QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS
AND THE MEETING
Q: Why am I receiving these materials?
A:Our Board is providing these proxy materials to you in connection with our 20182021 Annual Meeting of Shareholders, which will take place on Thursday, June 21, 2018.17, 2021. As a shareholder on the Record Date for the meeting, you are invited to attend the meeting. We also encourage you to vote on the matters described in this proxy statement.
Q: What information is contained in these materials?
A:This proxy statement includes information about the nominees for directorDirectors and the other matters to be voted on at the meeting. The proxy statement also includes information about the voting process and requirements, the compensation of directorsour Directors and some of our executive officers, and certain other required information.
Q: What can I vote on at the meeting?
A:There are three matters to be voted on at the meeting:
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1. 1 | To elect two Directors to serve until the Annual Meeting of Shareholders to be held in 2021,2024, or until their successors are elected and qualified; |
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2. 2 | To consider an advisory vote on theexecutive compensation programs of our named executive officers; |
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3. 3 | To ratify the appointment of BDO USA,Moss Adams LLP as the Company’s independent registered public accounting firm for 2018;2021; and |
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4.4 | To transact such other business as may properly be presented at the meeting, or at any adjournment(s) of the meeting. |
Q: How does the Board recommend that I vote on each of the matters?
A: Our Board recommends that you vote FOR the directorDirector nominees (Proposal #1) and FOR the ratification of the appointment of BDO USA,Moss Adams LLP as our independent registered public accounting firm for 2018.2021 (Proposal #3). With respect to Proposal 2,#2, the Board of Directors recommends that you vote FOR approval, on an advisory basis, of the compensation programs of our named executive officers as disclosed in the Compensation Discussion and Analysis, the compensation tables, and the related disclosure contained in the proxy statement set forth under the caption “Executive Compensation” of this proxy statement.
Q: Why did I receive a two-page notice in the mail regarding the Internet availability of proxy materials this year instead of a full set of proxy materials?
A: We are taking advantage of SEC rules that allow us to deliver proxy materials to our shareholders on the Internet. Under these rules, we are sending most of our shareholders a two-page notice regarding the Internet availability of proxy materials instead of a full set of proxy materials. If you receive this two-page notice, you will not receive printed copies of the proxy materials unless you specifically request them. Instead, this notice tells you how to access and review on the Internet all of the important information contained in the proxy materials. This notice also tells you how to submit your proxy card on the Internet and how to request to receive a printed copy of our proxy materials. Shareholders may also request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis.
Q: Can I receive next year’s proxy materials by email?
A:Yes. All shareholders who have active email accounts and Internet access may sign up for email delivery of shareholder materials. To sign up, go towww.proxyvote.com and click on “Electronic Enrollment.” If you have multiple registered or beneficial accounts, you need to enroll for each account. If you elect to receive proxy materials by email, we will not mail you any proxy-related materials next year. Your enrollment in the email program will remain in effect as long as your account remains active or until you cancel it.
Q: Who is entitled to vote at our annual meeting of shareholders?
A:Holders of our outstanding common stock on April 25, 2018,12, 2021, are entitled to one vote per share on each of the items being voted on at the meeting. We refer to this date as the Record Date. On the Record Date, we had 13,085,60713,619,788 shares of common stock outstanding. We have no other classes of stock outstanding.
Q: What shares can I vote?
A:You can vote all shares you owned on the Record Date. These shares include (1) shares held directly in your name as the shareholder of record and (2) shares held for you as the beneficial owner through a stockbroker, bank or other nominee.
Q: How do I vote my shares?
A: Shareholders of record may vote using one of the following four methods:
•over the Internet, which you are encouraged to do so if you have access to the Internet;
•by telephone;
•by completing, signing and returning the included proxy card, for those who requested to receive printed proxy materials in the mail; or
•by attending the Annual Meeting and voting in person.
The Notice provides instructions on how to access your proxy, which contains instructions on how to vote via the Internet or by telephone. For shareholders who request to receive a paper proxy card in the mail, instructions for voting via the Internet, by telephone or by mail are set forth on the proxy card.
