the extent the total compensation paid to such employee exceeds $1,000,000.

        Additional Information.    U. S. Steel expects that stock options and performance awards under the Stock Plan will qualify as performance-based compensation that is

29



exempt from the $1,000,000 annual deduction limit (for Federal income tax purposes) of compensation paid by public corporations to each of the Corporation's chief executive officer and four other most highly compensated executive officers in each fiscal year, which limit is imposed by Code Section 162(m). Because of ambiguities and uncertainties as to the application and interpretation of Code Section 162(m) and the regulations issued thereunder, no assurance can be given, notwithstanding U. S. Steel's efforts, that compensation intended by U. S. Steel to satisfy the requirements for deductibility under Code Section 162(m) will in fact do so.

The Board recommends a vote for the adoption of the 2005 Stock Incentive Plan.

Proposal No. 4


Approval of 2005 Annual Incentive Compensation Plan

The Board recommends the 2005 Annual Incentive Compensation Plan (the "Incentive Plan") for your approval. The Incentive Plan includes, among other things, the requirement to pay incentive awards in the form of cash and provisions that protect U. S. Steel's ability to take a tax deduction for performance-based awards made under the Incentive Plan, in conformance with section 162(m) of the Internal Revenue Code (the "Code") and related regulations, in case certain executive officers who are awardees individually have more than $1,000,000 of compensation in any one year. In accordance with Code section 162(m), if the Incentive Plan is not approved, no awards would be made under the Incentive Plan to the Chief Executive Officer or any of the other four highest compensated executive officers of U. S. Steel. If the Incentive Plan is approved, it will commence with the 2006 performance year and the Senior Executive Annual Incentive Compensation Plan and the Annual Incentive Compensation Plan will terminate following the 2005 performance year.

The Board believes that you should approve the new Incentive Plan because it encourages eligible participants to increase their efforts to help make U. S. Steel more successful and to remain in our employment by providing them the opportunity to earn incentive payments upon the achievement of established performance goals.

The following is a summary of the main features of the 2005 Annual Incentive Compensation Plan; however, before voting you may want to read the entire Incentive Plan, which is attached hereto as Appendix C.

Summary of the 2005 Annual Incentive Compensation Plan

The purpose of the Incentive Plan is to provide for an incentive payment opportunity to executive management of U. S. Steel and its subsidiaries and affiliates, which may be earned upon the achievement of established performance goals over a one year time period. By placing a portion of compensation at risk and by providing an incentive payment opportunity based upon performance goals, U. S. Steel can reward performance based on the overall performance of U. S. Steel and the individual contribution of each executive employee.

Administration

The Incentive Plan will be administered by the Compensation & Organization Committee (the "Committee") of U. S. Steel's Board of Directors. The Committee consists solely of directors who are (1) "outside directors" within the meaning of Code section 162 (m), (2) non-employee directors within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, and (3) "independent" directors under the rules of the New York Stock Exchange. The Committee will have the power to designate eligible employees and service providers for participation, determine the performance goals and incentive targets, approve payment of all incentive awards, review and approve amendments, and make all necessary determinations under the Incentive Plan. Decisions of the Committee regarding the Incentive Plan will be final and conclusive.

30



Eligibility

Participants under the Incentive Plan will be any employees or other service providers of U. S. Steel or its subsidiaries and affiliates, including U. S. Steel's President and Chief Executive Officer and any other senior executive officers who are, or may be, "covered employees" as defined in Code section 162(m)(3). Initially, 16 senior officers will be eligible to participate in the Incentive Plan.

Performance Periods and Performance Goals

There will be one-year performance periods under the Incentive Plan. A new performance period will begin on January 1 of each calendar year and end on December 31 of that calendar year. Within ninety (90) days after the beginning of each performance period, the Committee will establish specific performance goals for the period. The performance goals are the specific targets and objectives established by the Committee under one or more, or a combination of, absolute or relative values or rates of change in any of the following objective performance measures:

The Committee may establish one of the performance goals as a threshold performance goal for U. S. Steel. Additionally, the Committee may base one or more of the goals on the performance of U. S. Steel, one or more subsidiaries, affiliates, branches, departments, business units or portions thereof, or the performance of a participant, and/or upon a comparison with performance of a peer group of corporations, prior performance periods or other measures selected or defined by the Committee.

At the commencement of each performance period, the Committee will also establish a schedule of incentive targets, setting forth the amount to be paid based on the extent to which the performance goals for the performance period are actually achieved. The incentive targets may be expressed as a percentage of a participant's base salary, or other measure specified by the Committee, in effect at the time the performance goal is established. Results against the performance goals will be determined and measured by an objective calculation method established by the Committee at the time of establishment of the performance goals, except that the Committee may determine, at the time the performance goals are established, that unusual items or certain specified events or occurrences, including changes in accounting standards or tax laws and the effects of non-operational items or extraordinary items as defined by generally accepted accounting principles, will be excluded from the calculation of the performance goal.

Payment of any incentive award under the Incentive Plan will be contingent upon the attainment of the pre-established performance goals. The amount of any incentive award paid may not exceed the incentive target established. The Committee may not increase any incentive target or incentive award payable. The Committee may, however, reduce or eliminate any incentive target or incentive award payable, provided that the action will not result in any increase in the amount of any incentive target or incentive award payable to any other Incentive Plan participant.

Payment of Incentive Awards

Incentive awards will be paid in cash within two and one-half months following the end of the performance period and after the Committee has determined and certified in writing

31



the extent to which the performance goals were attained and the incentive awards were earned.

The maximum amount payable in cash to any one participant under the Incentive Plan in any calendar year will be $5,000,000. Additionally, the Committee will retain discretion to reduce or eliminate the incentive awards payable to any participant under the Incentive Plan.

Amendment or Termination of Incentive Plan

The Incentive Plan shall remain in effect until it is terminated by U. S. Steel. U. S. Steel may amend or terminate the Incentive Plan at any time. Because U. S. Steel will retain the discretion to change specific performance targets, shareholder re-approval of the Incentive Plan will be required in the future under the regulations issued pursuant to Code section 162(m), which currently require such re-approval every five years.

Additional Information

U. S. Steel expects to award performance-based compensation under the Incentive Plan that is exempt from the $1,000,000 annual deduction limit (for Federal income tax purposes) of compensation paid by public corporations to each of the Corporation's chief executive officer and four other most highly compensated executive officers in each fiscal year, which limit is imposed by Code section 162(m). Because of ambiguities and uncertainties as to the application and interpretation of Code section 162(m) and the regulations issued thereunder, no assurance can be given, notwithstanding U. S. Steel's efforts, that compensation intended by U. S. Steel to satisfy the requirements for deductibility under Code section 162(m) will in fact do so.

New Plan Benefits

The actual amount of compensation to be paid to participants under the Incentive Plan is not determinable in advance because specific performance criteria and targets will be selected each year by the Committee and it is substantially uncertain what levels of performance will be realized against such criteria and targets. The awards earned in 2004 under the prior plan reflect the performance of the Corporation and such individuals for the 2004 performance year and are not necessarily indicative of awards that U. S. Steel may make in the future.

The Board recommends a vote for the adoption of the 2005 Annual Incentive Compensation Plan.

32


Audit & Finance Committee Report

Our committee has reviewed and discussed U. S. Steel's audited financial statements for 2004 with U. S. Steel's management. We have discussed with the independent registered public accounting firm, PricewaterhouseCoopers LLP (PwC), the matters required to be discussed by Statements on Auditing Standards No. 61, as amended by Statements No. 89 and No. 90 (Communication with Audit Committees). We also discussed with U. S. Steel's management (i) management's assessment of the effectiveness of U. S. Steel's internal control over financial reporting as of December 31, 2004 ("Management's Assessment"); (ii) PwC's opinion of Management's Assessment and (iii) PwC's opinion of the effectiveness of U. S. Steel's internal control over financial reporting as of December 31, 2004. We have received the written disclosures and the letter from PwC required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and we have discussed with PwC its independence. Based on the review and discussions referred to above, we recommended to the Board that the audited financial statements for U. S. Steel be included in U. S. Steel's Annual Report on Form 10-K for 2004 for filing with the Securities and Exchange Commission.

Charles R. Lee, Chairman
J. Gary Cooper
Robert J. Darnall
John G. Drosdick
Shirley Ann Jackson
Frank J. Lucchino
Seth E. Schofield
Douglas C. Yearley

33



Information Regarding the Independence of the Independent Registered Public Accounting Firm

Audit Fees

Aggregate fees for professional services rendered by PwC for the audit of U. S. Steel's annual financial statements and for its review of the financial statements included in U. S. Steel's Forms 10-Q were $5.20 million for 2004 and $ 2.72 million for 2003. For 2004, the services performed included a comfort letter related to an equity offering, the separate audits of the tubular businesses, the internal control attestations required under the Sarbanes-Oxley Act, the audit of U. S. Steel's annual financial statements, and the quarterly reviews of the financial statements included in U. S. Steel's Forms 10-Q.

