Periodically reviewing the appropriate skills and characteristics required of Board members in the context of the current make-up of our Board of Directors
The Nominating and Governance Committee also has oversight responsibility for our ESG initiatives and the Corporate Responsibility report we publish annually. Members of the Nominating and Governance Committee are non-executive directors who, in the opinion of the Board of Directors, each satisfies the New York Stock Exchange director independence standards.
Director Nominating Process
Process.The Nominating and Governance Committee is responsible for reviewing and interviewing qualified candidates to serve on our Board of Directors and to select both “independent” as welland as management nominees for director to be elected by ourTyler’s stockholders at each annual meeting. The Nominating and Governance Committee is comprised solely of independent directors and operates under a Charter for the Nominating and Governance Committee. Our Corporate Governance Guidelines include the criteria our Board of Directors believes are important in the selection of director nominees. For more information about director nominee criteria and qualifications, see “Tyler Management – Board Diversity and “Proposals for Consideration—Director Nominee Qualifications.Qualifications” and “Proposals for Consideration—Board Diversity.”
The Nominating and Governance Committee may, in the exercise of its discretion, actively solicit nominee candidates, including through the retention of a professional search firm to assist in identifying appropriate nominee candidates. Nominee recommendations may also be submitted by other directors, and nomination recommendations submitted by stockholders will also be considered as described below.
The Nominating and Governance Committee will consider qualified nominees recommended by stockholders who may submit recommendations to the committee in care of our Corporate Secretary at our corporate headquarters, 5101 Tennyson Parkway, Plano, Texas 75024. To be considered by the Nominating and Governance Committee, stockholder nominations must be submitted in accordance with our bylaws and must be accompanied by a description of the qualifications of the proposed candidate and a written statement from the proposed candidate that he or she is willing to be nominated and desires to serve, if elected.above. Nominees for director who are recommended by our stockholders will be evaluated in the same manner as any other nominee for director.
Nominations by stockholders may also be made at an annual meeting of stockholders in the manner provided in our bylaws. Our bylaws require that a stockholder entitled to vote for the election of directors may make nominations of persons for election to our Board at a meeting of stockholders by complying with required notice procedures. Nominations must be received at our corporate headquarters not less than 75 days or more than 85 days before any annual meeting of stockholders. If, however, notice or prior public disclosure of an annual meeting is given or made less than 75 days before the date of the annual meeting, the notice must be received no later than the 10thExecutive Committee. day following the date of mailing of the notice of annual meeting or the date of public disclosure of the date of the annual meeting, whichever is earlier. The notice must specify the following
As to each person the stockholder proposes to nominate for election or re-election as a director
The name, age, business address, and residence address of the person
The principal occupation or employment of the person
The class and number of shares of our capital stock that are beneficially owned by the person
A description of all direct and indirect compensation and other material monetary agreements, arrangements, or understandings during the previous three years, and any other material relationships, between the stockholder and the proposed nominee
Any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors under Regulation 14A of the Exchange Act
As to the stockholder giving notice
The name and record address of the stockholder and any other stockholder known to be supporting the nominee
The class and number of shares of our capital stock that are beneficially owned by the stockholder making the nomination and by any other supporting stockholders
Any proxy, contract, arrangement, understanding, or relationship pursuant to which the stockholder has a right to vote any company shares
We may require that the proposed nominee furnish us with other information as we may reasonably request to assist us in determining the eligibility of the proposed nominee to serve as a director. At any meeting of stockholders, the presiding officer may disregard the purported nomination of any person not made in compliance with these procedures.
Communications with Our Board of Directors
Any stockholder or interested party who wishes to communicate with our Board of Directors or any specific director(s), including non-management director(s), may write to:
Board of Directors
Tyler Technologies, Inc.
5101 Tennyson Parkway
Plano, Texas 75024
Depending on the subject matter, management will
Forward the communication to the director or directors to whom it is addressed (for example, if the communication received relates to our “whistleblower policy” found on our website, www.tylertech.com, including questions, concerns, or complaints regarding accounting, internal accounting controls, and auditing matters, it will be forwarded by management to the Chairman of the Audit Committee for review)
Attempt to handle the inquiry directly (for example, if the communication is a request for information about us or our operations or it is a stock-related matter that does not appear to require direct attention by our Board of Directors)
Not forward the communication if it is primarily commercial in nature or if it relates to an improper or irrelevant topic. At each meeting of our Board of Directors, our Chairman will present a summary of all communications received since the last meeting of the Board of Directors that were not forwarded and will make those communications available to any director on request.
Director Attendance at Annual Meetings
Directors are not required to attend our annual meetings of stockholders. However, our Board of Directors typically holds a meeting immediately following the annual meeting of stockholders. Therefore, in most cases, all of our director nominees will be present at the annual meeting. All of our director nominees were present at the 2018 annual meeting of stockholders.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the beneficial ownership of our Common Stock as of March 15, 2019 by (i) each beneficial owner of more than 5% of our Common Stock, (ii) each director and nominee, (iii) each “Named Executive Officer” (as defined in the SEC’s Regulation S-K), and (iv) all of our executive officers and directors as a group.
Security Ownership of Directors and Management
|
| | | | | | | | | | | | | | | | | | |
| Name and Address of Beneficial Owner (1) | | Direct (2) | | Options
Exercisable
Within 60
Days (3) | | Stock Awards Vested Within 60 Days (4) | | Other (5) | | Total | | Percent of
Class (6) |
BlackRock, Inc. 55 East 52nd Street New York, NY 10055 | | 3,716,871 |
| (7) | — |
| | | | — |
| | 3,716,871 |
| | 9.7 | % |
The Vanguard Group 100 Vanguard Blvd. Malvern, PA 19355 | | 3,421,041 |
| (8) | — |
| | | | — |
| | 3,421,041 |
| | 8.9 | % |
Brown Capital Management, LLC 1201 N. Calvert Street Baltimore, MD 21202 | | 2,090,749 |
| (9) | — |
| | | | — |
| | 2,090,749 |
| | 5.5 | % |
Janus Henderson Group PLC 201 Bishopsgate EC2M 3AE United Kingdom | | 1,480,959 |
| (10) | — |
| | | | — |
| | 1,480,959 |
| | 3.9 | % |
| Directors and Nominees | | | | | | | | | | | | |
| Donald R. Brattain | | 7,070 |
| | 20,000 |
| | 1,099 |
| | 3,000 |
| (11) | 31,169 |
| | * |
|
| Glenn A. Carter | | 500 |
| | 19,108 |
| | 1,099 |
| | — |
| | 20,707 |
| | * |
|
| Brenda A. Cline | | 1,000 |
| | 18,333 |
| | 1,099 |
| | — |
| | 20,432 |
| | * |
|
| J. Luther King, Jr. | | 72,864 |
| | 40,000 |
| | 1,099 |
| | 62,679 |
| (12) | 176,642 |
| | * |
|
| Daniel M. Pope | | — |
| | 11,333 |
| | 1,099 |
| | — |
| | 12,432 |
| | * |
|
| Dustin R. Womble | | 178,122 |
| (13) | 190,242 |
| | — |
| | — |
| | 368,364 |
| | 1.0 | % |
| Named Executive Officers | | | | | | | | | | | | |
| John S. Marr Jr. | | 226,403 |
| | 383,290 |
| | | | 75,000 |
| (14) | 684,693 |
| | 1.8 | % |
| H. Lynn Moore Jr. | | 62,313 |
| | 222,433 |
| | | | — |
| | 284,746 |
| | * |
|
| Brian K. Miller | | 45,855 |
| | 98,672 |
| | | | — |
| | 144,527 |
| | * |
|
| All directors, nominees and executive officers as a group (9 persons) | | 594,127 |
| | 1,003,411 |
| | 5,495 |
| | 140,679 |
| | 1,743,712 |
| | 4.4 | % |
________________________
| |
* | Less than one percent of our outstanding common stock |
| |
(1) | Unless otherwise noted, the address of each beneficial owner is our corporate headquarters: 5101 Tennyson Parkway, Plano, Texas 75024. |
| |
(2) | “Direct” represents shares as to which each named individual has sole voting or dispositive power. |
| |
(3) | “Options Exercisable within 60 Days” reflects the number of shares that could be purchased by exercise of options at March 15, 2019 or within 60 days thereafter. |
| |
(4) | “Stock Awards Vested within 60 Days” reflects the number of restricted stock units that will vest and be settled in shares at March 15, 2019 or within 60 days thereafter. |
| |
(5) | “Other” represents the number of shares of common stock as to which the named entity or individual share voting and dispositive power with another entity or individual(s). |
| |
(6) | Based on 38,351,970 shares of our common stock issued and outstanding at March 15, 2019. Each stockholder’s percentage is calculated by dividing (a) the number of shares beneficially owned by (b) the sum of (i) 38,351,970 plus (ii) the number of shares such owner has the right to acquire within 60 days. |
| |
(7) | Based on information reported by BlackRock, Inc. on Amendment No. 9 to Schedule 13G that was filed with the SEC on February 6, 2019. BlackRock, Inc. is deemed to have beneficial ownership of all of these shares, which includes sole voting power for 3,525,213 shares, sole investment power for all 3,716,871 shares. |
| |
(8) | Based on information reported by The Vanguard Group on Amendment No. 6 to Schedule 13G that was filed with the SEC on February 11, 2019. The Vanguard Group is deemed to have beneficial ownership of these shares, which includes sole voting power of 21,088 shares, sole investment power of 3,399,284 shares, shared voting power of 4,304 shares, and shared investment power of 21,757 shares. |
| |
(9) | Based on information reported by Brown Capital Management, LLC on Amendment No. 12 to Schedule 13G that was filed with the SEC on February 14, 2019. Brown Capital Management, LLC is deemed to have beneficial ownership of these shares, which includes sole voting power of 1,269,816 shares and sole investment power for all 2,090,749 shares. |
| |
(10) | Based on information reported by Janus Henderson Group PLC on Amendment No.1 to Schedule 13G that was filed with the SEC on February 11, 2019. Janus Henderson Group PLC is deemed to have beneficial ownership of these shares, which includes shared voting power of all 1,480,959 shares and shared investment power for all 1,480,959 shares. |
| |
(11) | Includes (a) 7,070 shares held by Deephaven Enterprises, Inc., of which Mr. Brattain is the sole shareholder, and (b) 3,000 shares held in an investment retirement account for the benefit of Mr. Brattain's spouse. |
| |
(12) | Represents shares of common stock held by clients of Luther King Capital Management, an investment advisory firm controlled by Mr. King in which he is deemed to have voting and investment power. Mr. King expressly disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. |
| |
(13) | Includes: 156,379 shares of our common stock pledged and held in a margin account. |
| |
(14) | Includes: (a) 59,500 shares of common stock held in a partnership in which Mr. Marr is the general partner and has sole voting and investment power (the partnership is owned 99% by a trust in which Mr. Marr’s disclaims beneficial ownership and 1% by the general partner); and (b) 15,500 shares held in a trust in which Mr. Marr has shared voting power. |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act requires that our directors, executive officers, and 10% or more stockholders file with the SEC and New York Stock Exchange initial reports of ownership and reports of changes in ownership of our common stock. These persons are required to furnish us with copies of all Section 16(a) reports they file with the SEC. To our knowledge, based solely upon (i) our review of the copies of the forms we received during 2018 and (ii) written representations from our directors and executive officers, we believe that all of our directors, officers, and 10% or more stockholders complied with all Section 16(a) filing requirements during 2018, with two exceptions. On March 8, 2018, filings were made for stock option grants authorized under the February 2018 employment agreements of Messrs. Marr, Moore and Miller with grant dates of February 26, 2018 (in the amounts of 112,000, 112,000 and 40,000, respectively). On February 28, 2019, filings were made for restricted stock unit grants authorized under the February 2018 employment agreements of Messrs. Marr, Moore and Miller (in the amounts of 7,200, 7,200 and 2,400, respectively) but granted on May 9, 2018 after stockholder approval of the 2018 Stock Incentive Plan. These incentive grants were duly disclosed in the Current Report on Form 8-K the Company filed with the aforementioned employment agreements and were discussed in the Company’s 2018 Proxy Statement.