If you hold shares in street name, the organization holding your account is considered the shareholder of record for purposes of voting at the Annual Meeting. The shareholder of record will provide you with instructions on how to vote your shares. Internet and telephone voting will be offered to shareholders owning shares through most brokerage firms and banks. Additionally, if you would like to vote in person at the Annual Meeting, contact the brokerage firm, bank or other nominee who holds your shares to obtain a proxy from them and bring it with you to the Annual Meeting. You will not be able to vote at the Annual Meeting unless you have a proxy from your brokerage firm, bank or other nominee.
Q: What is the difference between holding shares as a shareholder of record and as a beneficial owner?
A:Most of our shareholders hold their shares through a stockbroker, bank or other nominee rather than directly in their own name. There are some important distinctions between shares held of record and those owned beneficially.
Shareholder of Record
If your shares are registered in your name with our transfer agent, Computershare, you are the shareholder of record for those shares and are receiving proxy-related materialsMeeting Materials directly from us. As the shareholder of record, you have the right to grant your voting proxy directly to us or to vote in person at the meeting.
Beneficial Owner
If your shares are held in a stock brokerage account, by a bank or other nominee (commonly referred to as being held in “street name”), you are the beneficial owner of those shares. Your broker, bank or nominee is the shareholder of record and therefore has forwarded proxy-related materialsMeeting Materials to you as beneficial owner. As the beneficial owner, you have the right to direct your broker, bank or other nominee how to vote your shares and are also invited to attend the meeting. However, since you are not the shareholder of record, you may not vote your shares in person at the meeting unless you obtain a signed proxy from your broker, bank or nominee giving you the right to vote the shares.
Q: How do I vote if I am a shareholder of record (as described in the question and answer above)?
A: You can vote on the Internet or by telephone by following the instructions you received in the mail or by email. If you received a full printed set of our proxy materials in the mail, you can also vote by mail by signing and returning the proxy card provided with those materials. Finally, you can vote in person at the meeting.
Q: How do I vote if I am a beneficial owner (as described in the question and answer above)?
A: You can vote on the Internet or by telephone by following the instructions you received in the mail or by email. If you received a full printed set of our proxy materials in the mail, you can also vote by mail. You can vote in person at the meeting only if you obtain a signed proxy from your broker, bank or nominee giving you this right.
Q: Can I change my vote or revoke my proxy?
A:Yes. You can change your vote or revoke your proxy at any time before the final vote at the meeting. You can do this by casting a later proxy through any of the available methods described in the questions and answers above. If you are a shareholder of record, you can also revoke your proxy by delivering a written notice of your revocation to our Corporate Secretary at our principal executive office at 508 West Wall Street,404 Veterans Airpark Lane, Suite 550,300, Midland, Texas 79701.79705. If you are a beneficial owner, you can revoke your proxy by following the instructions sent to you by your broker, bank or other nominee.
Q: What does it mean if I get more than one set of proxy-related materials?Meeting Materials?
A:It means you hold shares registered in more than one account. Follow the instructions in each set of proxy-related materialsMeeting Materials to ensure that all of your shares are voted.
Q: What is the quorum requirement for the meeting?
A:For a “quorum” to exist at the meeting, shareholders holding a majority of the votes entitled to be cast by the shareholders entitled to vote must be present in person or represented by proxy at the meeting. There must be a quorum for any action to be taken at the meeting (other than adjournment or postponement of the meeting). If you submit a properly completed proxy, even if you abstain from voting, then your shares will be counted for purposes of determining the presence of a quorum.
If a broker indicates on a proxy that it lacks discretionary authority as to certain shares to vote on a particular matter, commonly referred to as “broker non-votes,” those shares will still be counted for purposes of determining the presence of a quorum at the meeting. Please see the next question and answer for further information about "broker non-votes."
Q: What are broker non-votes and how are broker non-votes and abstentions counted?
A: If you are a beneficial owner and hold your shares in street name and do not provide your broker or other nominee with voting instructions, the broker, bank, or other nominee will determine if it has the discretionary authority to vote on the particular matter. The New York Stock Exchange permits brokers to vote their customers' shares on routine matters when the brokers have not received voting instructions from the customers. The ratification of independent public accountants is an example of a routine matter on which brokers may vote. Brokers may not vote their customers' shares on non-routine matters unless they have received instructions from the customers. Non-voted shares on non-routine matters are referred to as broker non-votes. The ratification of the appointment of BDO USA,Moss Adams LLP as our independent public accountants for 20182021 (Proposal 3) is a matter considered "routine" under applicable rules.Therules. The election of directorstwo Directors (Proposal 1), and the advisory vote to approve the named executive officersofficers' compensation programs (Proposal 2) are matters considered "non-routine" under applicable rules. For purposes of the election of directorsa Director and all of the proposals set forth in this proxy statement, abstentions and broker non-votes, if any, will not be counted as votes cast and will have no effect on the result of the vote, although they will be considered present for the purpose of determining the presence of a quorum.