Audit-Related Fees

Aggregate fees for assurance and related services by PwC that were reasonably related to the performance of the audit or review of U. S. Steel's financial statements and which are not reported under "Audit Fees" above were $303,000 for 2004 and $244,000 for 2003. The services performed were employee benefit plan audits, Sarbanes-Oxley consultations, and statutory accounting consultations.

Tax Fees

Aggregate fees for professional services rendered by PwC for tax compliance, tax advice, and tax planning were $177,000 in 2004 and $263,000 in 2003. The services performed were tax advice related to transactions, inventories, and interpretations of law; and local, state, federal and international tax compliance services.

All Other Fees

Aggregate fees for products and services provided by PwC, other than the services described in the previous three paragraphs, were $3,000 in 2004 and $3,000 in 2003. In 2004 and 2003 these fees related to a web-based accounting research tool.

Pre-Approval Policy

The Audit & Finance Committee (the "Committee") has the sole authority to pre-approve all audit engagement fees and terms as well as all non-audit engagements with PwC. The Committee has delegated to its chairman the authority to approve non-audit engagements of less than $500,000 between Committee meetings. In 2003 and 2004 all of the above services were pre-approved by the Committee in accordance with this pre-approval policy.

34



Security Ownership of Certain Beneficial Owners

The following table furnishes information concerning all persons known to U. S. Steel to beneficially own five percent or more of the voting stock of U. S. Steel:

        Class

  Name and Address
of
Beneficial Owner

  Amount and Nature
of
Beneficial Ownership

  Percent
of
Class

 

 
U. S. Steel Common
Stock
  Capital Research
and Management
Company and
The Growth Fund of America, Inc.
333 South Hope Street
Los Angeles, CA 90071
  9,447,000 (1)   8.3 (1)

U. S. Steel Common Stock

 

Appaloosa Investment Limited Partnership I; Palomino Fund Ltd.; Appaloosa Management L.P.; Appaloosa Partners Inc.; and David A. Tepper
26 Main Street
Chatham, NJ 07928

 

7,707,999 (2)

 

6.8

(2)

U. S. Steel Common Stock

 

AXA Assurances I.A.R.D. Mutuelle;
AXA Assurances Vie Mutuelle; and
AXA Courtage Assurance Mutuelle (collectively the "Mutuelles AXA")
26, rue Drouot
75009 Paris, France
AXA
25, avenue Matignon
75008 Paris, France
AXA Financial, Inc.
1290 Avenue of the Americas
New York NY 10104

 

7,284,286 (3)

 

6.4

(3)
(1)
Based on Schedule 13G dated February 9, 2005 which indicates that Capital Research and Management Company had sole voting power over no shares, shared voting power over no shares, sole dispositive power over 9,447,000 shares, and shared dispositive power over no shares; and that The Growth Fund of America, Inc. had sole voting power over 6,650,000 shares, shared voting power over no shares, sole dispositive power over no shares, and shared dispositive power over no shares. Capital Research and Management Company disclaimed beneficial ownership of 9,447,000 shares. The Growth Fund of America, Inc. reported beneficial ownership of 6,650,000 shares, or 5.8% of the outstanding U. S. Steel Common Stock.

(2)
Based on Schedule 13G/A dated February 1, 2005 which indicates that Appaloosa Investment Limited Partnership I had sole voting power over no shares, shared voting power over 4,168,062 shares, sole dispositive power over no shares and shared dispositive power over 4,168,062 shares; that Palomino Fund Ltd. had sole voting power over no shares, shared voting power over 2,539,937 shares, sole dispositive power over no shares and shared dispositive power over 2,539,937 shares; that Appaloosa Management L.P. had sole voting power over no shares, shared voting power over 6,707,999 shares, sole dispositive power over no shares and shared dispositive power over 6,707,999 shares; that Appaloosa Partners Inc. had sole voting power over no shares, shared voting power over 6,707,999 shares, sole dispositive power over no shares and shared dispositive power over 6,707,999 shares; and that David A. Tepper had sole voting power over 1,000,000 shares, shared voting power over 6,707,999 shares, sole dispositive power over 1,000,000 shares and shared dispositive power over 6,707,999 shares.

(3)
Based on Schedule 13G dated February 14, 2005 which indicates that each of the Mutuelles AXA, and AXA, each had sole voting power over 5,531,332 shares, shared voting power over 17,850 shares, sole dispositive power over 7,282,761 shares, and shared dispositive power over 1,525 shares; and that AXA Financial, Inc. had sole voting power over 4,994,118 shares, shared voting power over 17,850 shares, sole dispositive power over 6,439,347 shares and shared dispositive power over 1,525 shares. AXA Financial, Inc. reported beneficial ownership of 6,440,872 shares, or 5.7% of the outstanding U. S. Steel Common Stock. A majority of the shares reported in the Schedule 13G are held by unaffiliated third-party client accounts managed by Alliance Capital Management L.P. (a majority-owned subsidiary of AXA Financial, Inc.), as investment advisor.

35



Security Ownership of Directors, Nominees and Executive Officers

The following table sets forth the number of shares of U. S. Steel common stock beneficially owned as of January 31, 2005 by each director and director nominee, by each executive officer named in the Summary Compensation Table and by all directors and executive officers as a group. No director or executive officer beneficially owned, as of the applicable date, any equity securities of U. S. Steel other than those shown.

        Name

  Shares

 

John J. Connelly (1)(2)   112,972  
J. Gary Cooper (1)   1,060  
Robert J. Darnall   3,000  
Roy G. Dorrance (1)(2)   143,757  
John G. Drosdick   2,000  
Richard A. Gephardt (director nominee)   0  
John H. Goodish (1)(2)   188,779  
Gretchen R. Haggerty (1)(2)   235,872  
Shirley Ann Jackson (1)   1,045  
Charles R. Lee   1,200  
Frank J. Lucchino   1,000  
Dan D. Sandman (1)(2)   273,168  
Seth E. Schofield (1)   1,170  
John P. Surma (1)(2)   653,908  
Thomas J. Usher (1)(2)   229,278  
Douglas C. Yearley   1,000  
All Directors and Executive Officers as a group
(18 persons) (1)(2)(3)
  2,080,389  


The following table shows Common Stock Units credited under (1) the United States Steel Corporation Deferred Compensation Plan for Non-Employee Directors and (2) the annual $40,000 grant to non-employee directors (other than Mr. Usher):

        Name

  Common Stock Units

 

J. Gary Cooper   6,734  
Robert J. Darnall   5,674  
John G. Drosdick   4,622  
Shirley Ann Jackson   6,451  
Charles R. Lee   14,064  
Frank J. Lucchino   3,968  
Seth E. Schofield   8,419  
Douglas C. Yearley   8,377  


(1)
Includes shares held under, or pursuant to, the U. S. Steel Savings Fund Plan, the U. S. Steel Dividend Reinvestment and Direct Stock Purchase Plan, and the 2002 Stock Plan.

(2)
Includes shares which may be acquired upon exercise of outstanding options as follows (all options other than those granted on May 25, 2004 were exercisable on January 31, 2005): Mr. Usher: 94,500; Mr. Surma: 500,000; Mr. Sandman: 169,600; Mr. Goodish: 156,500; Mrs. Haggerty: 188,460; Mr. Connelly: 92,400; Mr. Dorrance: 57,500; and all directors and executive officers as a group: 1,431,160.

(3)
Total shares beneficially owned in each case constitute less than one percent of the outstanding shares, and all directors and executive officers as a group owned 1.8 percent of the common stock.

36



Executive Compensation

The following table sets forth certain information concerning the compensation awarded to, earned by, or paid by U. S. Steel to Mr. Usher, to Mr. Surma, to the other four most highly compensated current executive officers of U. S. Steel who were serving as executive officers at the end of 2004, and to Mr. Dorrance (who would have been among such four executive officers but for his retirement on September 30, 2004) for services rendered to U. S. Steel or its subsidiaries as executive officers during 2004, 2003 and 2002:

Summary Compensation Table



 
  Annual Compensation
  Long-Term Compensation
   
Name
and
Principal
Position

  Year

  Salary
($)

  Bonus
($)

  Salary and
Bonus
Total
($)

  Other
Annual
Compensation
($)(1)

  Restricted
Stock
Award(s)
($)(3)

  Options/
SARs
(#)(4)

  All
Other
Compensation
($)(5)


T. J. Usher   2004   825,225   3,000,000   3,825,225   118,264 (2) 0   0   6,894,635
Chairman of the   2003   1,100,000   1,250,000   2,350,000   17,714   0   800,000   1,904,579
Board & (through   2002   1,100,000   1,243,000   2,343,000   12,858   663,488   500,000   72,207
September 30, 2004) Chief Executive Officer
(2004 data for salary and other annual compensation are for 9 months)
                               

J. P. Surma   2004   707,733   2,500,000   3,207,733   6,033   849,520   400,000   60,767
President and   2003   633,337   900,000   1,533,337   6,684   521,269   300,000   342,881
(effective October 1,   2002   450,000   509,000   959,000   2,491   918,675   153,935   27,866
2004) Chief Executive Officer                                

D. D. Sandman   2004   540,300   1,000,000   1,540,300   2,084   227,550   150,000   59,878
Vice Chairman and   2003   525,006   550,000   1,075,006   3,594   57,919   150,000   33,131
Chief Legal &   2002   520,000   588,000   1,108,000   5,688   768,625   150,000   32,679
Administrative Officer, General Counsel and Secretary
                               

J. H. Goodish   2004   380,625   1,050,000   1,430,625   2,876 ** 151,700   150,000   40,926
Executive Vice   2003   346,000 * 450,000   796,000   219,431 ** 241,328   125,000   21,429
President -   2002   310,750 * 350,000   660,750   493,191 ** 38,789   50,000   16,920
Operations                                

  * Includes foreign service premium.
** Allowances, reimbursements and tax settlements associated with foreign service.