COMPENSATION DISCUSSION AND ANALYSIS
In this Compensation Discussion and Analysis, we describe our compensation objectives, policies, and practices generally, detail the specific fiscal year 2018 total compensation for our fiscal year 2018 named executive officers (the “Named Executive Officers”), and summarize the approved compensation for our fiscal year 2019 Named Executive Officers.
Compensation Philosophy and Objectives
Our Compensation Committee is responsible for reviewing and approving the design and administration of the executive compensation program. Our Compensation Committee believes that an effective compensation program should reward achievement of specific corporate goals and align our executives’ interests with those of our stockholders by rewarding performance that meets or exceeds established goals. Our compensation philosophy is designed to attract, motivate, and retain the key executives who drive our success and industry leadership and to motivate those executives to deliver stockholder value by achieving the following overall objectives:
Compensation should align the interests of our executives with our stockholders – compensation should link the interests of management with those of stockholders by making a substantial portion of executive compensation depend upon our long-term financial and stock performance;
Compensation should be competitive – compensation levels should be sufficiently competitive to attract and retain superior executives by providing them with the opportunity to earn total compensation packages that are competitive in the industry;
Compensation should be based on company performance – compensation should reward short-term and long-term company performance;
Compensation should reflect responsibility and accountability – compensation should be based on the level of skill, knowledge, effort, and responsibility needed to perform the job successfully; and
Compensation should not incentivize excessive risk taking – the mix of compensation elements should be appropriately balanced between fixed pay, short-term annual incentive cash compensation, and long-term incentive equity compensation to minimize incentive for excessive risk taking.
To achieve these objectives, the Compensation Committee has designed a compensation program for our Named Executive Officers that balances the three primary elements of our executive compensation: annual base pay; annual incentive cash compensation; and long-term incentive equity compensation. Historically, long-term incentive equity compensation has been in the form of stock options. With the 2018 stockholder approval of the 2018 Stock Incentive Plan, the Compensation Committee intends to award to its Named Executive Officers both stock options and performance-based restricted stock units. The Compensation Committee believes that this structure encourages our Named Executive Officers to think and act in both the near-term and long-term interests of our stockholders, without promoting excessive risk taking.
Regarding base pay and annual cash incentive compensation, the same compensation philosophy applied by the Compensation Committee to our Named Executive Officers is also utilized by management and applied throughout the employee base so that all employees’ incentive compensation is tied to similar goals, the difference being the amount of base pay compensation and percentage incentive compensation award in relation to base pay. Regarding long-term incentive compensation in the form of stock options and/or restricted stock or restricted stock units, management also applies the same compensation philosophy as applied by the Compensation Committee to our Named Executive Officers to senior divisional management. We believe that the application of this consistent philosophy regarding compensation further strengthens the alignment of employees’ interests with those of the stockholders.
2018 Business Highlights
Tyler continues to strengthen its position as a leading provider of software and related services for the public sector. In 2018, we continued to produce strong financial results and steady growth, particularly with respect to recurring revenues, while improving our competitive position and investing at a high level in product development. In terms of financial results, we achieved record highs in revenues and cash flows from operations.
For the year ended December 31, 2018:
Tyler achieved record annual GAAP revenue of $935 million, an 11 percent increase over 2017;
Recurring revenues increased 14 percent over 2017 to $605 million, and comprised approximately 65 percent of our total revenues in 2018;
GAAP earnings per share decreased 13 percent to $3.68 in 2018, and non-GAAP earnings per share increased 25 percent to $4.80;
We generated a record $250 million in cash provided by operations during the year, and ended the year with total cash and investments of $232 million and no debt; and
Tyler closed the year with record backlog of $1.3 billion, up nearly 2 percent from 2017.
Our executive officers, along with our entire team, also delivered on key strategic performance objectives and other initiatives during 2018. In addition to strong financial results for 2018, achievements included:
Continued progress with our New World public safety offering, acquired by Tyler in late 2015, including significant improvements in win rates, along with achieving substantial progress on major product development initiatives;
Completion of five acquisitions during 2018;
Recognition as one of the “Best Places to Work” in several locations with key Tyler offices; and
Ranking by Forbes on its “Most Innovative Growth Companies”, “Best Employers for Women” and (for the ninth time) its list of “America’s Best Small Companies”.
For a description of our non-GAAP earnings per share for 2018, see “Compensation Discussion and Analysis – 2018 Named Executive Officer Compensation.” Also, please refer to http://investors.tylertech.com/interactive_analyst_center for a reconciliation of non-GAAP measures.
Compensation Program Actions
Our compensation program for our Named Executive Officers has three components:
Compensation Program Design - actions related to the overall design and governance of our executive compensation program
Company Performance Review - actions approving actual incentive cash compensation awards for the just-completed fiscal year and performance-based restricted stock unit vesting
Setting Compensation for Current Fiscal Year - actions that set future base pay, incentive compensation targets and equity compensation for the upcoming fiscal year
Compensation Program Design. Each year, our Chief Executive Officer, in conjunction with the Human Resources Department, reviews the market competitiveness of our executive compensation relative to technology and broad industry peers, which is described in detail below. If the review shows that our executive compensation is not competitive, our Chief Executive Officer will recommend changes to the Compensation Committee. He may also recommend changes to the executive compensation program based on changes in the business environment in which we operate. The Compensation Committee periodically reviews the overall objectives of our executive compensation program and the elements of the program, including the mix of cash and stock-based compensation and the mix of short-term and long-term compensation, to determine whether they are appropriate, properly coordinated, and achieve their intended purposes.
Peer Group and Surveys. We joined the Radford Global Technology Survey (the “Radford Survey”) in 2010. Nearly 2,000 technology and life science companies use the Radford Survey to benchmark their compensation practices for all levels within their organizations. Management utilizes the Radford Survey to determine the reasonableness of compensation for various levels of employees, including executives. The Compensation Committee considered comparative market data from a broad set of technology companies in the Radford Survey.
In order to provide the Compensation Committee with more detailed and specific information about executive compensation levels and practices, we establish and utilize a peer group of approximately 20 public companies of similar size in the software industry (the “Peer Group”) each year to assist in determining appropriate compensation levels for the Named Executive Officers. The Peer Group companies provide perspective and reflect the external market’s valuation of key executive compensation. External information is considered with internal factors such as an executive’s position, experience, and responsibilities. The Peer Group is reviewed annually and adjusted as required by changes in the market.
In February 2019, we reviewed the Peer Group utilized in 2018, comparing them to Tyler considering the following four key metrics: revenues; net income; market capitalization; and total assets.
The table below shows a comparison of those key metrics for Tyler to the peer group average:
|
| | | | | | | | | | | | | | | |
| | Revenues | | Net Income | | Market Capitalization | | Total Assets |
| | (in millions) | | (in billions) |
| | | | | | | | |
| Tyler Technologies, Inc. | $ | 841 |
| | $ | 164 |
| | $ | 7.4 |
| | $ | 1.6 |
|
| Peer Group Average | $ | 973 |
| | $ | 191 |
| (a) | $ | 8.5 |
| | $ | 1.9 |
|
| | | | | | | | |
(a) Excludes peer companies with net losses
The Compensation Committee determined that based on these metrics the Peer Group was appropriate for comparative purposes. The 20 companies in the Peer Group used to assist in setting 2019 compensation were:
|
| |
ACI Worldwide, Inc. | MicroStrategy, Incorporated |
Ansys, Inc. | NetScout Systems, Inc. |
Aspen Technology, Inc. | Pegasystems, Inc. |
athenahealth, Inc. | RealPage, Inc. |
Blackbaud, Inc. | ServiceNow, Inc. |
Guidewire Software, Inc. | Splunk, Inc. |
Jack Henry & Associates, Inc. | SS&C Technologies Holdings, Inc. |
j2 Global, Inc. | Tableau Software, Inc. |
Manhattan Associates, Inc. | The Ultimate Software Group, Inc. |
Medidata Solutions, Inc. | Veeva Systems Inc. |
The Compensation Committee continues to utilize the Radford Survey in addition to the Peer Group. The Compensation Committee uses market survey data like the Peer Group and Radford Survey not as a benchmark per se, but rather as a reasonableness check. This flexibility is important in designing compensation arrangements to attract and retain new executives in the highly competitive and rapidly changing environment in which we compete.