Q: What is the voting requirement to approve each of the matters?
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| Proposals | Board Recommendation | Votes Required | Effect of Abstentions | Effect of Broker Non-Votes |
| Election of Directors | FOR each nominee | Majority of votes cast | None | None |
| Advisory Vote to Approve Executive Compensation ("Say on Pay" Vote) | FOR | Majority of votes cast | None | None |
| Ratification of Independent Registered Public Accounting Firm | FOR | Majority of votes cast | None | No Broker Non-Votes (Routine Matter) |
We also will consider any other business that properly comes before the annual meeting.
Q: How can I vote on each of the matters and how will the votes be counted?
A:In the election of directors,Directors, you may vote “For All,“FOR,” “Withhold All,“AGAINST,” or “For All Except” and select the nominee who you withhold your vote from.“ABSTAIN” with respect to each nominee. For the (i) advisory vote on compensation of our named executive officers, and the (ii) ratification of the appointment of BDO USA,Moss Adams LLP as our independent auditors you may vote “FOR,” “AGAINST,” or “ABSTAIN” with respect to these two proposals. Under Colorado law (under which the Company is incorporated), abstentions are counted as shares present and entitled to vote at the Annual Meeting, and therefore counted as present for the purpose of determining whether a quorum is present, but they are not counted as shares cast and will therefore have no effect on the outcome of the vote.
If you sign and return your proxy card or voting instruction form without giving specific voting instructions, your shares will be voted as recommended by our Board. If you are a beneficial holder and do not return a voting instruction form, your broker may only vote on the ratification of the appointment of BDO USA, LLPMoss Adams (Proposal 3).
Q: Who will count the votes?
A:Broadridge, an international investor relations company, is assisting us with the voting of proxies for our meeting. Prior to the meeting, Broadridge will provide us with a tabulation of the votes cast prior to the meeting. We believe that Broadridge will use procedures that are consistent with Colorado law concerning the voting of shares, the determination of the presence of a quorum and the determination of the outcome of each matter submitted for a vote. In addition, we will appoint a voting inspector at the meeting to count and tabulate any votes cast at the meeting.
Q: Who may attend the meeting?
A:All shareholders as of the Record Date may attend. Please bring to the meeting:
•proof of ownership such as: a copy of your proxy or voting instruction card; the two-page notice regarding the internet availability of proxy materials you received in the mail; or a copy of a brokerage or bank statement showing your share ownership as of the Record Date; and
•proofof identification such as a valid driver’s license or passport.
Q: How will voting on any other business be conducted?
A:We do not expect any matters to be presented for a vote at the meeting other than the threefour matters described in this proxy statement. If you grant a proxy, either of the officers named as proxy holders, Stephen C. Taylor and G. Larry Lawrence,John W. Chisholm, or their nominees or substitutes, will have the discretion to vote your shares on any additional matters that are properly presented for a vote at the meeting and at any adjournment or postponement that may take place. If, for any unforeseen reason, our nominee is not available as a candidate for director,Director, the persons named as the proxy holder will vote your proxy for another candidate or other candidates nominated by our Board.
Q: May I propose actions for consideration at next year’s meeting of shareholders?
A:Yes. For your proposal to be considered for inclusionPlease see the section entitled "Shareholder Proposals" in ourthis proxy statement for next year’s meeting, we must receive your written proposal no later than December 28, 2018. If we change the date of next year’s meeting by more than 30 days from the date of this year’s meeting, then the deadline is a reasonable time before we begin to printinformation concerning making shareholder proposals and send our proxy materials. You should also be aware that your proposal must comply with SEC regulations regarding shareholder proposals.director nominations.
Similarly, for you to raise a proposal (including a director nomination) from the floor at next year’s meeting, we must receive a written notice of the proposal no later than March 13, 2019. If we change the date of next year’s meeting by more than 30 days from the date of this year’s meeting, then we must receive your written proposal at least 150 days before the date of next year’s meeting for the proposal to be timely.