G. R. Haggerty   2004   390,108   800,000   1,190,108   1,404   113,775   125,000   33,036
Executive Vice   2003   366,674   400,000   766,674   1,510   164,103   125,000   22,686
President & Chief   2002   330,000   300,000   630,000   1,680   38,789   60,000   20,355
Financial Officer                                

J. J. Connelly   2004   315,101   700,000   1,015,101   1,396   69,782   50,000   33,756
Senior Vice   2003   298,000   300,000   598,000   0   18,534   35,000   15,994
President -   2002   259,336   240,000   499,336   0   6,533   35,000   13,786
Strategic Planning & Business Development                                

R. G. Dorrance   2004   367,731   750,000   1,117,731   5,223   0   0   206,560
Vice Chairman   2003   484,174   400,000   884,174   6,884   57,919   150,000   31,184
(through   2002   420,000   475,000   895,000   10,050   747,189   150,000   26,772
September 30, 2004)                                

(1)
This column includes, for Messrs. Usher, Surma, Sandman and Dorrance, amounts reimbursed for the payment of taxes on imputed income for tax preparation assistance and corporate aircraft usage. For Mr. Sandman it also includes amounts reimbursed for the payment of taxes on imputed income for local transportation services. For Mrs. Haggerty and Messrs. Goodish and Connelly, it only includes amounts reimbursed for the payment of taxes on imputed income for tax preparation assistance.

(2)
Includes for 2004 $101,786 in incremental cost to the Corporation of the following perquisites: personal use of corporate aircraft; club memberships; personal use of corporate properties and sports and cultural tickets; tax preparation assistance; local transportation services; and a parking space. Corporate aircraft usage accounted for $68,544 of that amount. See page 13 for a description of Mr. Usher's fourth quarter compensation, as non-employee Chairman of the Board.

37


(3)
Grants of restricted stock under the U. S. Steel 2002 Stock Plan at the closing price on the date of grant. On February 13, 2003, Mr. Usher surrendered all of his U. S. Steel restricted stock except that which was eligible for vesting in May 2003. Grants are subject to conditions including continued employment and achievement of business performance standards. Dividends are paid on restricted stock. Shown below is the vesting schedule for restricted stock scheduled to vest less than three years from the date of grant, together with the number and value, as of December 31, 2004, of the aggregate holdings of restricted stock for each of the executive officers named in the Summary Compensation Table. Vesting shown assumes achievement of business performance at peer-group standard (as described in the Compensation & Organization Committee Report on Executive Compensation beginning on page 41).




 
   
   
  Unvested Restricted Shares
Aggregate Holdings

 
  Vesting Schedule for Restricted Stock
 
   
  Value as of
December 31,
2004($)

    Name

  Date Granted

  May 2005
(Shares)

  Shares


T. J. Usher   N/A   0   0   0

 

 

N/A

 

0

 

0

 

0


J. P. Surma

 

May 25, 2004

 

22,000

 

22,000

 

1,127,500

 

 

May 27, 2003

 

15,000

 

15,000

 

761,400

 

 

May 28, 2002

 

15,000

 

15,000

 

761,400


D. D. Sandman

 

May 25, 2004

 

4,500

 

4,500

 

230,625

 

 

May 28, 2002

 

12,375

 

12,375

 

628,155

 

 

May 30, 2000

 

2,625

 

2,625

 

133,245


J. H. Goodish

 

May 25, 2004

 

3,000

 

3,000

 

153,750

 

 

May 27, 2003

 

7,500

 

7,500

 

380,700

 

 

May 28, 2002

 

500

 

500

 

25,380

 

 

May 29, 2001

 

750

 

750

 

38,070

 

 

May 30, 2000

 

1,250

 

1,250

 

63,450


G. R. Haggerty

 

May 25, 2004

 

2,250

 

2,250

 

115,313

 

 

May 27, 2003

 

5,000

 

5,000

 

253,800

 

 

May 28, 2002

 

500

 

500

 

25,380

 

 

May 30, 2000

 

2,000

 

2,000

 

101,520


J. J. Connelly

 

May 25, 2004

 

1,900

 

1,900

 

97,375

 

 

May 27, 2003

 

400

 

400

 

20,304

 

 

May 30, 2000

 

1,600

 

1,600

 

81,216


R. G. Dorrance

 

N/A

 

0

 

0

 

0

 

 

N/A

 

0

 

0

 

0

(4)
All option shares listed except those granted in 2004 were granted with tandem stock appreciation rights ("SARs").

(5)
This column includes amounts contributed by U. S. Steel under the U. S. Steel Savings Fund Plan and the related supplemental savings plans. Such amounts for 2004 were $49,514 for Mr. Usher, $42,464 for Mr. Surma, $32,418 for Mr. Sandman, $22,838 for Mr. Goodish, $23,406 for Mrs. Haggerty, $15,755 for Mr. Connelly and $22,064 for Mr. Dorrance. Also included are amounts representing the cost of life insurance protection provided by U. S. Steel. Such amounts for 2004 were $68,741 for Mr. Usher, $18,303 for Mr. Surma, $27,460 for Mr. Sandman, $18,088 for Mr. Goodish, $9,630 for Mrs. Haggerty, $18,001 for Mr. Connelly and $29,235 for Mr. Dorrance. For Mr. Usher, this column also includes the value of the phantom stock he was awarded in 2003 under his February 13, 2003 Employment and Consulting Agreement (the "Agreement"), which is described on pages 49-50 and was also described in our 2003 and 2004 proxy statements. That value was $1,831,500 on the date of grant. The phantom stock was awarded in return for Mr. Usher's surrender of restricted stock. On February 17, 2004, Mr. Usher received a payment of $2,710,500, equal to the value of half of the phantom stock, in accordance with the Agreement. On February 17, 2005, he received a payment of $3,995,250, equal to the value of the other half of the phantom stock. (See page 49.) This column also includes the $3,000,000 retention bonus paid to Mr. Usher by U. S. Steel on November 1, 2004 under the August 8, 2001 agreement between Mr. Usher and USX Corporation. See page 50. It also includes amounts paid to Mr. Usher and Mr. Dorrance, upon their retirements, out of the Corporation's supplemental thrift plan. Those amounts were $1,065,880 and $155,261, respectively.

38


2004 Option Grants

The following table sets forth certain information concerning options granted during 2004 to each executive officer named in the Summary Compensation Table:

 
  Individual Grants
   
   
   
 
 
  Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
for Option Term ($)(3)

 
 
  Number of
Securities
Underlying
Options
Granted(1)

  % of Total
Options
Granted to
Employees
in 2004(2)

  Exercise
or Base
Price per
Share
($)

   
 
 
  Expiration
Date

 
Name or Group

  0%

  5%

  10%

 

 

T. J. Usher

 

0

 

0.0

%


 


 

0

 



 


 

J. P. Surma

 

400,000

 

27.0

%

29.54

 

May 25, 2012

 

0

 

5,641,600

 

13,512,800

 

D. D. Sandman

 

150,000


10.1

%

29.54

 

May 25, 2012

 

0

 

2,115,600

 

5,067,300

 

J. H. Goodish

 

150,000

 

10.1

%

29.54

 

May 25, 2012

 

0

 

2,115,600

 

5,067,300

 

G. R. Haggerty

 

125,000

 

8.4

%

29.54

 

May 25, 2012

 

0

 

1,763,000

 

4,222,750

 

J. J. Connelly

 

50,000

 

3.4

%

29.54

 

May 25, 2012

 

0

 

705,200

 

1,689,100

 

R. G. Dorrance

 

0

 

0.0

%


 


 

0

 


 


 



 

All Stockholders

 

N/A

 

N/A

 

29.54

 

May 25, 2012

 

0

 

1,598,492,975

 

3,828,721,617

 



 

All Optionees

 

1,480,000

 

100.0

%

29.54

 

May 25, 2012

 

0

 

20,873,920

 

49,997,360

 



 

Optionees' Gain
as % of All
Stockholders' Gain

 

N/A

 

N/A

 

29.54

 

May 25, 2012

 

0

 

1.3

%

1.3

%



 
(1)
All options are exercisable on May 25, 2005.