Positioning of Pay. The Compensation Committee determines target total compensation for our Named Executive Officers after considering the Chief Executive Officer’s recommendations and a variety of data sources, including analysis of the Peer Group and Radford Survey data. We do not apply a formula that ties our total compensation levels to specific market percentiles.
Mix of Pay Elements. As described above, our philosophy is to provide a significant portion of total compensation linked to performance that we believe will create long-term stockholder value. To achieve these objectives, the executive compensation program relies on the following three elements of total compensation:
|
| | | | | | |
Element | | Form of
Compensation
| | Purpose | | Metric |
Base salary | | Cash | | Provide competitive, fixed compensation to attract and retain exceptional executive talent | | Salaries are set each year based on the executive's position, responsibilities, experience, and retention risk. Base salary is a fixed component and is not dependent on achieving goals |
Incentive cash compensation under the annual bonus plan | | Cash | | Create a strong financial incentive for achieving or exceeding annual financial performance goals | | Achieving adjusted earnings per share goals, which are recommended by the CEO and approved by the Compensation Committee |
Equity-based compensation | | Stock options, restricted stock units and performance -based restricted stock units | | Create a strong financial incentive for creating stockholder value, encourage a significant company equity stake, and provide a direct incentive for future performance | | Discretionary, but set each year based on the executive's position, experience, responsibilities, and retention risk |
Our executive compensation program is designed to provide an incentive and reward for the achievement of both short-term and long-term objectives. We believe that sustained achievement of measurable financial objectives leads to increased stockholder value. To achieve these objectives, we use a mix of short-term compensation (base salaries and annual cash bonuses) and long-term incentives to provide a total compensation structure that is designed to reward sustained strong performance while providing cash compensation that remains competitive for our industry. In setting the mix between the different elements of compensation, we do not target specific allocations, but generally weigh the incentive compensation elements (both cash and equity) more heavily. For more information, see “Compensation Discussion and Analysis – 2018 Named Executive Officer Compensation – Compensation Mix.”
Base salary is intended to provide competitive, fixed compensation to attract and retain exceptional executive talent. Annual incentives are intended to reward the achievement of short-term objectives, which, when consistently achieved, drive long-term stockholder value. Our 2018 incentive compensation plan is based on annual non-GAAP earnings per share and is structured with graduated benefits for overachievement and consequences for underachievement of objectives. We believe that non-GAAP earnings per share, which excludes write-downs of acquisition-related deferred revenue and acquired leases, share-based compensation expense, employer portion of payroll taxes on employee stock transactions, acquisition-related costs, and expenses associated with amortization of intangibles arising from business combinations, removes certain uncontrollable variables and provides a more accurate picture of our financial performance. While our annual incentive compensation plan is based on a given year’s non-GAAP earnings per share, the initial establishment of the criteria for full achievement of the target bonus from year to year is based on a longer term view of appropriate growth. In other words, performance that meets our internal plan in a given year may not necessarily correspond with our executives earning 100% of the target bonus, if the internal plan does not meet the goal of overall year-over-year growth. For more information on the calculation of 2018 incentive compensation, see “Compensation Discussion and Analysis – 2018 Named Executive Officer Compensation – 2018 Compensation Committee / Board of Director Actions.”
Equity incentives, previously comprised of stock options only, are intended to reward sustained achievement of long-term objectives through achievement of performance goals and time-based vesting periods. Stock options granted to our executive officers have a ten-year life. Beginning in 2016, options vest ratably over a three-year period for employees (including Named Executive Officers) who are at least fifty years of age and have tenure with the company of at least fifteen years; otherwise, options vest ratably over a five-year period. Beginning in 2018, restricted stock units (“RSUs”) also vest ratably over three-year or five-year periods, and performance-based restricted stock units (“PSUs”) vest upon the achievement of defined long-term performance measures as determined by the Compensation Committee. Our allocations reflect our philosophy that a significant portion of our executive officers’ compensation should be performance-based and therefore at risk depending on the company’s performance. Through the use of equity incentives, a significant portion of potential compensation is tied directly to achievement of performance goals or stock price appreciation, further aligning the interest of our executive officers with those of our stockholders. Stock options and RSUs are granted in semi-annual tranches (on or about June 1 and December 1), and PSUs are granted on or about March 1 after performance metrics have been established. Stock option awards are made with an exercise price equal to the market price at the time of the award.
Our philosophy in granting equity incentive awards is to:
maintain an overall number and value of equity incentive awards that is reasonable in terms of shareholder dilution; and
focus equity incentive awards on a relatively small number of key employees who have a direct impact on our ability to achieve our long-term goals; and
provide the largest equity incentive grants to our top performers and individuals with the greatest responsibilities and potential to drive long-term share price appreciation; and
utilize a mix of options, restricted stock units, and performance-based restricted stock units to align recipients with the long-term interests of our stockholders, without promoting excessing risk taking.
Assessment of Risk. Our compensation program is designed not to incentivize excessive risk taking by allocating an appropriate balance between the three compensation elements. The base salary component of compensation is a fixed amount and is therefore not subject to or influenced by risk taking. Our annual cash incentive compensation is principally focused on short-term performance goals established with consideration to building long-term stockholder value (non-GAAP earnings per share, which excludes write-downs of acquisition-related deferred revenue and acquired leases, share-based compensation expense, employer portion of payroll taxes on employee stock transactions, acquisition-related costs, and expenses associated with the amortization of acquisition intangibles arising from business combinations). Our long-term incentive compensation is based on the achievement of three-year revenue growth goals and long-term stock price growth through the grant of PSUs and stock options. Our annual cash incentive compensation plans are graduated scale plans rather than based on “all or nothing” performance, which reduces the incentive for short-term excessive risk taking. Moreover, our stock option grants occur in fixed amounts on a semi-annual basis (on or about June 1 and December 1), which eliminates the ability of executive officers to time the grant of options around short-term, market events. Further, options granted to Named Executive Officers vest over a three-year or five-year period beginning on the first anniversary of the grant date (as described above), which further emphasizes the long-term nature of this compensation component and reduces the incentive for risk taking.
Finally, the Board of Directors adopted the Executive Compensation Recovery Policy effective January 1, 2010, which provides that the independent directors can direct the company to recover all or a portion of any bonus or incentive compensation paid to an executive if, in the opinion of the independent directors, an executive engages in fraud or intentional misconduct that causes a material restatement of our financial statements. See “Compensation Discussion and Analysis – 2018 Named Executive Officer Compensation – 2018 Compensation Committee / Board of Director Actions.” In addition, the 2018 Stock Incentive Plan also includes a “clawback/forfeiture” provision pursuant to which the Compensation Committee may provide in any equity incentive award agreement that (1) the Compensation Committee may in its discretion cancel the award if the holder of the award engages in certain defined detrimental activity, and/or (2) the holder of an award is required to repay any amount in excess of what the holder should have received, whether by reason of a financial restatement, mistake in calculations, administrative error, or otherwise. In addition, all awards would be subject to reduction, cancellation, forfeiture, or recoupment as required under applicable law.
Consideration of Say-on-Pay Vote Results. In determining our Named Executive Officers’ compensation, we considered the results of the shareholder advisory vote on our executive compensation policies at the 2018 annual meeting of shareholders. The shareholders approved our executive compensation policies by a vote of 76 percent. We believe that our policies ensure alignment with our shareholders and appropriately reflect our “pay for performance” philosophy.
Company Performance Review Process. Each year, the Compensation Committee approves the incentive compensation for the prior fiscal year based on the achievement of defined incentive compensation plans that were approved by the Compensation Committee at the beginning of the prior fiscal year. Annual bonuses are reviewed by the Compensation Committee and generally paid shortly thereafter. While the payment of annual incentive compensation is based solely on the achievement of pre-defined and pre-approved metrics, the Compensation Committee, using its judgment, may exercise discretion in granting additional bonus amounts and equity awards as it deems appropriate. These adjustments may be based on subjective factors such as the Compensation Committee’s assessment of external factors, including general economic and market conditions, unforeseen “one-time” events affecting financial performance or driving stockholder value, the executive’s assumption of additional responsibilities, the degree of difficulty of a particular assignment, and the executive’s experience, tenure, and future prospects with Tyler.
Setting Compensation for Current Fiscal Year. Each year, the Compensation Committee approves base salary, the metrics for annual incentive compensation plans, and the amount of stock incentives to be granted to the Named Executive Officers, including annual performance-based restricted stock unit awards and our semiannual stock option grants. In so doing, the Committee reviews recommendations by the Chief Executive Officer and analyzes the Peer Group and Radford Survey, internal business plans, and general economic conditions. For more information on the establishment of 2018 Named Executive Officer compensation, see “Compensation Discussion and Analysis – 2018 Named Executive Officer Compensation.”
2018 Named Executive Officer Compensation
In February 2018, the Compensation Committee approved the total 2018 compensation packages for each of the Named Executive Officers, including the Chief Executive Officer. The total compensation packages included base salary, an annual cash incentive compensation plan, and proposed stock incentive awards. The Compensation Committee reaffirmed the appropriateness and amount of share-based awards prior to the June 1 and December 1 awards.
Role of the Chief Executive Officer. In February 2018, our then Chief Executive Officer, John S. Marr Jr., attended the Compensation Committee meeting at the request of the Chairman of the Compensation Committee. Mr. Marr was asked to discuss senior management’s philosophy regarding executive compensation and short- and long-term objectives for the purpose of assisting the Compensation Committee in establishing 2018 total compensation for the Named Executive Officers. In addition, Mr. Marr was asked to present the results of the analysis of the Peer Group and Radford Survey, as well as the financial outlook for 2018. Mr. Marr noted that the Named Executive Officers’ 2018 total cash compensation was below the median and mean as represented by the Peer Group. Mr. Marr made recommendations regarding 2018 base salary increases, annual bonus performance targets with corresponding minimum and maximum bonus payout potentials, and long-term equity incentives for each Named Executive Officer, including himself. Mr. Marr noted that our stock price has increased significantly over recent years, which has led to significantly higher share-based compensation expense under the Black-Scholes valuation methodology, even as the aggregate amount of equity grants to management and key personnel has remained relatively constant. Mr. Marr recommended using non-GAAP earnings per share for annual cash incentive compensation purposes, which excludes write-downs of acquisition-related deferred revenue and acquired leases, share-based compensation expense, employer portion of payroll taxes on employee stock transactions, and expenses associated with the amortization of acquisition intangibles arising from business combinations, with graduated benefits for overachievement and consequences for underachievement of objectives, as doing so would remove certain uncontrollable variables and provides a more accurate picture of our financial performance. Mr. Marr did not participate further in the Compensation Committee’s discussion of executive compensation for 2018. The Compensation Committee has the authority to accept, reject, or modify the Chief Executive Officer’s recommendations.