Q: Who is paying for this proxy solicitation?
A:We will pay the cost of soliciting the proxies. In addition, our officers, directorsDirectors and employees may solicit proxies or votes in person, by telephone or by email. These people will not be paid any additional compensation for these activities. We will send copies of proxy-related materials or additional solicitation materials to brokers, fiduciaries and custodians who will forward these materials to the beneficial owners of our shares. On request, we will reimburse brokers and other persons representing beneficial owners of shares for their reasonable expenses in forwarding these materials to beneficial owners.
Q: How can I find out the results of the voting at the Annual Meeting?
A: Preliminary voting results will be announced at the Annual Meeting. Final voting results will be published in a current report on Form 8-K that we expect to file with the SEC no later than four business days after the conclusion of the Annual Meeting. If final voting results are not available to us in time to file a Form 8-K on or before the fourth business day after the Annual Meeting, we intend to file a Form 8-K to publish preliminary results and, within four business days after the final results are known to us, file an additional Form 8-K to publish the final results.
HOUSEHOLDING OF PROXY MATERIALS
In an effort to reduce printing costs and postage fees, we have adopted a practice called “householding.” Under this practice, shareholders who have the same address and last name and do not participate in email delivery of proxy-related materials will receive only one set of our proxy statement, annual report or notice of internet availability of proxy-related materials unless one or more of these people notifies us that he or she wishes to continue to receive individual copies.
If you share an address with another shareholder and receive only one set of proxy-related materials and would like to request a separate copy for this year’s annual meeting or for any future meetings, please: (1) call our Investor Relations contact at (432) 262-2700; (2) send an email message to alicia.dada@ngsgi.com; or (3) mail your request to Natural Gas Services Group, Inc., 508 West Wall Street,404 Veterans Airpark Lane, Suite 550,300, Midland, Texas 79701,79705, Attn: Investor Relations. Similarly, you may also contact us through any of these methods if you receive multiple copies of the materials and would prefer to receive a single copy in the future.
PROPOSAL 1 - ELECTION OF DIRECTORS
Our Board of Directors is divided into three classes, (commonly known as a “staggered” Board), each class to be as nearly equal in number as possible. At each annual meeting of shareholders, members of one of the classes, on a rotating basis, are elected for a three-year term. The authorized number of Directors is currently set at nine. We currently have five directorsDirectors serving on our Board. Our Board of Directors may fill the vacancies if a qualified candidate is vetted. The following table sets forth, by class, the members of our Board of Directors as of the date of this proxy statement:
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TermsTerm Expiring at the 20182021 Annual Meeting | Terms Expiring at the
2019 Annual 2022Annual Meeting | Terms Expiring at the
20202023 Annual Meeting |
| David L. Bradshaw | John W. Chisholm | Charles G. CurtisLeslie A. Beyer |
William F. Hughes, Jr.Nigel J. Jenvey |
| Stephen C. Taylor |
Shareholders will be electing two Directors at the meeting. The Board is recommending David L.Mr. Bradshaw and William F. Hughes, Jr. for re-election and Mr. Jenvey for election to the Board of Directors to serve a three year term expiring at the annual meeting of shareholders in 2021.2024.
The persons named in our form of proxy will vote the shares represented by such proxy for the election of the nominees for Director named above unless other instructions are shown on the proxy card. If, at the time of the meeting, a nominee becomes unavailable for any reason, which is not expected, the persons entitled to vote the proxy will vote for such substitute nominee, if any, as they determine in their sole discretion, or we may reduce the size of the Board.
Biographical information and qualifications for each personthe persons nominated as a Director, and for each person whose term of office as a Director will continue after the 20182021 Annual Meeting, is set forth below.