(2)
Indicates percentage of total option shares granted.

(3)
The dollar amounts under these columns are the result of calculations at 0% and at the 5% and 10% rates set by the Securities and Exchange Commission and therefore are not intended to forecast possible future appreciation, if any, of the price of the stock. We have not used an alternative formula for a grant date valuation, as we are not aware of any formula which will determine with reasonable accuracy present value based on future unknown or volatile factors. Amounts shown for All Stockholders represent the potential realizable values assuming appreciation at the rates indicated based on the exercise or base prices per share shown, the indicated expiration dates and the number of outstanding shares as of December 31, 2004.

39



Option Exercises and Year-End Values

The following table sets forth certain information concerning options to purchase common stock and stock appreciation rights ("SARs") exercised by each executive officer named in the Summary Compensation Table during 2004 together with the total number of options and SARs outstanding at December 31, 2004 and the value of such options and SARs.

Aggregated 2004 Option/SAR Exercises
and
December 31, 2004 Option/SAR Values

        Name

No. of
Shares
Underlying
Options/SARs
Exercised

  Total Value
Realized
($)

  No. of
Securities
Underlying
Unexercised
Options/SARs at
December 31,
2004
Exercisable/
unexercisable

  Total Value
of Unexercised
In-The-Money
Options/SARs at
December 31, 2004
($)
Exercisable/
unexercisable


T. J. Usher 1,936,900   34,820,772   94,500/0   1,273,737/0

J. P. Surma

350,000

 

7,607,500

 

100,000/400,000

 

3,531,500/8,488,000

D. D. Sandman

418,725

 

7,242,289

 

19,600/150,000

 

264,182/3,183,000

J. H. Goodish

202,250

 

3,982,530

 

6,500/150,000

 

103,455/3,183,000

G. R. Haggerty

257,000

 

4,866,450

 

63,460/125,000

 

1,169,207/2,652,500

J. J. Connelly

129,450

 

1,890,538

 

42,400/50,000

 

777,123/1,061,000

R. G. Dorrance

447,500

 

7,764,342

 

57,500/0

 

907,058/0


Note:   All options listed above were granted with SARs, except those granted in 2004.


Section 16(a) Beneficial Ownership Reporting Compliance

No U. S. Steel director or officer or other person subject to Section 16 of the Securities Exchange Act of 1934 failed in 2004 to file on a timely basis any reports required by Section 16(a) of such act.

40



Compensation & Organization Committee Report on Executive Compensation

The Compensation & Organization Committee (the "Committee") of U. S. Steel sets policies and administers programs on executive compensation. When action should be taken on a specific compensation item, we either make a recommendation to the U. S. Steel Board or a subsidiary company board or take action on our own, whichever is appropriate. The Committee reports to the Board all actions that do not require the Board's approval. The purpose of this report is to summarize the philosophy, specific program objectives and other relevant factors considered by the Committee in making decisions with respect to the compensation of U. S. Steel executive officers, including the officers named in the Summary Compensation Table. Beginning in 2005 the Corporation has implemented a new, simpler compensation strategy for all domestic, non-represented employees. The centerpiece of this strategy is a new compensation program that more closely links pay to performance, provides market-driven pay opportunities, and modernizes the Corporation's compensation approach to reflect the Corporation's leaner and flatter organization. The primary driver of this program is return on capital employed.

Compensation programs for U. S. Steel's executive officers are designed to attract, retain and motivate employees who will make significant contributions to the achievement of corporate goals and objectives. The principal elements of our executive officers' compensation are:

Salary

Short-term incentive awards (bonuses) and

Long-term incentive awards (stock options and restricted stock).

Although the Committee has awarded stock appreciation rights (SARs) in the past in connection with awards of stock options, no SARs were awarded in 2004 and none are contemplated to be awarded in the future.

For each of the above elements of compensation, the Committee exercises its discretion in the subjective consideration of the factors described below and within the limitations of the various plans.

In 2004 the Board adopted a requirement that members of executive management hold shares of U. S. Steel common stock in specified amounts commensurate with their positions and salaries.

Salary

Salary administration at U. S. Steel begins with the development, and periodic adjustment, of salary structures for executive officers employed at the corporate level and at each major business unit. Each executive officer's position is assigned a salary grade with an associated salary range. The two major objectives in developing salary structures and assigning grades are to maintain:

(1)
external competitiveness—the midpoint of the salary range for each position is near the average midpoint for similar positions at comparable companies and

(2)
internal equity—each position's grade in the unit's hierarchy of positions accurately reflects its relative "value".

The data used in developing and adjusting salary structures are obtained from surveys coordinated by independent consultants.

The Committee makes decisions on salary increases and, occasionally—when business conditions dictate—salary decreases. When we determine salary increases, the highest

41



weighting is given to performance; but other factors are also considered, such as experience and time in position. Once an executive officer's salary has passed the midpoint for the position, increases seldom exceed amounts necessary to maintain the salary near the midpoint, assuming performance merits such increases. Therefore, incentive opportunities provide the primary basis for significant increases in compensation. The salaries shown for the officers named in the Summary Compensation Table reflect the results of salary reviews and related actions taken by the Committee.

Short-Term Incentive Awards

U. S. Steel's short-term incentive (bonus) opportunities for executive officers are designed to provide awards near the average of those provided by similar companies for on-target performance. However, our incentive plans are designed to provide exceptional rewards for superior performance and lower rewards for below-average performance. The Committee makes bonus awards under the Annual Incentive Compensation Plan, as well as under the Senior Executive Officer Annual Incentive Compensation Plan, the latter of which was developed specifically to retain the Corporation's tax deduction for awards made to the officers named in the Summary Compensation Table and which was approved by the stockholders of USX Corporation ("USX") and of the U. S. Steel Group on October 25, 2001. The Board is proposing a new 2005 Annual Incentive Compensation Plan elsewhere in this proxy statement for approval by the stockholders. This new plan will replace the Senior Executive Officer Annual Incentive Compensation Plan and the Annual Incentive Compensation Plan, and it is designed to retain tax deductibility for short-term incentive awards.

Senior Executive Officer Annual Incentive Compensation Plan

This plan provides for awards based on pre-established performance measures specifically related to income from operations, steel shipments, worker safety, workforce diversity, environmental emissions improvements and common stock performance. For each performance measure, the applicable portion of the bonus is only awarded if performance reaches the minimum, or threshold, level for that measure.

The Committee certified in writing prior to payment of awards for the year 2004 that the pre-established, applicable performance levels (measured for incentive compensation purposes) required under the Senior Executive Officer Annual Incentive Compensation Plan were satisfied.

Other Plans

The Committee also administers the Annual Incentive Compensation Plan under which other executive officers participate. It makes awards based on performance period comparisons with the current business plan, with performance in prior years and with peer groups on the basis of such financial measures as income from operations, income per ton shipped, cash flow and return on capital employed, as measured for incentive compensation purposes, as well as individual objectives. In addition, non-financial measures, such as safety performance (compared with the prior year's industry average) and environmental and diversity performance are considered. In determining awards under these plans, consideration is also given to the absolute levels of income and cash flow. When making awards to executive officers under these plans, the Committee gives such weight to the various factors as it deems appropriate.

Based on consideration of overall performance and/or other factors, the Committee may reduce or eliminate a short-term incentive award that would otherwise be payable under the above discussed plans.

42



Long-Term Incentive Awards

Long-term incentive awards are of major importance in the mix of compensation elements because these awards provide the most direct link to the returns that you, as U. S. Steel stockholders, receive. The USX and the U. S. Steel Group stockholders approved the 2002 Stock Plan on October 25, 2001. We administer this plan, under which we may grant (1) stock options, (2) stock appreciation rights (although, as discussed above, no stock appreciation rights were granted in 2004 nor are any contemplated in the future) and/or (3) restricted stock. Our stock options and restricted stock meet the requirements for deductibility under the tax laws. The Board is proposing a new 2005 Stock Incentive Plan for approval by the shareholders elsewhere in this proxy statement.

Stock Option Grants.

The Committee makes stock option grants that we believe to be reasonable and in line with other compensation. The number of shares granted generally reflects an employee's level of responsibility. Following normal annual grant practices, the Committee granted stock options in May 2004.

Restricted Stock Grants.

The Committee established, for each recipient, an annual target level of restricted stock based on the same factors as those considered in granting stock options. A major grant is made to cover five years, with the intention that one fifth of the shares vests each year if performance is at the target level. The Committee vests restricted stock at levels higher or lower than annual targets, depending upon performance.

A major grant was made in 2000 by the Compensation Committee of USX Corporation to cover the five-year performance period ending with 2004. We make interim grants only to permit vesting at the target level for the number of years remaining in the period. To emphasize the long-term nature of the awards, vesting decisions have been and will continue to be based on three-year average performance, which is compared with three-year peer-group performance for relevant businesses.