Analysis of Compensation Elements. The principal elements of our executive compensation program in 2018 were (1) base salary, (2) annual cash bonus, and (3) stock incentives, each of which is described in more detail below:
Base Salary. Base salary represents the single fixed component of the three principal elements of our executive compensation program and is intended to provide a baseline minimum amount of annual compensation for our executives. In February 2018, the Compensation Committee approved base salary adjustments for each of the Named Executive Officer’s annual base salary as set forth below:
|
| | | | | | | | | | |
| Name | | Increase (Decrease) | | 2017 | | 2018 |
| John S. Marr Jr. | | (29)% | | $ | 425,000 |
| | $ | 300,000 |
|
| H. Lynn Moore Jr. | | 18% | | $ | 425,000 |
| | $ | 500,000 |
|
| Brian K. Miller | | 4% | | $ | 370,000 |
| | $ | 383,000 |
|
The Chief Executive Officer recommended a 29% reduction to his own salary and a 18% increase for Mr. Moore to reflect the continuing leadership transition. In May 2018, Mr. Marr was made Executive Chairman with a corresponding reduction in schedule and Mr. Moore was promoted to Chief Executive Officer in addition to his role as President. Mr. Marr also recommended a 4% salary increase for Mr. Miller. The recommendations were based on two factors. First, he referenced nationwide market survey information from the Peer Group and Radford Survey. This information included comparisons to similar-sized companies in the technology and life sciences industries with annual revenues between $500 million and $1 billion. The survey indicated that the base salary and total annual compensation for our Named Executive Officers was below the average base salary reflected in the Peer Group and Radford Survey. Second, and most important, he believed that it was appropriate to reward executive managementact for the company’s strong performance in 2017.
The Compensation Committee reviewed the nationwide market survey information in a summary report and considered the company’s growth in both revenue and earnings per share, as well as the then Chief Executive Officer’s recommendations, in independently determining the 2018 salary adjustments. As noted above, the Compensation Committee does not adhere to strict formulas or rely to any significant extent on market survey data to determine total compensation or the mix of compensation elements. Market survey data is not used as a benchmark per se, but rather is referred to by the Compensation Committee as a reasonableness check.
Annual Cash Bonus. A significant portion of each executive’s annual compensation is in the form of a cash bonus. We believe that some meaningful portion of the executive’s compensation should be contingent upon the successful achievement of our annual corporate objectives. In February 2018, the Compensation Committee approved the 2018 Incentive Compensation Plan recommended by the then Chief Executive Officer, which was based on the achievement of fully diluted non-GAAP earnings per share goals established in connection with our annual operating plan and consistent with our long-term growth strategy (which excludes write-downs of acquisition-related deferred revenue and acquired leases, share-based compensation expense, employer portion of payroll taxes on employee stock transactions, and expenses associated with the amortization of acquisition intangibles arising from business combinations, and did not include any individual performance goals). Theentire Board of Directors, also reviews the annual operating plan. The 2018 Incentive Compensation Plan for the Named Executive Officers was similarbut may not commit to other corporate employees’ incentive compensation plans and tied to similar goals, the main difference being the sizean expenditure in excess of the target incentive award in relation to base salary. We believe that the percentage of compensation that is based on our performance should increase with an employee’s level within the company up to and including executive management. Target incentives are determined based on experience, level of responsibility, and retention risk.$25,000,000 without full Board approval.
The 2018 IncentiveNon-Employee Director Compensation
Plan provided the opportunity for the executive officers as well as our corporate employees to earn incentive compensation at the following levels:170%Components of target based on achieving 115% of adjusted earnings per share goal
165% of target based on achieving 114% of adjusted earnings per share goal
160% of target based on achieving 113% of adjusted earnings per share goal
155% of target based on achieving 112% of adjusted earnings per share goal
150% of target based on achieving 111% of adjusted earnings per share goal
145% of target based on achieving 110% of adjusted earnings per share goal
140% of target based on achieving 109% of adjusted earnings per share goal
135% of target based on achieving 107% of adjusted earnings per share goal
130% of target based on achieving 106% of adjusted earnings per share goal
125% of target based on achieving 105% of adjusted earnings per share goal
120% of target based on achieving 104% of adjusted earnings per share goal
115% of target based on achieving 103% of adjusted earnings per share goal
110% of target based on achieving 102% of adjusted earnings per share goal
105% of target based on achieving 101% of adjusted earnings per share goal
100% of target based on achieving 100% of adjusted earnings per share goal
95% of target based on achieving 99% of adjusted earnings per share goal
90% of target based on achieving 98% of adjusted earnings per share goal
85% of target based on achieving 97% of adjusted earnings per share goal
80% of target based on achieving 96% of adjusted earnings per share goal
75% of target based on achieving 95% of adjusted earnings per share goal
70% of target based on achieving 94% of adjusted earnings per share goal
65% of target based on achieving 93% of adjusted earnings per share goal
60% of target based on achieving 91% of adjusted earnings per share goal
55% of target based on achieving 90% of adjusted earnings per share goal
50% of target based on achieving 89% of adjusted earnings per share goal
45% of target based on achieving 88% of adjusted earnings per share goal
40% of target based on achieving 87% of adjusted earnings per share goal
0% of target based on achieving less than 87% of adjusted earnings per share goal
For 2018, we achieved actual non-GAAP earnings per share of $4.80, which included adjustments to 2018 GAAP pre-tax income for (i) $4 million of write-downs of acquisition-related deferred revenue and acquired leases, (ii) $54.1 million of share-based compensation expense and employer portion of payroll taxes on employee stock transactions, and (iii) $39.2 million of amortization of intangibles arising from business combinations. Based on our actual non-GAAP earnings per share of $4.80, we earned 105% of the target bonus for 2018. In order to earn 100% of the target bonus for 2018, we had to achieve the non-GAAP earnings per share goal of $4.73 to $4.779, which was generally in a range consistent with our long-term growth objectives. In order to achieve the threshold bonus of 40% of target, we had to achieve non-GAAP earnings per share of $4.13. In order to achieve the maximum bonus of 170% of target, we had to achieve non-GAAP earnings per share of $5.43. The operating plan is developed from the “bottom-up” and considers a wide range of factors that impact our results, including the general economic environment, our market, competitive landscape, initiatives and investments, and various other risks and opportunities. As of the beginning of the plan year, achievement of the plan was generally considered to be challenging but reasonably possible when all such factors were considered.
In February 2018, the Compensation Committee approved target 2018 incentive awards at 100% of base salary for Messrs. Marr, Miller, and Moore.
Non-Employee Director Compensation.Stock Incentives. The third component of our Named Executive Officers’ 2018 compensation is stock incentives, including PSUs and stock options. As discussed above, stock incentives promote long-term performance and serve as a means of attracting, motivating, and retaining executive officers. Stock incentives also provide a vital link between the long-term results achieved for our stockholders and the rewards provided to executive officers and other key employees.
For 2018, the Compensation Committee conditionally approved grants of PSUs for 7,500 shares for each of Messrs. Marr and Moore and 5,000 shares for Mr. Miller. These grants to the Named Executive Officers are subject to performance-based vesting with a performance period of three years. The performance measure used to determine the number of PSUs vested at the end of the three-year performance period is average annual revenue growth over that period. The three-year cliff vesting period reinforces the importance of sustained revenue growth to the Company’s long-term success. The Compensation Committee believes that this vesting schedule emphasizes the long-term nature of this compensation component, thereby further aligning the interests of the Named Executive Officers with those of the stockholders. Upon vesting, the vested PSUs will be “settled” by our issuance to the holder, without any charge, of one share of our common stock for each vested PSU.
The following table sets forth the performance criteria that must be met for annual PSU grants to be earned and eligible for vesting:
|
| | | |
Average Annual Revenue Growth (1) | | Percentage of PSUs to be earned and eligible for vesting |
Under 6% | | — |
|
6.0% -7.49% | | 50 | % |
7.5%-8.99% | | 80 | % |
9.0%-10.99% | | 100 | % |
11.0% and above | | 120 | % |
________________________
(1) Adjusted for acquisitions with revenue 3% or greater of Tyler consolidated revenue.
In February 2018, Mr. Marr also recommended stock option grants for our Named Executive Officers. Mr. Marr further recommended these grants be made in two equal tranches on June 1 and December 1, 2018, which was consistent with our semi-annual grant policy. The term and vesting period for stock option grants was consistent with stock option grants made to all our employees. With the addition of PSUs in 2018, the stock option grants for Messrs. Marr and Miller were lower than the 2017 stock option grants. The total value of share-based awards in 2018 was equivalent to the total value of share-based awards to the Named Executive Officers in 2017 as the value of PSUs granted in 2018 was generally equivalent to the reduction in value of options granted in 2018.