Nominees for DirectorDirectors for TermsTerm to Expire in 2021
David L. Bradshaw
David L. Bradshaw, 63,66, joined our board in December of 2011. Since 2005, Mr. Bradshaw has acted as a consultant in the oil and gas exploration and production sector and has overseen his investments in this area. From August 2007 through November 2009, Mr. Bradshaw served as a Director and Audit Committee Chairman for Triangle Petroleum, a publicly traded company listed on the American Stock Exchange. From November 2007 through November 2008, Mr. Bradshaw served as a Director for Comet Ridge Limited, an Australian company listed on the Australian Securities Exchange. From 1986 to 2005, Mr. Bradshaw worked for Tipperary Corporation, a U.S. public company listed on the American Stock Exchange. During his tenure at Tipperary, the company was involved in oil and gas exploration and production, and natural gas processing and transportation. He held the positions of Chief Executive Officer from 1996 to 2005, Chairman of the Board from 1997 to 2005, Chief Financial Officer from 1990 to 1996 and Chief Operating Officer from 1993 to 1996. From 1999 to 2005, Mr. Bradshaw also served as Chief Executive Officer and Chairman of Tipperary Oil & Gas (Australia) Pty Ltd, from 1999 to 2005, a subsidiary of Tipperary, which explored for and produced natural gas in Queensland, Australia. From 1983 to 1986, Mr. Bradshaw was an owner and officer of Bradcorp, Inc., a private exploration and production company. Prior to this, Mr. Bradshaw spent six years in public accounting serving predominantly oil and gas clients. Mr. Bradshaw graduated from Texas A&M University with a BBA in Accounting in 1976 and a MBA in 1977, and is also a Certified Public Accountant.
Mr. Bradshaw's educational and professional training and achievements as a Certified Public Accountant and MBA, along with his past experience as both a Chief Financial Officer and Chief Executive Officer of a public company involved in the natural resources industry, provides us with considerable accounting and corporate finance skills. In addition, Mr. Bradshaw's career has spanned over thirtyforty years in the oil and gas industry and as a public accountant. His executive management positions in both private and public companies bring us significant leadership, planning and management skills and background.
Nigel J. Jenvey
William F. Hughes, Jr.
William F. Hughes Jr., 65, has servedNigel. J. Jenvey, 48, was appointed as a Director since December 2003.of Natural Gas Services Group in April 2021. Mr. Hughes has over 30Jenvey is currently the Global Head of Carbon Management at consultancy Gaffney, Cline & Associates. Prior to joining Gaffney Cline, Mr. Jenvey spent eight years at BP as the company’s head of experienceCarbon, Capture, Use and Storage (CCUS) and carbon solutions manager. He also led similar efforts at Maersk Oil as Technical Director of carbon & climate, and served in various managerial
and project leadership roles at Royal Dutch Shell, including Shell’s global Enhanced Oil Recovery (EOR) Center of Expertise and European operating business. He began his career as a petroleum engineer at Texaco in 1995 supervising offshore oil and gas production operations in the engineeringNorth Sea. Mr. Jenvey is an industry leader in Carbon Management and construction industry as a Registered Civil Engineerexpert in CCUS having been involved in leading projects across the world since 2004. These have included providing peer advice to the National Petroleum Council, the Society of Petroleum Engineers and licensed building contractor. From 1974 to 1979, he served as an officervarious major energy companies in the United States Air Force. From 1979US and Canada. Mr. Jenvey is the Editor of the annual Decarbonization feature in the SPE Journal of Petroleum Technology and a peer reviewer to 1986, he was a project design engineer for Cushman & Associates. From 1986the International Energy Agency. Mr. Jenvey has also provided testimony to 1996, he served as a Project ManagerCongress on a variety of public works and industrial construction
projects. Since 1983,CO2 Capture technologies. Mr. Hughes has been co-owner of The Whole Wheatery, LLC, a natural foods store located in Lancaster, California. Mr. HughesJenvey holds a Bachelor of Science degree (Hons.) in CivilMining Engineering from the United States Air Force AcademyUniversity of Leeds and both a Diploma and a Master of Science degree in Petroleum Engineering from the University of California at Los Angeles.Imperial College in London.
Mr. Hughes’ careerJenvey brings significant carbon management, sustainability and ESG experience in the engineering and construction industry brings us invaluable skills which are applicable to our manufacturing processes. In addition, Mr. HughesBoard. His experience of working with companies, investors, governments, academia, and non-governmental organizations provides leadership skills arising from his service as an officer withus a wealth of knowledge and insight regarding the U.S. Air Forcechallenges and U.S. Air Force Academy graduate.