Vesting of restricted stock shares is based on pre-established performance measures specifically related to the responsibilities of plan participants. We can vest a portion of the annual target shares only if performance reaches the minimum, or threshold, level established for that period. After vesting, executive officers are expected to hold their shares consistent with the share ownership guidelines for the respective executive officer's level within the Corporation.

In May 2004, the three-year (2001-2003) average performance of U. S. Steel was compared by the Committee with that of competitors for the measures shown below. This comparison has provided the primary basis for the determination of vesting levels for restricted stock. However, vesting levels may be reduced (or eliminated entirely) based on overall performance and/or other factors considered relevant by the Committee.

Performance measures considered in connection with the vesting of restricted stock grants are:

Income from operations as a percent of capital employed
Income from operations per ton shipped
Operating cash flow as a percent of capital employed
Safety performance

43


Prior to the vesting of restricted stock shares in the year 2004, the Committee certified in writing that the pre-established applicable performance levels required under the 2002 Stock Plan were satisfied.


The Committee periodically compares data on long-term incentive grants made at other companies with those made at U. S. Steel. Our objective in making grants under the 2002 Stock Plan is to provide opportunities to receive above-average compensation (compared with that of similar companies) when performance is above the target level.

Overall, executive compensation at U. S. Steel is designed to provide total pay that is above average when both short- and long-term incentive goals are exceeded.

In addition to the compensation comparisons described above, the Committee annually compares the salary, bonus and long-term incentive payouts for the CEO and U. S. Steel's other top officers with the same elements for similar positions at comparable companies.

Both Mr. Usher's and Mr. Surma's 2004 compensation reflect the same elements and the same factors as those described above. Mr. Surma's leadership and effectiveness in dealing with major corporate objectives and opportunities will also be considered in determining his future salary increases, as will (1) the comparability of his salary with CEOs of other companies of similar size and complexity and (2) the position of his salary in the range for his position. In considering Mr. Usher's compensation for 2004 the Committee took into account the provisions of Mr. Usher's Employment and Consulting Agreement which is described under the heading "Change in Control Arrangements and Employment Contracts" beginning on page 48. That agreement provided that the retention bonus payable by the Corporation to Mr. Usher at the end of 2004 under the Retention Agreement dated August 8, 2001 between USX Corporation (now Marathon Oil Corporation) and Mr. Usher would be payable upon Mr. Usher's retirement as an employee of the Corporation provided that the performance measures required for such payment, adjusted if necessary for a shorter time period, were, in the judgment of the Committee, met. On October 26, 2004, the Committee determined that such performance measures were met, and Mr. Usher received a bonus of $3,000,000 on November 1, 2004.

In 2004 the strategic initiatives undertaken in 2002 and 2003 bore fruit for U. S. Steel. It was a year of unprecedented profitability, due in large measure to (1) the successful integration, and a full year of operation, of the former National Steel facilities acquired in 2003, (2) the turnaround to profitability of the Serbian facilities, also acquired in 2003, (3) the implementation of a new, long-term labor contract, and (4) the implementation of a program to reduce administrative costs throughout the Corporation by more than 20%. The Corporation generated substantial cash, permitting improvement of the balance sheet through debt repayment and providing the liquidity to support future growth initiatives. Total return to shareholders for the year was 47.2%. Quite simply, 2004 was a year of superior performance marked by outstanding executive leadership.

2004 was also a year of transition. On October 1, Mr. Surma, who had been the Corporation's President and Chief Operating Officer, succeeded Mr. Usher as CEO (although Mr. Usher remains as non-executive Chairman of the Board). In making its compensation determinations, the Committee recognized the substantial contributions of both gentlemen to the outstanding success of U. S. Steel in 2004.

Seth E. Schofield

Robert J. Darnall

Charles R. Lee

Douglas C. Yearley

44



Shareholder Return Performance Presentation

The line graph below compares the yearly change in cumulative total stockholder return of our common stock with the cumulative total return of the Standard & Poor's 500 Stock Index and the S&P Steel Index. The S&P Steel Index is made up of U. S. Steel, Nucor Corporation, Allegheny Technologies Incorporated and Worthington Industries, Inc.

Comparison of Cumulative Total Return(1)
on $100 Invested in U. S. Steel Stock on December 31, 1999
vs.
S&P 500 Index and S&P Steel Index

GRAPHIC

(1)
Total return assumes reinvestment of dividends.

45



Pension Benefits

The United States Steel Corporation Plan for Employee Pension Benefits ("Steel Pension Plan") is comprised of two defined benefits. One is based on final earnings and the other on career earnings. Directors who have not been employees of U. S. Steel do not receive any benefits under the Plan. The following table shows the annual final earnings pension benefits which would be payable for retirement at age 65 (or earlier under certain circumstances) with the various levels of eligible earnings and years of service shown. The benefits are based on a formula of a specified percentage (dependent on years of service) of average monthly earnings in the five consecutive years of the ten years prior to retirement in which earnings are highest. Years of service include service accrued as an employee of Marathon Oil Company, its subsidiaries and joint ventures ("Marathon"), and earnings for purposes of determining average monthly earnings include salary earned as an employee of Marathon. As of September 30, 2004, the date of their retirements as employees, Mr. Usher and Mr. Dorrance had 38 and 33 years of service, respectively. As of December 31, 2004, Messrs. Surma, Sandman, Goodish and Connelly, and Mrs. Haggerty, had 7, 31, 34, 33 and 28 years of service, respectively.

Average Eligible Earnings for Highest Five Consecutive Years in Ten- Year Period Preceding Retirement

   
   
   
   
   
   
   
  Table of Pension Benefits
Final Earnings Pension Benefits
Annual Benefits for Years of Service
  15 Years

  20 Years

  25 Years

  30 Years

  35 Years

  40 Years

  45 Years


$   100,000   17,325   23,100   28,875   34,650   40,950   47,250   53,550
     300,000   51,975   69,300   86,625   103,950   122,850   141,750   160,650
     500,000   86,625   115,500   144,375   173,250   204,750   236,250   267,750
     700,000   121,275   161,700   202,125   242,550   286,650   330,750   374,850
     900,000   155,925   207,900   259,875   311,850   368,550   425,250   481,950
  1,100,000   190,575   254,100   317,625   381,150   450,450   519,750   589,050
  1,300,000   225,225   300,300   375,375   450,450   532,350   614,250   696,150
  1,500,000   259,875   346,500   433,125   519,750   614,250   708,750   803,250

The annual career earnings pension is equal to one percent of total career earnings plus a 30 percent supplement. Total career earnings include salary earned as an employee of Marathon. The annual career earnings benefits payable to Mr. Usher and Mr. Dorrance are $190,500 and $52,296, respectively. The estimated annual career earnings benefit payable at normal retirement age 65, assuming no increase in annual earnings, will be for $192,624 for Mr. Surma, $139,380 for Mr. Sandman, $90,792 for Mr. Goodish, $135,000 for Mrs. Haggerty and $79,452 for Mr. Connelly. Earnings for the purpose of calculating both the final earnings and career earnings pensions are limited to base salary (which includes any foreign service premium) as reflected in the Summary Compensation Table.

Pensions payable under the Steel Pension Plan to participants with Marathon service include service and earnings that are also used in the calculation of benefits payable under the defined benefit pension plans sponsored by Marathon ("Marathon Pension Plans"); therefore, the Steel Pension Plan benefits for such participants are reduced by their Marathon Pension Plan benefits. Because Messrs. Surma and Sandman have earned benefits under the Marathon Pension Plans, their U. S. Steel pension benefits will be reduced, at age 65, by estimated monthly Marathon pensions (assuming no increase in annual earnings) of $8,748 and $30,356, respectively. However the pension payable under the Steel Pension Plan cannot be reduced below the amount calculated with only U. S. Steel service and earnings.

In addition to the pension benefits described above, Messrs. Usher, Surma, Sandman, Goodish, Connelly and Dorrance, and Mrs. Haggerty, participate in the United States Steel Corporation Executive Management Supplemental Pension Program

46



("Supplemental Pension Program") which entitles them, upon retirement after age 60, or before age 60 with U. S. Steel's consent (which in Mr. Dorrance's case was granted), to the benefits shown in the table below. The benefits are based on a formula of a specific percentage, determined by years of U. S. Steel service, of the average of the three highest annual bonuses paid under the applicable incentive compensation plans in the ten years prior to retirement. The three most recent bonuses are reported in the Summary Compensation Table. The following table shows the annual supplemental pension which would be payable for retirement at age 65 (or earlier under certain circumstances) with the various levels of average annual bonus and years of service shown.