In February 2018, the Compensation Committee preliminarily approved the size of option grants to our Named Executive Officers. In so doing, the Compensation Committee considered many factors, including the fact that our Named Executive Officers’ total cash compensation was below the average as reflected in the Peer Group and Radford Survey, the recommendation of our then Chief Executive Officer, our potential future financial performance, each Named Executive Officer’s experience and level of responsibility, and our retention risk for each Named Executive Officer. The Compensation Committee does not have a set formula to determine which of these factors is more or less important, and the specific factors used and their weighting may vary among individual executives. The Compensation Committee also periodically reviews Institutional Shareholder Services, Inc. guidelines as to the appropriate level of share-based awards granted for companies of similar characteristics. Prior to June 1, 2018, the Compensation Committee approved the annual grants of share-based awards to each Named Executive Officer as set forth below:
|
| | | | | | |
| | | PSUs | | Stock Options | | Stock Options |
| Name | | June 1, 2018 | | June 1, 2018 | | December 1, 2018 |
| | | | | | | |
| John S. Marr Jr. | | 7,500 | | 11,250 | | 11,250 |
| H. Lynn Moore Jr. | | 7,500 | | 11,250 | | 11,250 |
| Brian K. Miller | | 5,000 | | 7,500 | | 7,500 |
Share-based awards were made in 2018 to approximately 14% of all employees. Excluding share-based awards in connection with employment agreements, the Named Executive Officers were awarded approximately 19% of the total annual recurring stock incentive awards granted to employees in 2018 as part of our annual recurring stock incentive award program. In 2018, the percentage of total share-based awards for our annually recurring grants to Named Executive Officers was as follows:
|
| | |
Name | | Percentage of total
annually recurring
stock incentive awards
|
John S. Marr Jr. | | 7% |
H. Lynn Moore Jr. | | 7% |
Brian K. Miller | | 5% |
Compensation Mix. The mix of the three key elements of 2018 Named Executive Officer compensation is designed with the objective of aligning a substantial portion of executive pay with the achievement of performance goals and increased value to Tyler stockholders. While base salaries are intended to be fixed and certain, the other two elements only have value if performance goals are achieved or adjusted earnings per share goals are met and if the value of our common stock increases. We believe that having a larger measure of key pay elements at risk motivates and challenges our Named Executive Officers to achieve positive returns for our stockholders. For 2018, the proportion of pay at risk for our Named Executive Officers was as follows:
|
| | | | | | |
| | | | | Compensation at Risk |
| Name | | Base Salary | | Bonus | | Stock Incentive Awards |
| John S. Marr Jr. | | 8% | | 8% | | 84% |
| H. Lynn Moore Jr. | | 12% | | 12% | | 76% |
| Brian K. Miller | | 13% | | 13% | | 74% |
The table above depicts the relative mix of pay elements for 2018, consisting of base salary earned, annual bonus cash incentive earned, and the aggregate grant date fair value of annual recurring share-based awards made to the Named Executive Officers. For more detail, see “Executive Compensation - Summary Compensation Table.”
Additional Considerations. In addition to the general philosophies and specific considerations discussed above, the Compensation Committee discussed in detail the following in determining total compensation for the Named Executive Officers in 2018:
Our 2018 anticipated and actual financial performance
Terms of employment agreements, including equity granted with the five-year employment agreements executed in 2018
The previously approved annual incentive compensation plan for each Named Executive Officer
With respect to our Chief Executive Officer’s 2018 total compensation package, the Compensation Committee also considered the following:
Management’s goal of year-over-year earnings per share growth
Management’s focus on strengthening our balance sheet
Management’s strategic mission to increase profitability through sustained internal growth, including growth in recurring revenues
Management’s directive to develop and deploy premier technology through continued investment
Mr. Marr’s continued contribution and Mr. Moore’s increased responsibilities in driving the achievement of each of these strategic initiatives
The retention of our Named Executive Officers through the leadership transition
Reference to levels of compensation of other chief executive officers of similarly sized, publicly held companies in similar industries
After considering all of the factors outlined in this Compensation Discussion and Analysis, the Compensation Committee considered the overall compensation paid to our Named Executive Officers for 2018 to be appropriate and reasonable.
2019 Named Executive Officer Compensation
In February 2019, the Compensation Committee met and approved the total compensation packages for each of the Named Executive Officers for 2019, including our Chief Executive Officer. Consistent with the 2018 stockholder approval of the 2018 Stock Incentive Plan, in addition to stock options, the long-term incentive portion of the package includes PSUs. The proportional value of long-term incentives will remain essentially unchanged with stock options and restricted stock units each comprising 50% of the relative value.
Role of the Executive Chairman. In February 2019, our Executive Chairman, John S. Marr Jr., attended the Compensation Committee meeting at the request of the Chairman of the Compensation Committee. Mr. Moore was not present at the meeting. Mr. Marr was asked to discuss Tyler’s philosophy regarding executive compensation and short- and long-term objectives for the purpose of assisting the Compensation Committee in establishing 2019 total compensation for the Named Executive Officers. In addition, Mr. Marr was asked to present the results of the analysis of the Peer Group and Radford Survey, as well as the financial outlook for 2019.
Mr. Marr discussed continued changes in the duties for himself, as Executive Chairman of the Board and Mr. Moore, as President and Chief Executive Officer. Mr. Marr noted that 2019 total cash compensation was below the mean as represented by the Peer Group. Mr. Marr made recommendations for a 3% base salary increase for the Named Executive Officers, annual bonus performance targets with corresponding minimum and maximum bonus payout potentials, and long-term incentives (stock option awards and performance-based restricted stock units) for each Named Executive Officer, including himself. Mr. Marr recommended that the value of the annual equity grants (stock options and performance-based restricted stock units) for himself and Mr. Moore be equal in value. Mr. Marr noted that our stock price has increased significantly over recent years, which has led to significantly higher share-based compensation expense under the Black-Scholes valuation methodology, even as the aggregate amount of equity grants to management and key personnel has remained relatively constant. Mr. Marr recommended using non-GAAP earnings per share calculation, for annual cash incentive compensation purposes only, which excludes write-downs of acquisition-related deferred revenue and acquired leases, share-based compensation expense, employer portion of payroll taxes on employee stock transactions, acquisition-related costs, and expenses associated with amortization of intangibles arising from business combinations, with graduated benefits for overachievement and consequences for underachievement of objectives, as doing so would remove certain uncontrollable variables and provides a more accurate picture of our financial performance. The Compensation Committee has the authority to accept, reject, or modify the Executive Chairman’s recommendations.
2019 Compensation Committee / Board of Director Actions. In February 2019, the Compensation Committee approved the following 2019 total compensation for the Named Executive Officers and other measures:
Base Salary. For 2019, the Compensation Committee approved a 3% increase for Messrs. Marr, Moore, and Miller. This was based on overall changes in duties and responsibilities for Messrs. Marr and Moore and the scope of additional responsibilities of the Named Executive Officers resulting from the growth of the Company over the past several years, the Company’s strong performance in 2018, and the fact that the Peer Group and the Radford Survey data indicated that annual base compensation was below the mean for each of the Named Executive Officers.
Annual Cash Bonus. For 2019, the Compensation Committee approved maintaining current target bonus levels of 100% of base salary for each of Messrs. Marr, Moore, and Miller. The Compensation Committee further approved the 2019 Incentive Compensation Plan for the Named Executive Officers at graduated scale levels similar to the 2018 Incentive Compensation Plan. To earn 100% of the target bonus under the 2019 Incentive Compensation Plan, the Company must achieve the non-GAAP earnings per share goal of $5.39 to $5.429, as adjusted to exclude write-downs of acquisition-related deferred revenue and acquired leases, share-based compensation expense, employer portion of payroll taxes on employee stock transactions, acquisition-related costs, and expenses associated with amortization of intangibles arising from business combinations. The target bonus is based on our operating plan, which was reviewed by the Compensation Committee. In order to achieve the threshold bonus of 40% of target, the Company must achieve 85% of the non-GAAP earnings per share goal, or a range of $4.91 to $4.949.
Stock Options. For 2019, the Compensation Committee preliminarily approved stock option grants of 22,500 for each of Messrs. Marr and Moore and 15,000 for Mr. Miller. In 2018, Messrs. Marr and Moore were granted 22,500 options, and Mr. Miller was granted 15,000 options. The options will be issued in two equal tranches on or about June 1 and December 1, 2019, subject to final approval by the Compensation Committee.
Options will vest ratably over a three-year period beginning on the first anniversary of the grant date for each Named Executive Officer, each of whom is at least fifty years of age and has a tenure with the Company of at least fifteen years. The Compensation Committee believes these vesting schedules emphasize the long-term nature of this compensation component, thereby further aligning the interests of the Named Executive Officers with those of the stockholders.
PSUs. For 2019, the Compensation Committee conditionally approved grants of PSUs for 7,500 shares for each of Messrs. Marr and Moore and 5,000 shares for Mr. Miller. The PSUs were granted on March 1, 2019. In 2018, Messrs. Marr and Moore were granted 7,500 PSUs, and Mr. Miller was granted 5,000 PSUs.
Annual PSU grants to the Named Executive Officers are subject to performance-based vesting with a performance period of three years. The performance measure used to determine the number of PSUs vested at the end of the three-year performance period is average annual revenue growth over that period. The three-year cliff vesting period reinforces the importance of sustained revenue growth to the Company’s long-term success. The Compensation Committee believes that this vesting schedule emphasizes the long-term nature of this compensation component, thereby further aligning the interests of the Named Executive Officers with those of the stockholders. Upon vesting, the vested PSUs will be “settled” by our issuance to the holder, without any charge, of one share of our common stock for each vested PSU.
The following table sets forth the performance criteria that must be met for annual PSU grants to be earned and eligible for vesting:
|
| | | |
Average Annual Revenue Growth (1) | | Percentage of PSUs to be earned and eligible for vesting |
Under 6% | | — |
|
6.0% -7.49% | | 50 | % |
7.5%-8.99% | | 80 | % |
9.0%-10.99% | | 100 | % |
11.0% and above | | 120 | % |
________________________
(1) Adjusted for acquisitions with revenue 3% or greater of Tyler consolidated revenue.
Executive Compensation Recovery Policy
Accountability is a Company fundamental value. To reinforce this value through our executive compensation program, the Board of Directors adopted an Executive Compensation Recovery Policy in February 2010. The policy applies to our Named Executive Officers, group and division presidents, senior financial management, and other key financial employees, and is included in the compensation plans for each such individual. Under this policy, if, in the opinion of the independent directors of the Board, an executive engages in fraud or intentional misconduct that causes a material restatement of our financial statements, then the independent directors shall have the discretion to use their best efforts to remedy the misconduct and prevent its recurrence. Based upon the facts and circumstances surrounding the restatement, the independent directors may direct us to recover all or a portion of any bonus or incentive compensation paid, adjust the future compensation of the executive, and dismiss, or take legal action against, the executive, in each case as the independent directors determine is in our best interests. The remedies that may be sought by the independent directors are subject to a number of conditions, including, that: (1) the bonus or incentive compensation to be recouped was calculated based upon the financial results that were restated; (2) the executive in question engaged in fraud or intentional misconduct; and (3) the bonus or incentive compensation calculated under the restated financial results is less than the amount actually paid or awarded.