Mr. Hughes' experience assolutions that exist for the chairman of the compensation committee has enabled himoil and gas industry, and adds to develop the critical expertise required by the Board as it relatesour Board’s capabilities to compensation matters. His ability to lead the committee, deriving assistance and varied perspectives from our compensation consultants, and objectively weigh the requirements ofsuccessfully guide the Company shareholdersthrough these matters that are impacting our business and executives is invaluable.industry
Required Vote for This Proposal
The election of each director nomineethe Director nominees requires the affirmative vote of a majority of the votes cast at the Annual Meeting with respect to each nominee. The number of shares voted "for" a directorthe Director nominee must exceed the number of votes cast "against" that nominee for the nominee to be elected as a directorDirector to serve until the next annual meetinghis or her term expires or until his or her successor has been duly elected and qualified.
Pursuant to the resignation policy adopted by our Board of Directors and further described in our Corporate Governance Guidelines, any nominee for directorDirector who is not elected shall promptly tender his or her resignation to our Board of Directors following certification of the stockholder vote. The CorporateEnvironmental, Social and Governance and Personnel Development ("ESG") Committee will consider the resignation offer and recommend to our Board of Directors the action to be taken with respect to the offered resignation. In determining its recommendation, the GovernanceESG Committee shall consider all factors it deems relevant. Our Board of Directors will act on the GovernanceESG Committee's recommendation within 90 days following certification of the stockholder vote and will publicly disclose its decision with respect to the director'sDirector's resignation offer (and the reasons for rejecting the resignation offer if applicable).
Any directorDirector who tenders his or her resignation pursuant to the resignation policy shall not participate in the GovernanceESG Committee's recommendation or Board of Directors action regarding whether to accept the resignation offer. If each member of the GovernanceESG Committee is required to tender his or her resignation pursuant to the resignation policy in the same election then the independent directorsDirectors of our Board of Directors who are not required to tender a resignation pursuant to the resignation policy shall consider the resignation offers and make a recommendation to our Board of Directors.Board.
To the extent that one or more directors'Directors' resignations are accepted, our Board, of Directors our Board of Directors in its discretion, may determine either to fill such vacancy or vacancies or to reduce the size of the Board within the authorized range.
Continuing DirectorsDirector Whose TermsTerm Expires in 20202022
John W. Chisholm
John W. Chisholm, 63,66, was appointed as a Director of Natural Gas Services Group in December 2006 to fill a vacancy created by expanding the size of the Board from seven to eight Directors and2006. Mr. Chisholm was first electedappointed as aLead Director of Natural Gas Services Group at the annual meeting of shareholders held in June 2007.2020. Mr. Chisholm is the founder of Wellogix, an oil and gas software company that develops software aimed at expediting the exchange of enterprise data and communication of complex engineered services. Prior to founding Wellogix, Mr. Chisholm co-founded and served as President of ProTechnics Company from 1985 until its sale to Core Laboratories in December of 1996. Mr. Chisholm served as Senior Vice President of Global Sales and Marketing of Core Laboratories until 1998, when he started Chisholm Energy Partners, an investment fund focused on mid-size energy service companies. From 2002 to 2009, Mr. Chisholm served on the Board of Directors of Flotek Industries, Inc. ("Flotek"), and became its interim President in August 2009. In August 2010 Mr. Chisholm became President of the company andFlotek in August 2010, was appointed as its Chief Executive Officer in March 2012.2012, and served in those roles until January 2020. Flotek Industries, Inc. is a public company which files reports under the Securities Exchange Act of 1934. Mr. Chisholm is presently CEO of The John Chisholm Group. Mr. Chisholm holds a Business Administration degree from Fort Lewis College in Colorado. He currently serves on the Editorial Advisory Board on Middle East Technology of the Oil & Gas Journal.
Mr. Chisholm brings significant natural resources experience to our Board, in connection with his background in supplying drilling and production related products and services to the oil, gas and mining industries, and his investment fund
experience with mid-size energy service companies is an invaluable resource as the Company assesses its capital and liquidity needs.
In addition Mr. Chisholm's experience as a board member and executive officer of a public company provides us with a wealth of leadership and management skills.