Average Annual Bonus for Three Highest Years in Ten-Year Period Preceding Retirement

Supplemental Pension Benefits
Annual Benefits for Years of Service
15 Years

  20 Years

  25 Years

  30 Years

  35 Years

  40 Years

  45 Years


$   100,000 23,100   30,800   38,500   46,200   53,900   61,600   69,300
     300,000 69,300   92,400   115,500   138,600   161,700   184,800   207,900
     500,000 115,500   154,000   192,500   231,000   269,500   308,000   346,500
     700,000 161,700   215,600   269,500   323,400   377,300   431,200   485,100
     900,000 207,900   277,200   346,500   415,800   485,100   554,400   623,700
  1,100,000 254,100   338,800   423,500   508,200   592,900   677,600   762,300
  1,300,000 300,000   400,400   500,500   600,600   700,700   800,800   900,900
  1,500,000 346,500   462,200   577,500   693,000   808,500   924,000   1,039,500
  1,700,000 392,700   523,600   654,500   785,400   916,300   1,047,200   1,178,100
  1,900,000 438,900   585,200   731,500   877,800   1,024,100   1,170,400   1,316,700
  2,100,000 485,100   646,800   808,500   970,200   1,131,900   1,293,600   1,455,300
  2,300,000 531,300   708,400   885,500   1,062,600   1,239,700   1,416,800   1,593,900
  2,500,000 577,500   770,000   962,500   1,155,000   1,347,500   1,540,000   1,732,500
  3,000,000 693,000   924,000   1,155,000   1,386,000   1,617,000   1,848,000   2,079,000

As permitted under the terms of the plans, Messrs. Usher and Dorrance elected to receive their pension benefits (final earnings benefits, career earnings benefits, and supplemental pension benefits) in the form of lump sum distributions.

In 2003 U. S. Steel entered into an employment and consulting agreement with Mr. Usher which provided that if he elected to receive his pension under the Supplemental Pension Program and the non tax-qualified portion of his Steel Pension as a lump sum distribution such distribution would be calculated as if his total pension benefits were determined using the interest rates and mortality tables in effect for retirements on January 31, 2003, instead of the rates and mortality tables in effect at the date of his retirement.

U. S. Steel has agreed to provide Mr. Surma with pension benefits consisting of the difference between (1) his pension under the Steel Pension Plan and Supplemental Pension Program determined by increasing the service Mr. Surma actually accrues under such plans by (a) 15 years for the purpose of computing his benefit eligibility and vesting and (b) a number of years equal to the product of 15 multiplied by the ratio of his actual accrued service under the Steel Pension Plan to his actual accrued service under both the Steel and Marathon Pension Plans for the purpose of calculating his pension benefits, and (2) his pension benefits under the Steel Pension Plan and the Supplemental Pension Program determined with his actual accrued service. The pension benefits so calculated will be paid to Mr. Surma upon his retirement or, in the event of his death before retirement, to his surviving spouse or, if there is no surviving spouse, to his estate.

U. S. Steel has entered into a retention agreement with Mr. Sandman which provides enhanced pension benefits in return for his continued employment. If Mr. Sandman continues his employment through 2006, the Corporation will provide a pension equal to the difference between (1) his Steel Pension Plan benefits calculated with his actual service and age at retirement each increased by three years, a $4,800 annual social security supplement payable to the earlier of death or age 62, a lump sum distribution of these pension benefits calculated with the more favorable of the interest and mortality factors applicable to December 31, 2001 retirements or such factors applicable to his actual retirement date, and (2) his Steel Pension Plan benefits at his retirement. In addition he will have the Corporation's consent to retire with respect to the Supplemental Pension Program. Should Mr. Sandman die prior to retirement, the enhanced pension would be paid to his surviving spouse or survivor.

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Change in Control Arrangements
and Employment Contracts

We believe that if a change in control of U. S. Steel appeared possible our officers should be encouraged to continue their dedication to their assigned duties. For that reason, we have entered into agreements with each of our officers that provide that, if an officer's employment is terminated under certain circumstances following a change in control, the officer will be entitled to the following severance benefits:

a lump sum payment of up to three times salary plus bonus;

life and health insurance benefits for up to three years;

three years of additional credit towards eligibility for retiree medical and life insurance;

a lump sum payment equal to the difference between amounts payable under the U. S. Steel pension plans and the amounts that would be payable if the officer worked three additional years;

a lump sum payment of any unvested amounts under U. S. Steel's savings and thrift plans; and

additional payments sufficient to compensate for certain federal excise taxes.

Also, in the event of a change in control, any stock options, stock appreciation rights, or restricted stock granted to the officer would become fully vested.

Each agreement is automatically extended each year unless we notify the officer that we do not wish it extended. In any event, however, each agreement continues for two years after a change in control. The severance benefits are payable if, any time after a change in control, the officer's employment is terminated for good reason or is terminated for other than cause or disability. The severance benefits are not payable if termination is due to the officer's death or disability or occurs after the officer reaches age 65.

The definition of a change in control for purposes of these agreements is complex but is summarized as follows. It includes any change in control required to be reported in response to Item 6 (e) of Schedule 14A under the Securities Exchange Act of 1934 and provides that a change in control will have occurred if:

any person not affiliated with U. S. Steel acquires 20 percent or more of the voting power of our outstanding securities,

the Board no longer has a majority made up of (1) individuals who were directors on the date of the agreements and (2) new directors (other than directors who join the Board in connection with an election contest) approved by two-thirds of the directors then in office who (a) were directors on the date of the agreements or (b) were themselves previously approved by the Board in this manner,

U. S. Steel merges with another company and U. S. Steel's stockholders end up with less than 50 percent of the voting power of the new parent entity,

our stockholders approve a plan of complete liquidation of U. S. Steel, or

we sell all or substantially all of U. S. Steel's assets.

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On February 13, 2003, the Compensation & Organization Committee (the "Committee") approved an Employment and Consulting Agreement (the "Agreement") with Mr. Usher in order to assure that the Corporation would have his continued guidance and direction for the balance of his employment and after his retirement. The material terms and conditions of the Agreement are as follows:

For the remainder of Mr. Usher's employment by the Corporation, he would (a) continue to serve as Chairman of the Board & Chief Executive Officer, (b) receive an annual salary and (c) be eligible for bonuses under the Senior Executive Officer Annual Incentive Compensation Plan. He would not receive any new grants of stock options or restricted stock other than a grant, as of the date of the Agreement, of options, with tandem stock appreciation rights (SARs), for 800,000 shares of U. S. Steel common stock under the 2002 Stock Plan. The options had a term of eight years and a grant price equal to the average of the high and low New York Stock Exchange trading prices on the date of the Agreement, which price was $12.21. On February 18, 2004, Mr. Usher exercised these options/SARs at a fair market value of $36.375 and realized $13,532,406 and 159,439 shares. Mr. Usher surrendered on the date of the Agreement all of his restricted shares of U. S. Steel common stock (except those which were eligible for vesting in May 2003, for a surrender of 70,000 shares) and received 150,000 shares of phantom stock (i.e. book entry units, each representing a share of U. S. Steel common stock). Dividends are paid on the phantom shares. The Agreement provided that shortly after each of the first and second anniversary dates of the Agreement, Mr. Usher would receive a cash payment equal to the then fair market value of 75,000 of the phantom shares. He received the first such payment, in the amount of $2,710,500, on February 17, 2004. He received the second such payment, in the amount of $3,995,250 on February 17, 2005.

After Mr. Usher retired from active employment with the Corporation, he would serve as the Corporation's non-executive Chairman. He would receive an annual retainer fee equal to his annualized monthly salary at the time of his retirement. He would not be eligible for bonuses under the Senior Executive Officer Annual Incentive Compensation Plan.

After his retirement as Chairman, which is expected to be on April 30, 2007 and which will coincide with his retirement from the Board, Mr. Usher will serve as a consultant to the Corporation for two years. He will receive an annual consulting fee equal to half his annualized monthly salary at the time of his retirement from active employment.

While serving both as non-executive Chairman and as a consultant, Mr. Usher will be entitled to the same working condition fringes and other benefits as those provided to him as Chief Executive Officer.

If Mr. Usher elected to receive his benefits under the Corporation's non tax-qualified pension programs in the form of a lump sum distribution, those benefits would be calculated as if his total pension benefits were determined using the applicable interest rates and mortality tables in effect for retirements on January 31, 2003, instead of the rates and tables in effect at the date of his retirement.

Mr. Usher will not become employed by, act as a director or consultant for, or otherwise provide any services for any competitor of the Corporation through April 30, 2010.

49


The Board may terminate the Agreement at any time, in which case the Corporation will pay Mr. Usher the present value of the remaining amounts to be paid and the value of the working condition fringes and other benefits to be provided during the remaining term of the Agreement. The Board may also terminate the Agreement in the event of illegal conduct or gross misconduct by Mr. Usher, or by his failure to satisfy the non-compete provision described above. In the event of termination for any of the reasons in the preceding sentence, the Corporation will be relieved of any obligation to pay the remaining amounts under the Agreement. The Agreement will immediately terminate upon Mr. Usher's death, and the Corporation will pay to Mr. Usher's surviving spouse, or his estate if there is no surviving spouse, the annual compensation, retainer fee or consulting fee.