Other Compensation Topics
Benefits. Our Named Executive Officers are eligible for the same benefits made available to other full-time employees generally, including our 401(k) Savings Plan, Employee Stock Purchase Plan, health and dental care plans, life insurance plans, disability plans, and other welfare benefit programs.
Employment Contracts
We have historically executed five-year employment agreements with our Named Executive Officers based on our belief that these agreements are in the best interests of our shareholders. These agreements have historically included five-year equity grants. The employment agreements with our Named Executive Officers support leadership team retention and operational stability which is of current importance during the transition of Mr. Marr to Executive Chairman and Mr. Moore to President and Chief Executive Officer. They ensure continuation of the disciplined growth and operational execution we have relied upon to consistently deliver shareholder value and client satisfaction.
In February 2018, we entered into new five-year employment agreements with John S. Marr Jr., H. Lynn Moore Jr., and Brian K. Miller. Under the terms of the employment agreements, Messrs. Marr, Moore and Miller will receive minimum base salaries of $300,000, $500,000 and $383,000, respectively. These executives will also participate in performance bonus or incentive compensation plans made available to our comparable-level employees and receive all employee benefits and perquisites normally offered to our executive employees. Each agreement provides for payment of accrued compensation as well as a severance payment equal to each executive’s then-current base salary and target bonus upon the executive’s termination of employment without cause, or upon the executive’s termination of employment within thirty days of a change in control. A change in control is defined as our merger or consolidation into an unaffiliated entity, our dissolution or liquidation, the sale of all or substantially all of our assets, the acquisition by any person, entity or group of more than 30% of our voting stock, or a change in the majority of our Board of Directors that was not approved by the then existing directors. In addition to the payment of accrued compensation and the severance payment, each agreement also provides that we will continue to provide medical benefits for 12 months after the date of termination without cause or upon a change in control. In the event of a termination without cause, a termination due to disability or death, or a termination because of a change in control, all unvested options, restricted stock units or other equity awards outstanding as of the date of the executive’s termination would immediately become fully vested and, as applicable, exercisable.
We developed a standard severance package for our Named Executive Officers because we believe it is necessary to attract and retain qualified executive officers and to minimize the distraction caused by a potential transaction and reduce the risk that an executive officer departs before an acquisition is consummated. We believe that a pre-existing plan allows our executive officers to focus on continuing normal business operations and on the success of a potential business combination, rather than on seeking alternative employment. We further believe that our employment agreements ensure stability and will enable our executive officers to maintain a balanced perspective in making overall business decisions during a potentially uncertain period. The Compensation Committee applied its best judgment in developing the severance package after considering each executive’s overall compensation package, the rapidly changing environment for technology-based companies, the average time required to obtain employment for equivalent job duties, and the amount paid to executives in the event of termination without cause or upon a change in control.
In addition, the employment agreements provide that Messrs. Marr, Moore and Miller be granted options to purchase 112,000, 112,000, and 40,000 shares of our Common Stock, respectively. The options were granted at an exercise price equal to the closing market price of our common stock as reported by the New York Stock Exchange as of the February 26, 2018, date of grant. The options vest in equal installments on the first, second, third, fourth, and fifth anniversary of the grant date and are subject to terms and conditions of the 2010 Stock Option Plan and our standard option agreement.
The employment agreements also provide that Messrs. Marr, Moore and Miller were to be granted 36,000, 36,000 and 12,000 restricted stock units, respectively, contingent on approval by the stockholders of the 2018 Stock Incentive Plan at the annual meeting of stockholders held on May 9, 2018. The granted restricted stock units vest in equal installments on the first, second, third, fourth, and fifth anniversary of the date of the employment agreements.
In contrast to our general vesting schedules, the vesting schedules of the stock option and restricted stock unit grants associated with the new employment agreements are structured to coincide with the full five-year term of the contracts.
The equity compensation associated with our five-year employment agreements is viewed by the Compensation Committee as one component of total equity compensation to the Named Executive Officers as shown in the table below:
|
| | | | | | |
Equity Type | | Grant Frequency | | Vesting | | Purpose |
Performance - based restricted stock units | | Annual | | three - year cliff, only if performance metric achieved | | Performance - Cumulative three-year revenue growth |
Options | | Annual | | Vesting over three years | | Performance - Growth in shareholder value |
Options | | Every five years | | Vesting over five years | | Retention of Named Executive Officers |
Restricted stock units | | Every five years | | Vesting over five years | | Retention of Named Executive Officers |
Equity granted to the Named Executive Officers is intended to retain and reward for performance that meets or exceeds growth goals over time. Equity type, grant frequency and vesting period as well as the performance criteria selected for use with PSUs has been chosen purposefully to drive consistent growth and increased shareholder value over time. In determining the value of equity compensation provided in association with the five-year employment agreements, the Committee considers Named Executive Officer experience, total compensation for each Named Executive Officer, including base, bonus, and the value of proposed annual equity grants as well as multi-year growth performance targets, and Peer Group and market compensation data. Total compensation, including the annual value of the grant associated with the five-year employment agreements, is reviewed each year by the Committee. As noted in previous years, annual executive equity compensation excluding the value of the grants associated with our five-year employment agreements, is well below Peer Group equity compensation in the years between our five-year employment agreement grants.
2018 total direct compensation, including actual base salary, actual cash incentive bonus and value of annual equity granted, but excluding the annual value of the grant associated with the five-year employment agreement, was 40% below Peer Group median for Mr. Marr, 47% below Peer Group median for Mr. Moore, and 9% below Peer Group median for Mr. Miller. When grants associated with the five-year employment agreements are annualized, 2018 total direct compensation is 12% above Peer Group median for Mr. Marr, 6% below Peer Group median for Mr. Moore, and 27% above Peer Group median for Mr. Miller.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of SEC's Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board of Directors, and the Board of Directors has approved, that the Compensation Discussion and Analysis be included in this proxy statement.
This report is submitted by the Compensation Committee.
J. Luther King Jr., Chairman
Donald R. Brattain
Glenn A. Carter
Compensation Committee Interlocks and Insider Participation
In 2018, the Compensation Committee consisted of J. Luther King Jr. (Chair), Donald R. Brattain, and Glenn A. Carter. No member of the Compensation Committee was an officer or employee of the company. None of our executive officers served on the compensation committee or equivalent of any other entity.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information regarding the compensation paid to our Named Executive Officers for all of the services they rendered to us during 2018, 2017, and 2016:
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name and Principal Position | | Year | | Salary ($) | | Bonus ($) | | Stock Awards ($) (1) | | Option Awards ($) (2) | | Non-Equity Incentive Plan Compensation ($) (3) | | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | | All Other Compensation ($) (4) | | Total ($) |
| John S. Marr Jr. | | 2018 | | $ | 300,000 |
| | $ | — |
| | $ | 9,928,320 |
| | $ | 8,869,480 |
| | $ | 315,000 |
| | $ | — |
| | $ | 8,435 |
| | $ | 19,421,235 |
|
| Executive Chairman of the Board | | 2017 | | $ | 425,000 |
| | $ | — |
| | $ | — |
| | $ | 2,780,462 |
| | $ | 510,000 |
| | $ | — |
| | $ | 9,630 |
| | $ | 3,725,092 |
|
| | | 2016 | | $ | 538,000 |
| | $ | — |
| | $ | — |
| | $ | 2,379,053 |
| | $ | 753,200 |
| | $ | — |
| | $ | 10,861 |
| | $ | 3,681,114 |
|
| H. Lynn Moore Jr. | | 2018 | | $ | 500,000 |
| | $ | — |
| | $ | 9,928,320 |
| | $ | 8,869,480 |
| | $ | 525,000 |
| | $ | — |
| | $ | 12,452 |
| | $ | 19,835,252 |
|
| President and | | 2017 | | $ | 425,000 |
| | $ | — |
| | $ | — |
| | $ | 2,780,462 |
| | $ | 510,000 |
| | $ | — |
| | $ | 12,961 |
| | $ | 3,728,423 |
|
| Chief Executive Officer | | 2016 | | $ | 339,000 |
| | $ | — |
| | $ | — |
| | $ | 1,593,965 |
| | $ | 355,950 |
| | $ | — |
| | $ | 11,607 |
| | $ | 2,300,522 |
|
| Brian K. Miller | | 2018 | | $ | 383,000 |
| | $ | — |
| | $ | 3,888,640 |
| | $ | 3,641,914 |
| | $ | 402,150 |
| | $ | — |
| | $ | 13,890 |
| | $ | 8,329,594 |
|
| Executive Vice President, | | 2017 | | $ | 370,000 |
| | $ | — |
| | $ | — |
| | $ | 1,835,105 |
| | $ | 444,000 |
| | $ | — |
| | $ | 12,232 |
| | $ | 2,661,337 |
|
| Chief Financial Officer and Treasurer | | 2016 | | $ | 339,000 |
| | $ | — |
| | $ | — |
| | $ | 1,593,965 |
| | $ | 355,950 |
| | $ | — |
| | $ | 11,387 |
| | $ | 2,300,302 |
|
______________________
| |
(1) | The reported amounts represent the aggregate grant date fair value of awards of restricted stock units and performance-based restricted stock units, computed in accordance with FASB ASC Topic 718, and, for performance-based restricted stock units, assume performance at the target level for each such award.
|
| |
(2) | Represents aggregate grant date fair value of awards granted and calculated in accordance with FASB ASC Topic 718. Such grants provide our executive officers the opportunity to purchase shares of Tyler common stock at some future date at the fair market value of the stock on the date of grant. For additional information on the valuation assumptions, refer to note 9 of the Tyler Technologies’ financial statements in the Form 10-K for the year ended December 31, 2018, as filed with the SEC. This fair value does not represent cash received by the executive in the relevant year, but potential earnings contingent on Tyler’s future performance. Stock option grants are designed to provide long-term (up to ten years) incentives and rewards linked directly to the price of our common stock. Stock options add value to the recipient only when stockholders benefit from stock price appreciation and, as such, further align management’s interest with those of our stockholders. |
| |
(3) | These amounts consist of amounts earned under Tyler’s incentive compensation plan for each respective year and generally paid in the following year. |
| |
(4) | All other compensation includes amounts contributed or accrued by Tyler under our 401(k) Savings Plan and tickets to sporting events. |
CEO Pay Ratio
Our CEO to median employee pay ratio is calculated in accordance with Item 402(u) of the SEC's Regulation S-K. We identified the median employee by examining the annual total compensation for all of our employees, excluding our CEO, who were employed by us on December 31, 2018. We included all employees, whether employed on a full-time, part-time or seasonal basis. To determine the median employee, we calculated the total annual compensation for each of our 4,519 employees as the sum of the following amounts:
Annual base pay
The company's matching contributions to the employee's 401(k) account
Calendar year cash bonus
Calendar year share-based awards (incentive or nonqualified stock options and restricted stock units)
We believe the use of these components for all employees is a consistently applied compensation measure that includes all of the compensation elements that are widely distributed throughout our organization, including retirement benefits. We calculated annual total compensation for the median employee using the same methodology we use for our Named Executive Officers as set forth in the 2018 Summary Compensation table included in this proxy statement. The total annual compensation calculated for our CEO was $19,835,252 and for our median employee was $84,516. The resulting ratio for our CEO’s pay compared with the pay of our median employee for 2018 is 234.69 to 1. The 2018 annual compensation calculated for our CEO includes one-time share-based awards associated with the five-year employment agreements in 2018 made to the Named Executive Officers.