Continuing DirectorDirectors Whose Term Expires in 20212023
Leslie A. Beyer
Charles G. Curtis
Charles G. Curtis, 85, has served as a Director of Natural Gas Services Group since April 2001. Since 2002, substantially all of Mr. Curtis’ business activities have been devoted to managing personal investments. From 1992 until 2002, Mr. Curtis wasLeslie Shockley Beyer, 45, joined our Board in June 2020. Ms. Beyer is the President and Chief Executive Officer of Curtis One, Inc.,the Energy Workforce and Technology Council (“EWTC”) formed through the merger of the Petroleum Equipment & Services Association (“PESA”) and the Association of Energy Service Companies, a manufacturer of aluminumposition she has held since the merger in February, 2021. EWTC represent more than 600 member companies in energy services, supply, manufacturing and steel mobile stoolsdrilling with a focus on enabling its members to safely, profitably and mobile ladders. From 1988sustainably produce the energy needed to 1992, Mr. Curtismeet rising demand around the world. Prior to leading EWTC, Ms. Beyer was the President and Chief Executive Officer of Cramer, Inc.,PESA. Prior to joining PESA, Ms. Beyer served as Director, Member and Board Relations for the National Association of Manufacturers from 2012 to 2014. Previously, Ms. Beyer served in leadership roles at Burson-Marsteller Public Affairs and at a manufacturerboutique public relations firm for more than six years. Prior to her time in public affairs, Ms. Beyer served in media relations capacities in The White House, Executive Office of office furniture. Mr. Curtis hasthe President and on the Bush 2000 Presidential Campaign. She began her career in legislative policy roles in the U.S. Senate, U.S. Department of State and U.S. Department of Housing. Ms. Beyer holds a Bachelor of Science degree from the United States Naval AcademyArts in Latin American Studies and a Master of Science degree in Aeronautical EngineeringSpanish from the University of Southern California.Texas at Austin.
Mr. Curtis has beenAs a long-standing member ofstrong advocate for the oilfield services and equipment sector, Ms. Beyer provides the Board since prior to the Company's initial public offering in 2002 and as such he bringswith a wealth of knowledge regardingand insight about the Company's history, growthstrategic and tactical matters impacting our business and industry. Through his manufacturing careerIn addition, Ms. Beyer's public affairs, policy and engineering educational background, Mr. Curtis assists the Board and the Company in connection with its compressor manufacturing business. As a past U.S. Naval Officer and U.S. Naval Academy graduate, Mr. Curtis also brings leadership skillsexperience significantly adds to the Board and Company.our Board's capabilities.
Stephen C. Taylor
Stephen C. Taylor, 64,67, has been President and Chief Executive Officer of Natural Gas Services Group since January 2005. He was elected as a Director of Natural Gas Services Group at the annual meeting of shareholders in June 2005. Effective January 1, 2006, Mr. Taylor was appointed Chairman of the Board of Directors. Immediately prior to joining Natural Gas Services Group, Mr. Taylor held the position of General Manager − US Operations for Trican Production Services, Inc. from 2002 through 2004. Mr. Taylor joined Halliburton Resource Management in 1976, becoming its Vice President − Operations in 1989. Beginning in 1993, he held multiple senior level management positions with Halliburton Energy Services until 2000 when he was elected Senior Vice President/Chief Operating Officer of Enventure Global Technology, LLC, a joint-venture deep water drilling technology company owned by Halliburton Company and Shell Oil Company. Mr. Taylor elected early retirement from Halliburton Company in 2002 to join Trican Production Services, Inc. Mr. Taylor holds a Bachelor of Science degree in Mechanical Engineering from Texas Tech University and a Master of Business Administration degree from the University of Texas at Austin.
Mr. Taylor’s senior management experience in the natural resources industry provides the Board and our company with significant insight into our business. Mr. Taylor’s engineering and advanced business training (MBA) uniquely suitsqualifies him to provide leadership, technical expertise and financial acumen to our Board and to the operations of our companyCompany in connection with his position as our chief executive officer.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
Natural Gas Services Group’s Board of Directors held sevensix meetings in 2017.2020. Each Director attended at least 75% of the total number of Board meetings held while such person was a Director. Each Director also attended at least 75% of all of the meetings held by all committees of the Board of Directors for which he served (during the periods that he served). The Board of Directors acts from time to time by unanimous written consent in lieu of holding a meeting.
Our non-management directorsDirectors hold regularly scheduled executive sessions in which those directorsDirectors meet without management participation. Generally, theour Lead Director, John W. Chisholm, presides over these sessions; Charles G. Curtis is currently the Lead Director.sessions.
We typically schedule a Board meeting in conjunction with our annual meeting of shareholders. Although we do not have a formal policy on the matter, weWe expect our Directors to attend each annual meeting, absent a valid reason, such as illness or an unavoidable schedule conflict. Last year, all of the individuals then serving as Directors attended our 20172020 Annual Meeting of Shareholders.