The retention bonus payable by the Corporation to Mr. Usher at the end of 2004 under the Retention Agreement dated August 8, 2001 between USX Corporation (now Marathon Oil Corporation) and Mr. Usher would be payable upon Mr. Usher's retirement as an employee of the Corporation, provided that the performance measures required for such payment, adjusted if necessary for a shorter time period, were, in the judgment of the Committee, met. On October 26, 2004 the Compensation & Organization Committee of the Board determined that such performance measures were met, and Mr. Usher received $3 million on November 1, 2004.

USX Corporation entered into agreements with Mr. Surma and Mr. Sandman in consideration for their agreeing to serve as vice chairmen of U. S. Steel. The agreement with Mr. Surma calls for U. S. Steel, Marathon, Marathon Ashland Petroleum LLC ("MAP") and Speedway SuperAmerica LLC ("SSA") to provide certain non-qualified benefit supplements in addition to the pension and savings benefits and non-qualified deferred compensation to which he is otherwise entitled. Unless he elects otherwise, such supplements will be paid by U. S. Steel and Marathon in a lump sum distribution within 90 days of the date of his termination of employment from all four companies—U. S. Steel, Marathon, MAP and SSA. Mr. Surma's pension benefit supplements payable by U. S. Steel are described on page 47. In addition to the pension enhancements, 15 years will be added to his actual U. S. Steel service solely for the purpose of determining vesting and eligibility for company contributions under the U. S. Steel Supplemental Thrift Program. The agreement with Mr. Sandman calls for U. S. Steel to provide enhanced pension benefits to Mr. Sandman if he remains employed by U. S. Steel at least through 2006. These benefits are described on page 47.

50


Statement Regarding the Delivery of a Single Set of Proxy Materials to Households With Multiple U. S. Steel Shareholders

If you have consented to the delivery of only one set of proxy materials to multiple U. S. Steel shareholders who share your address, then only one proxy statement and only one annual report are being delivered to your household unless we have received contrary instructions from one or more of the shareholders sharing your address. We will deliver promptly upon oral or written request a separate copy of the proxy statement or the annual report to any shareholder at your address. If you wish to receive a separate copy of the proxy statement or the annual report, you may call us toll-free at 1-866-433-4801 or write to us at U. S. Steel Shareholder Services, Room 611, 600 Grant Street, Pittsburgh, PA 15219-2800. Shareholders sharing an address who now receive multiple copies of the proxy statement or the annual report may request delivery of a single copy by calling us at the above number or writing to us at the above address.


Solicitation Statement

We will bear the cost of this solicitation of proxies. In addition to soliciting proxies by mail, our directors, officers and employees may solicit proxies by telephone, in person or by other means. They will not receive any extra compensation for this work. We will also make arrangements with brokerage firms and other custodians, nominees and fiduciaries to forward proxy solicitation material to the beneficial owners of our common stock, and we will reimburse them for reasonable out-of-pocket expenses that they incur in connection with forwarding the material.

Website

Our Corporate Governance Principles, Code of Ethical Business Conduct (which is applicable to all directors and employees, including the CEO and senior financial officers), Board committee charters, annual and quarterly reports on Forms 10-K and 10-Q, and this proxy statement are available on our website, www.ussteel.com, and are also available in print to any shareholder who requests them. By providing these documents we do not intend to incorporate the contents of the website into this document.

By order of the Board of Directors,

Dan D. Sandman

Secretary

March 11, 2005

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Appendix A
Audit & Finance Committee Charter

Purpose

The purpose of the Audit & Finance Committee (the "Committee") shall be to

1)
assist the Board in oversight of

a)
the integrity of the Corporation's financial statements,

b)
the Corporation's compliance with legal and regulatory requirements,

c)
the independent auditor's qualifications and independence, and

d)
the performance of the Corporation's internal audit function and of the independent auditor;

2)
prepare the audit committee report required by the rules of the Securities and Exchange Commission to be included in the Corporation's annual proxy statement; and

3)
be directly responsible for the appointment, compensation, retention and oversight of the work of the Corporation's independent auditor, who shall report directly to the Committee, and have the sole authority to approve all audit engagement fees and terms, as well as all non-audit engagements with the independent auditor.

Action By Full Board

Occasionally the full Board may act on items within the scope of the Committee's charter that relate to matters not set apart for audit committees by applicable law or stock exchange listing standards, e.g. certain financing matters.

Duties and Responsibilities

The duties and responsibilities of the Committee shall be:

1)
With respect to Financial Reporting:

a)
The Committee will discuss the annual audited financial statements and quarterly financial statements with management and the independent auditor, including the Corporation's disclosures under "Management's Discussion and Analysis". The Committee will review and approve the annual financial statements, the annual report to stockholders and the Form 10-K annual report giving special consideration in such review to any material changes in accounting policy.

b)
The Committee will discuss earnings press releases, as well as financial information and earnings guidance (if any) provided to analysts and rating agencies, which discussions may be done generally (i.e. discussion of the types of information to be disclosed and the type of presentation to be made). The Committee need not discuss in advance each earnings release or each instance in which the Corporation may provide earnings guidance.

52


2)
With respect to Internal Control:

a)
The Committee will review management's quarterly report evaluating internal control over financial reporting to determine that the Corporation's administrative, operational and internal accounting controls have been periodically reviewed and examined to determine whether the Corporation is operating in accordance with its prescribed procedures and codes of conduct, whether there are any significant deficiencies or material weaknesses in internal controls, and whether there has been any fraud by persons significantly involved in internal control matters.

b)
The Committee will understand the scope of the Corporation's internal review, and the independent auditor's review, of internal control over financial reporting, and obtain reports on significant findings, together with management's responses.

3)
With respect to Compliance:

a)
The Committee will oversee and review the adequacy of procedures that have been established by the Committee for the receipt, retention, and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters, as well as for the confidential, anonymous submissions by employees of the Corporation of concerns regarding questionable accounting or auditing matters.

b)
The Committee will receive and review reports from management concerning compliance with corporate policies dealing with business conduct.

c)
The Committee will annually review the business expense reporting of the officers of the Corporation.

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4)
With respect to the Independent Auditor:

a)
The Committee will be directly responsible for the appointment (subject to shareholder election), compensation, retention, and oversight of the work of the Corporation's independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting), while possessing the sole authority to pre-approve all audit engagement fees and terms as well as all non-audit engagements with the independent auditor.

b)
At least annually, the Committee will obtain and review a report by the independent auditor describing: the independent auditing firm's internal quality-control procedures; any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues; and (in order to assess the auditor's independence) all relationships between the independent auditor and the Corporation; all of which will put the Committee in a position to evaluate the auditor's qualifications, performance and independence, which evaluation shall include the review and evaluation of the lead partner of the independent auditor and take into account the opinions of management and the Corporation's internal auditors, and which shall also include consideration of whether, in order to assure continuing auditor independence, there should be regular rotation of the audit firm itself and not just the regular rotation of the lead audit partner as required by law. The Committee shall present its conclusions with respect to the independent auditor to the Board.

c)
The Committee will meet periodically and separately in executive session (without management present) with the independent auditor to discuss any audit problems or difficulties and management's response, including any restrictions on the scope of the independent auditor's activities or on access to requested information, and any significant disagreements with management (the Committee having the direct responsibility to resolve such disagreements regarding financial reporting practices).

d)
The Committee shall oversee and review the adequacy of hiring policies that have been established by the Committee for employees or former employees of the independent auditor, taking into account the pressures that may exist for auditors consciously or subconsciously seeking a job with the company they audit.

e)
The Committee will continually explore ways to improve its working relationship with the independent auditor, including processes that permit informal discussion of accounting treatments well in advance of reporting deadlines.

f)
The Committee will annually review the independence letter issued by the independent auditor under Independence Standards Board Standard No. 1, actively engage in a dialogue with the independent auditor with respect to any relationships disclosed in that letter, and report to the Board of Directors any appropriate action necessary to maintain the independent auditor's continuing independence.

5)
With respect to Internal Audit:

a)
The Committee will meet periodically and separately in executive session (without the Independent Auditor or other members of management present) with the Director of Internal Audit to review the responsibilities, budget and staffing of the Corporation's internal audit function and any concerns the Director may have.

b)
The Committee will provide direction to the internal audit staff and annually review its activities.

c)
The Committee will review the appointment of the director of the internal audit function.

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6)
With respect to Finance:

a)
The Committee will review and discuss the appropriate capital structure and financial policies of the Corporation.

b)
The Committee will make recommendations to the Board concerning dividends.

c)
The Committee will review and report to the Board concerning the Corporation's compliance with financial covenants and other terms of loans and other agreements.

d)
The Committee will, within the authority levels established by the Board, approve financings by the Corporation (except financings which involve the issuance of common stock), including the recommendation of action to subsidiaries, partnerships, and joint ventures.

e)
The Committee will, within the authority levels established by the Board, authorize loans to outside entities, guarantees by the Corporation of the credit of others, and other uses of the Corporation's credit.

f)
The Committee will approve the Corporation's funding policy for its pension and other post-employment benefit plans.

g)
The Committee will review the performance of the United States Steel & Carnegie Pension Fund as investment manager and/or trustee of the Corporation's employee benefit plans.

h)
The Committee will receive reports and make recommendations to the Board on various financial matters.