Grants of Plan-Based Awards in 2018
The following table sets forth certain information relating to grants of plan-based awards to the Named Executive Officers during 2018:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Estimated Future Payouts Under Non- Equity Incentive Plan Awards (1) | | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | | All Other Stock Awards: Number of Shares of Stock or Units (#) (3) | | All Other Option Awards: Number of Securities Underlying Options (#) (4),(5) | | Exercise or Base Price of Option Awards ($/Sh) | | Grant Date Fair Value of Stock and Option Awards ($) (5) |
| Name | | Grant Date | | Target ($) | | Maximum ($) | | Threshold (#) | | Target (#) | | Maximum (#) | | | |
| John S. Marr Jr. | | 2/20/2018 | | $ | 300,000 |
| | $ | 525,000 |
| | | | | | | | | | | | | | |
| | | 2/26/2018 | | | | | | | | | | | | | | 112,000 |
| | $ | 205.66 |
| | $ | 7,337,309 |
|
| | | 5/9/2018 | | | | | | | | | | | | 36,000 |
| | | | | | |
| | | 6/1/2018 | | | | | | 3,750 |
| | 7,500 |
| | 9,000 |
| | | | | | | | |
| | | 6/1/2018 | | | | | | | | | | | | | | 11,250 |
| | $ | 231.68 |
| | $ | 835,102 |
|
| | | 12/1/2018 | | | | | | | | | | | | | | 11,250 |
| | $ | 192.76 |
| | $ | 697,069 |
|
| H. Lynn Moore Jr. | | 2/20/2018 | | $ | 500,000 |
| | $ | 875,000 |
| | | | | | | | | | | | | | |
| | | 2/26/2018 | | | | | | | | | | | | | | 112,000 |
| | $ | 205.66 |
| | $ | 7,337,309 |
|
| | | 5/9/2018 | | | | | | | | | | | | 36,000 |
| | | | | | |
| | | 6/1/2018 | | | | | | 3,750 |
| | 7,500 |
| | 9,000 |
| | | | | | | | |
| | | 6/1/2018 | | | | | | | | | | | | | | 11,250 |
| | $ | 231.68 |
| | $ | 835,102 |
|
| | | 12/1/2018 | | | | | | | | | | | | | | 11,250 |
| | $ | 192.76 |
| | $ | 697,069 |
|
| Brian K. Miller | | 2/20/2018 | | $ | 383,000 |
| | $ | 670,250 |
| | | | | | | | | | | | | | |
| | | 2/26/2018 | | | | | | | | | | | | | | 40,000 |
| | $ | 205.66 |
| | $ | 2,620,467 |
|
| | | 5/9/2018 | | | | | | | | | | | | 12,000 |
| | | | | | |
| | | 6/1/2018 | | | | | | 2,500 |
| | 5,000 |
| | 6,000 |
| | | | | | | | |
| | | 6/1/2018 | | | | | | | | | | | | | | 7,500 |
| | $ | 231.68 |
| | $ | 556,734 |
|
| | | 12/1/2018 | | | | | | | | | | | | | | 7,500 |
| | $ | 192.76 |
| | $ | 464,713 |
|
______________________
| |
(1) | The target and maximum plan award amounts reported in these columns are derived from our 2018 Incentive Compensation Plan. The actual payout amounts for 2018 are set forth in the Non-Equity Incentive Plan Compensation column of our Summary Compensation Table. |
| |
(2) | The target and maximum plan performance-based restricted stock unit awards reported in these columns are derived from our 2018 Incentive Compensation Plan. The actual vested amounts for 2018 are set forth in the 2018 Equity Incentive Plan Compensation column of our Summary Compensation Table. |
| |
(3) | The restricted stock units awarded on May 9, 2018, were granted under the terms of the five-year employment agreements entered into in February 2018. The restricted stock units vest in equal installments on the first, second, third, fourth, and fifth anniversary of the date of the employment agreement. |
| |
(4) | The options awarded on February 26, 2018, were granted under the terms of the five-year employment agreements entered into in February 2018. These options will vest and become exercisable ratably on the first, second, third, fourth, and fifth anniversaries of the date of the grant date. |
| |
(5) | The options awarded on June 1, 2018 and December 1, 2018 for Messrs. Marr, Moore and Miller were granted as part of Tyler’s broad-based annual stock option grants. These options will vest ratably over a three-year period beginning on the first anniversary of the grant date for each Named Executive Officer who is at least fifty years of age or older and has a tenure with the company of at least fifteen years or more. All options have a contractual term of ten years. The option terms are the same for substantially all the options granted to employees on June 1, 2018 and December 1, 2018; certain key employees who are closer to retirement age may, in the discretion of our Chief Executive Officer, receive shorter vesting periods. |
| |
(6) | The aggregate grant date fair value is determined in accordance with Accounting Standards Codification Topic 718, Stock Compensation, and does not represent cash received by the Named Executive Officers in 2018. The grant date fair value represents potential earnings contingent on Tyler’s future performance. Stock option grants are designed to provide long-term (up to ten years) incentives and rewards linked directly to the price of our common stock. Stock options add value to the recipient only when stockholders benefit from stock price appreciation and, as such, further align management’s interest with those of our stockholders. |
Outstanding Equity Awards at Year-End
The following table shows outstanding equity awards for each of the Named Executive Officers at December 31, 2018:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Option Awards | | Stock Awards |
| | | | | Number of Securities Underlying Unexercised Options (#) | | Number of Securities Underlying Unexercised Options (#)(1) | | Option Exercise Price | | Option Expiration | | Number of Shares or Units of Stock that have not vested | | Market Value of Shares or Units of Stock that have not vested (2) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that have not vested | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that have not vested (3) |
| Name | | Grant Date | | Exercisable | | Unexercisable | | ($) | | Date | | (#) | | ($) | | (#) | | ($) |
| John S. Marr Jr. | | 5/9/2018 | | | | | | | | | | 36,000 |
| | $ | 6,689,520 |
| | | | |
| | | 6/1/2018 | | | | | | | | | | | | | | 7,500 |
| | $ | 1,393,650 |
|
| | | 6/15/2011 | | 4,152 |
| | — |
| | $ | 24.08 |
| | 6/15/2021 | | | | | | | | |
| | | 6/15/2012 | | 2,540 |
| | — |
| | $ | 39.36 |
| | 6/15/2022 | | | | | | | | |
| | | 12/14/2012 | | 9,000 |
| | — |
| | $ | 47.20 |
| | 12/14/2022 | | | | | | | | |
| | | 2/11/2013 | | 176,000 |
| | — |
| | $ | 54.45 |
| | 2/11/2023 | | | | | | | | |
| | | 6/14/2013 | | 28,800 |
| | — |
| | $ | 68.17 |
| | 6/14/2023 | | | | | | | | |
| | | 12/13/2013 | | 28,800 |
| | — |
| | $ | 100.43 |
| | 12/13/2023 | | | | | | | | |
| | | 6/13/2014 | | 20,800 |
| | 5,200 |
| | $ | 81.21 |
| | 6/13/2024 | | | | | | | | |
| | | 12/15/2014 | | 20,800 |
| | 5,200 |
| | $ | 108.81 |
| | 12/15/2024 | | | | | | | | |
| | | 6/1/2015 | | 25,000 |
| | — |
| | $ | 121.05 |
| | 6/1/2025 | | | | | | | | |
| | | 12/1/2015 | | 25,000 |
| | — |
| | $ | 176.80 |
| | 12/1/2025 | | | | | | | | |
| | | 6/1/2016 | | 16,666 |
| | 8,334 |
| | $ | 154.85 |
| | 6/1/2026 | | | | | | | | |
| | | 12/1/2016 | | 16,666 |
| | 8,334 |
| | $ | 143.42 |
| | 12/1/2026 | | | | | | | | |
| | | 6/1/2017 | | 8,333 |
| | 16,667 |
| | $ | 171.44 |
| | 6/1/2027 | | | | | | | | |
| | | 12/1/2017 | | 8,333 |
| | 16,667 |
| | $ | 181.79 |
| | 12/1/2027 | | | | | | | | |
| | | 2/26/2018 | | — |
| | 112,000 |
| | $ | 205.66 |
| | 2/26/2028 | | | | | | | | |
| | | 6/1/2018 | | — |
| | 11,250 |
| | $ | 231.68 |
| | 6/1/2028 | | | | | | | | |
| | | 12/1/2018 | | — |
| | 11,250 |
| | $ | 192.76 |
| | 12/1/2028 | | | | | | | | |
| H. Lynn Moore Jr. | | 5/9/2018 | | | | | | | | | | 36,000 |
| | $ | 6,689,520 |
| | | | |
| | | 6/1/2018 | | | | | | | | | | | | | | 7,500 |
| | $ | 1,393,650 |
|
| | | 12/14/2012 | | 6,000 |
| | — |
| | $ | 47.20 |
| | 12/14/2022 | | | | | | | | |
| | | 2/11/2013 | | 100,000 |
| | — |
| | $ | 54.45 |
| | 2/11/2023 | | | | | | | | |
| | | 12/13/2013 | | 19,200 |
| | — |
| | $ | 100.43 |
| | 12/13/2023 | | | | | | | | |
| | | 6/13/2014 | | 14,000 |
| | 3,500 |
| | $ | 81.21 |
| | 6/13/2024 | | | | | | | | |
| | | 12/15/2014 | | 14,000 |
| | 3,500 |
| | $ | 108.81 |
| | 12/15/2024 | | | | | | | | |
| | | 6/1/2015 | | 10,050 |
| | 6,700 |
| | $ | 121.05 |
| | 6/1/2025 | | | | | | | | |
| | | 12/1/2015 | | 10,050 |
| | 6,700 |
| | $ | 176.80 |
| | 12/1/2025 | | | | | | | | |
| | | 6/1/2016 | | 6,700 |
| | 10,050 |
| | $ | 154.85 |
| | 6/1/2026 | | | | | | | | |