7)
With respect to all Other Activities:

a)
The Committee will obtain advice and assistance from outside legal, accounting, or other advisors as the Committee deems necessary to carry out its duties.

b)
The Committee will discuss policies with respect to risk assessment and risk management, including:

i)
guidelines and policies to govern the process by which the assessment and management of the Corporation's exposure to risk is handled by senior management, and

ii)
the Corporation's major risk exposures and the steps management has taken to monitor and control such exposures.

c)
At least annually, the Committee will meet with the General Counsel separately in executive session (without other members of management present).

d)
The Committee will meet separately with management as desired.

e)
The Committee will report regularly to the Board and review with the Board any issues that arise with respect to the quality or integrity of the Corporation's financial statements, the Corporation's compliance with legal or regulatory requirements, the performance and independence of the independent auditor, or the performance of the internal audit function.

f)
The Committee will annually review a report outlining the activities undertaken by the Committee over the past year to meet the requirements of this charter.

g)
The Committee will inform management as to appropriate funding for payment of:

i)
compensation to the independent auditor,

ii)
compensation to any advisors employed by the Committee, and

iii)
ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.

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Annual Performance Evaluation of the Committee

The Committee shall conduct an annual self-evaluation.

Membership

To the extent practicable, all eligible (i.e. financially literate) independent directors shall be members of the Committee. No director who serves on the audit committees of more than two other public companies may serve on the Committee unless the Board determines that such simultaneous service will not impair the ability of such director to effectively serve on the Committee. Such determinations will be disclosed in the proxy statement.

Annual Review

The Committee shall review this charter during its first meeting of each calendar year.

Last reviewed and approved by the Board of Directors on January 25, 2005.

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Appendix B

2005 STOCK INCENTIVE PLAN

        SECTION 1.    PURPOSE    

        SECTION 2.    DEFINITIONS; CONSTRUCTION    

For purposes of this Section 2.02.4, no act, or failure to act, on the Participant's part shall be considered "willful" unless done, or omitted to be done, by the Participant in bad faith and without reasonable belief that such action or omission was in the best interest of the Corporation. Notwithstanding the foregoing, the Participant shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for that purpose (after reasonable notice to the Participant and an opportunity for the Participant, together with his counsel, to be heard before the Board) finding that in the good faith opinion of the Board the Participant is guilty of the conduct set forth above in clauses (a), (b) or (c) of this Section 2.02.4 and specifying the particulars thereof in detail.

57


58


        SECTION 3.    ADMINISTRATION    

Any action of the Committee with respect to the Plan shall be final, conclusive and binding on all Persons, including the Corporation, Subsidiaries, Participants, any Person claiming any rights under the Plan from or through any Participants, employees, directors and shareholders. The express grant of any specific power to the Committee, and the taking of any action by the Committee, shall not be construed as

59



limiting any power or authority of the Committee. The Committee may delegate to officers, managers and/or agents of the Corporation or any Subsidiary the authority, subject to such terms as the Committee shall determine, to perform administrative and other functions under the Plan. Each member of the Committee shall be entitled to, in good faith, rely or act upon any report or other information furnished to him by an officer, manager or other employee of the Corporation or a Subsidiary, the Corporation's independent certified public accountants, or any executive compensation consultant or other professional retained by the Corporation and/or Committee to assist in the administration of the Plan.

        SECTION 4.    SHARES SUBJECT TO THE PLAN    

        SECTION 5.    ELIGIBILITY    

        SECTION 6.    SPECIFIC TERMS OF AWARDS    

60


61


62


63


64


        SECTION 7.    GENERAL TERMS OF AWARDS    

65


66


        SECTION 8.    ADJUSTMENT PROVISIONS    

67


        SECTION 9.    CHANGE OF CONTROL PROVISIONS    

68


        SECTION 10.    AMENDMENTS TO AND TERMINATION OF THE PLAN    

69


        SECTION 11.    GENERAL PROVISIONS    

70


        SECTION 12.    EFFECTIVE DATE AND TERM OF THE PLAN    

71



Appendix C

2005 ANNUAL INCENTIVE COMPENSATION PLAN

        Section 1.    Purpose.    The purpose of the 2005 Annual Incentive Compensation Plan (the "Plan") is to provide for an incentive payment opportunity to executive management of United States Steel Corporation (the "Corporation") and its subsidiaries and affiliates, which may be earned upon the achievement of established performance goals. By providing an incentive payment opportunity based upon performance goals and by placing a portion of compensation at risk, the Corporation can reward performance based on the overall performance of the Corporation and the individual contribution of each executive.

        Section 2.    Effective Date.    The effective date of this Plan is April 26, 2005, provided that the Plan is approved by shareholders of the Corporation prior to the payment of any compensation hereunder. The Plan will remain in effect from year to year (each calendar year shall be referred to herein as a "Plan Year") until formally terminated in writing by the Corporation's Board of Directors (the "Board").

        Section 3.    Administration of the Plan.    

        Section 4.    Eligibility, Termination, New Participants.    

72


        Section 5.    Incentive Targets, Incentive Awards, Performance Goals and Performance Periods.    

73


74


        Section 6.    Payment to Participants.    

        Section 7.    Miscellaneous.    

75


*    *    *

76


UNITED STATES STEEL CORPORATION

2005 ANNUAL MEETING OF STOCKHOLDERS
ATTENDANCE CARD

You are invited to attend the Annual Meeting of Stockholders on April 26, 2005. The Meeting will be held in Room 1000, Tenth Floor, Two Mellon Bank Center, 501 Grant Street, Pittsburgh, PA 15219 at 10:00 AM Eastern Time. Use of this attendance card is for our mutual convenience and your right to attend the meeting without this attendance card is not affected upon presentation of identification.

Attached below is your 2005 Proxy Card.

Dan D. Sandman
Secretary

For the personal use of the named stockholder(s)—not transferable. Please present this card at registration desk upon arrival.

You may vote   A)   By completing the proxy card attached below and returning it in the enclosed envelope, or
    B)   By toll-free telephone call, or
    C)   On the Internet

TO VOTE BY TELEPHONE OR INTERNET USE THE
INFORMATION PROVIDED BELOW.

XXXXXXX

BY TELEPHONE
Toll-free 1-888-216-1303
  BY INTERNET
https://www.proxyvotenow.com/uss

Have this card available when you call or visit the Internet site and follow the prompts.

Voting is available 24 hours a day, 7 days a week.

Do NOT return the proxy card if you have voted by telephone or Internet.

The undersigned hereby appoint(s) Thomas J. Usher, John P. Surma and Dan D. Sandman, or any of them, proxies to vote as herein directed on behalf of the undersigned at the Annual Meeting of Stockholders of United States Steel Corporation on April 26, 2005 and at any meeting resulting from an adjournment or postponement thereof and upon all other matters properly coming before the Meeting, including the proposals set forth in the proxy statement for such Meeting with respect to which the proxies are instructed to vote as follows:

Proposals of the Board of Directors—The directors recommend a vote "FOR"

Proposal No. l—Election of directors—Nominees: (01) Richard A. Gephardt, (02) Shirley Ann Jackson, (03) Dan D. Sandman, (04) Thomas J. Usher, (05) Douglas C. Yearley

FOR all nominees —>
(except as indicated)
o   WITHHOLD AUTHORITY —>
to vote for ALL nominees
o

(To withhold authority to vote for any individual nominee strike out that nominee's name.)

Proposal No. 2—Election of PricewaterhouseCoopers LLP as independent registered public accounting firm

FOR —> o   AGAINST —> o   ABSTAIN —> o

Proposal No. 3—Approval of 2005 Stock Incentive Plan

FOR —> o   AGAINST —> o   ABSTAIN —> o

Proposal No. 4—Approval of 2005 Annual Incentive Compensation Plan

FOR —> o   AGAINST —> o   ABSTAIN —> o
Signature(s)      
   
 

Dated

 

 

2005

 
 
   

Please sign exactly as your name appears hereon, including representative capacity where applicable. Joint owners should both sign.

This proxy is solicited by the Board of Directors and represents your holdings of United States Steel Corporation Common Stock. Unless otherwise marked, the proxies will vote FOR Proposals 1, 2, 3 and 4.




QuickLinks

Notice of Annual Meeting of Stockholders on April 26, 2005
Proxy Statement
The Board of Directors and its Committees
Communications from Security Holders
Transactions
Information Regarding the Independence of the Independent Registered Public Accounting Firm
Security Ownership of Certain Beneficial Owners
Security Ownership of Directors, Nominees and Executive Officers
Executive Compensation
Option Exercises and Year-End Values
Section 16(a) Beneficial Ownership Reporting Compliance
Compensation & Organization Committee Report on Executive Compensation
Shareholder Return Performance Presentation
Pension Benefits
Change in Control Arrangements and Employment Contracts
Appendix A Audit & Finance Committee Charter
Appendix B
Appendix C