| | | 12/1/2016 | | 6,700 |
| | 10,050 |
| | $ | 143.42 |
| | 12/1/2026 | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 6/1/2017 | | 5,000 |
| | 20,000 |
| | $ | 171.44 |
| | 6/1/2027 | | | | | | | | |
| | | 12/1/2017 | | 8,333 |
| | 16,667 |
| | $ | 181.79 |
| | 12/1/2027 | | | | | | | | |
| | | 2/26/2018 | | — |
| | 112,000 |
| | $ | 205.66 |
| | 2/26/2028 | | | | | | | | |
| | | 6/1/2018 | | — |
| | 11,250 |
| | $ | 231.68 |
| | 6/1/2028 | | | | | | | | |
| | | 12/1/2018 | | — |
| | 11,250 |
| | $ | 192.76 |
| | 12/1/2028 | | | | | | | | |
| Brian K. Miller | | 5/9/2018 | | | | | | | | | | 12,000 |
| | $ | 2,229,840 |
| | | | |
| | | 6/1/2018 | | | | | | | | | | | | | | 5,000 |
| | $ | 929,100 |
|
| | | 12/14/2012 | | 6,000 |
| | — |
| | $ | 47.20 |
| | 12/14/2022 | | | | | | | | |
| | | 12/13/2013 | | 3,840 |
| | — |
| | $ | 100.43 |
| | 12/13/2023 | | | | | | | | |
| | | 6/13/2014 | | — |
| | 3,500 |
| | $ | 81.21 |
| | 6/13/2024 | | | | | | | | |
| | | 12/15/2014 | | 14,000 |
| | 3,500 |
| | $ | 108.81 |
| | 12/15/2024 | | | | | | | | |
| | | 6/1/2015 | | 16,750 |
| | — |
| | $ | 121.05 |
| | 6/1/2025 | | | | | | | | |
| | | 12/1/2015 | | 16,750 |
| | — |
| | $ | 176.80 |
| | 12/1/2025 | | | | | | | | |
| | | 6/1/2016 | | 11,166 |
| | 5,584 |
| | $ | 154.85 |
| | 6/1/2026 | | | | | | | | |
| | | 12/1/2016 | | 11,166 |
| | 5,584 |
| | $ | 143.42 |
| | 12/1/2026 | | | | | | | | |
| | | 6/1/2017 | | 5,500 |
| | 11,000 |
| | $ | 171.44 |
| | 6/1/2027 | | | | | | | | |
| | | 12/1/2017 | | 5,500 |
| | 11,000 |
| | $ | 181.79 |
| | 12/1/2027 | | | | | | | | |
| | | 2/26/2018 | | — |
| | 40,000 |
| | $ | 205.66 |
| | 2/26/2028 | | | | | | | | |
| | | 6/1/2018 | | — |
| | 7,500 |
| | $ | 231.68 |
| | 6/1/2028 | | | | | | | | |
| | | 12/1/2018 | | — |
| | 7,500 |
| | $ | 192.76 |
| | 12/1/2028 | | | | | | | | |
______________________
| |
(1) | Stock options expire on the tenth anniversary of the date of grant. Stock options granted in 2011 and 2012 vest and become exercisable ratably on the third, fourth, fifth, and sixth anniversaries of the date of grant. All other stock options vest ratably over a five-year period beginning on the first anniversary of the grant date. Beginning in 2016, stock options granted to persons who are at least fifty years of age and have a tenure with the company of at least fifteen years vest ratably over a three-year period beginning on the first anniversary of the grant date, and stock options granted to others vest over a five-year period beginning on the first anniversary of the grant date. Stock options granted on February 26, 2018 vest and become exercisable ratably on the first, second, third, fourth, and fifth anniversaries of the date of grant date. |
| |
(2) | Value based on $185.82, which was the closings market price of our common stock on December 31, 2018. The restricted stock units vest in equal installments on the first, second, third, fourth, and fifth anniversary of the date of the employment agreement. Vesting of restricted stock awards is subject to continue status an eligible person (as defined in the 2018 Stock Incentive Plan). |
| |
(3) | Value based on $185.82, which was the closings market price of our common stock on December 31, 2018. The performance-based restricted stock units cliff vest at the end of a three-year performance period. The performance measure used to determine the number of restricted stock units vested at the end of the three-year performance period is average annual revenue growth over that period adjusted for material acquisitions completed during the performance period. |
Option Exercises and Stock Vested
The following table sets forth information regarding stock option exercises and the value realized upon exercise, as well as all
stock awards vested and the value realized upon vesting by our NEOs during the year ended December 31, 2018:
|
| | | | | | | | | | | | | | |
| | | Option Awards | | Stock Awards |
| Name | | Number of Shares Acquired on Exercise (#) | | Value Realized on Exercise ($) | | Number of Shares Acquired on Vesting (#) | | Value Realized on Vesting ($) |
| John S. Marr Jr. | | 176,460 |
| | $ | 31,576,225 |
| | — |
| | $ | — |
|
| H. Lynn Moore Jr. | | 69,200 |
| | $ | 12,522,856 |
| | — |
| | $ | — |
|
| Brian K. Miller | | 63,200 |
| | $ | 10,241,159 |
| | — |
| | $ | — |
|
Potential Payments under Employment Contracts
The Named Executive Officers would have been eligible to receive the payments set forth in the table below had their employment been terminated on December 31, 2018, including if a change in control had occurred during 2018:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Termination Without Cause | | Upon a Change in Control | | |
| Name | | Lump Sum Severance and Non-Compete Payment | | Continuation of Health Care Benefit | | Accelerated Vesting of Stock Options | | Accelerated Vesting of Restricted Stock Units | | Lump Sum Severance and Non-Compete
Payment | | Continuation
of Health
Care
Benefit | | Accelerated
Vesting of
Stock
Options | | Accelerated
Vesting of
Restricted Stock Units |
| John S. Marr Jr. | | $ | 1,200,000 |
| | $ | 16,523 |
| | $ | 9,717,871 |
| | $ | 8,177,361 |
| | $ | 1,200,000 |
| | $ | 16,523 |
| | $ | 9,717,871 |
| | $ | 8,177,361 |
|
| H. Lynn Moore Jr. | | $ | 2,000,000 |
| | $ | 20,845 |
| | $ | 10,763,555 |
| | $ | 8,177,361 |
| | $ | 2,000,000 |
| | $ | 20,845 |
| | $ | 10,763,555 |
| | $ | 8,177,361 |
|
| Brian K. Miller | | $ | 1,532,000 |
| | $ | 20,845 |
| | $ | 4,568,674 |
| | $ | 3,182,109 |
| | $ | 1,532,000 |
| | $ | 20,845 |
| | $ | 4,568,674 |
| | $ | 3,182,109 |
|
Director Compensation
The following table sets forth a summary of the compensation paid to our non-employee directors in 2018:directors. |
| | | | | | | | | | | | |
| Name | | Fees Earned or Paid in Cash ($) (1) | | Stock Awards ($) (2) | | Total ($) |
| | | | | | | |
| Donald R. Brattain | | $ | 64,750 |
| | $ | 250,044 |
| (3) | $ | 314,794 |
|
| Glenn A. Carter | | $ | 62,500 |
| | $ | 250,044 |
| (3) | $ | 312,544 |
|
| Brenda A. Cline | | $ | 78,750 |
| | $ | 250,044 |
| (3) | $ | 328,794 |
|
| J. Luther King Jr. | | $ | 75,000 |
| | $ | 250,044 |
| (3) | $ | 325,044 |
|
| Daniel M. Pope | | $ | 50,500 |
| | $ | 250,044 |
| (3) | $ | 300,544 |
|
| Dustin R. Womble | | $ | — |
| | $ | — |
| (3) | $ | — |
|
______________________
| |
(1) | Non-employee directors receive the following compensation (which did not include Mr. Womble in 2018): |
An annual cash retainer of $60,000 for the chairmanchair of the Audit Committee, $55,000 for the chairmanchair of the Compensation Committee, $50,000 for the chairmanchair of the Nominating Committee and $40,000 for the other non-employee directorsdirectors. Fees are paid on a quarterly basis.
A fee of $3,500 for each Board meeting attended in person and $1,750 for each Board meeting attended via telephone
A fee of $3,000 for each Audit Committee meeting attended in person and $1,500 for each Audit Committee meeting attended via telephone
A fee of $2,500 for each Compensation Committee meeting attended in person and $1,250 for each Compensation Committee meeting attended via telephone
A fee of $1,500 for each Nominating and Governance Committee meeting attended in person and $750 for each Nominating and Governance Committee meeting attended via telephone
Reimbursement for reasonable out-of-pocket expenses incurred in connection with travel to and from, and attendance at, meetings of the Board of Directors or its committees and related activities
Each non-employee director also receives an annual equity grant of restricted stock units valued at $250,000, subject to a one-year vesting period.
Non-employee directors are subject to the Company’s Stock Ownership Guidelines. Each non-employee director is required to own or hold Company stock at a market value equal to four times the applicable annual cash retainer. Each non-employee director has three years from the beginning of their Board service to achieve that threshold. All of our non-employee directors currently meet the stock ownership guidelines or are making acceptable progress to that threshold.