To assist it in carrying out its duties, the Board has delegated certain authority to four separately designated standing committees. These committees are described below.
Audit Committee
The primary functions of our Audit Committee include:
•assisting the Board in fulfilling its oversight responsibilities as they relate to our accounting policies, internal controls, financial reporting practices and legal and regulatory compliance;
•discussing with management policies with respect to risk assessment and risk management;
•hiring our independent registered public accounting firm;
•monitoring the independence and performance of our independent registered public accounting firm;
•maintaining, through regularly scheduled meetings, a line of communication between the Board, our financial management and independent registered public accounting firm; and
•overseeing compliance with our policies for conducting business, including ethical business standards.
The members of the Audit Committee are David L. Bradshaw (Chairman), Charles G. Curtis,Leslie A. Beyer, and Nigel J. Jenvey (since April 2021). William F. Hughes Jr.was a member of the Audit Committee during 2020 and until his retirement from the Board in April 2021. Our common stock is listed for trading on the New York Stock Exchange, or “NYSE”. Under rules of the NYSE, the Audit Committee is to be comprised of three or more Directors, each of whom must be independent. Our Board has determined that all of the members of the Audit Committee are independent, as defined under the applicable NYSE rules and listing standards. In addition, our Board of Directors has determined that David L. Bradshaw is qualified as an “audit committee financial expert” as that term is defined in the rules of the United States Securities and Exchange Commission. The Audit Committee met eightnine times during the last fiscal year. The audit committee has also received from, and discussed with, BDOMoss Adams the matters required to be discussed by Public Accounting Oversight Board Auditing Standard No. 1301 (AS 1301) (Communications with Audit Committees).
Any shareholder may obtain free of charge a printed copy of our Audit Committee Charter by sending a written request to Investor Relations, Natural Gas Services Group, Inc., 508 West Wall Street,404 Veterans Airpark Lane, Suite 550,300, Midland, Texas 79701. You can also view and print a copy of our Audit Committee Charter79705 or by clicking onvisiting the “Governance” tab aton the Investor Relationsinvestor relations page of our website atwww.ngsgi.com.
Compensation Committee
The primary functions of our Compensation Committee include:
•assisting the Board in overseeing the management of our human resources;
•evaluating our Chief Executive Officer’s performance and compensation;
•formulating and administering our overall compensation principles and plans; and
•evaluating management.
The Compensation Committee’s policy is to offer the executive officers competitive compensation packages that will permit us to attract and retain individuals with superior abilities and to motivate and reward such individuals in an appropriate fashion in the long-term interests of Natural Gas Services Group and its shareholders. Currently, executive compensation is comprised of salary and cash bonuses and awards of long-term incentive opportunities in the form of restricted stock or restricted stock unit awards under the 2009 Restricted Stock/Unit Plan.2019 Equity Incentive Plan, as well as other long-term incentives payable in cash.
The members of the Compensation Committee are William F. Hughes, Jr. (Chairman)Leslie A. Beyer. (Chairperson since April 2021), John W. Chisholm, and David L. Bradshaw.Bradshaw (since April 2021). William F. Hughes was the Chairman of the Compensation Committee until his retirement in April 2021. Our Board has determined that all of the members of the Compensation Committee are independent, as defined under the applicable NYSE rules and listing standards. During the last fiscal year there were foursix meetings of the Compensation Committee.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee members are not officers or employees of our company, and there is not, nor was there during fiscal 2017,2020, any compensation committee interlock (in other words, no executive of our company serves as a Director or on the compensation committee of a company that has one or more executives serving on our Board of Directors or our Compensation Committee).
Any shareholder may obtain free of charge a printed copy of our Compensation Committee Charter by sending a written request to Investor Relations, Natural Gas Services Group, Inc., 508 West Wall Street,404 Veterans Airpark Lane, Suite 550,300, Midland, Texas 79701. You can also view and print a copy of our Compensation Committee Charter79705 or by clicking onvisiting the “Governance” tab aton the Investor Relationsinvestor relations page of our website atwww.ngsgi.com.
Environmental, Social and Governance and Personnel Development Committee
OurThe primary functions of our Environmental, Social and Governance ("ESG") and Personnel Development Committee primarily focuses on:include:
generally •overseeing the governance of the Board and its committees;
•interpreting the Governance Guidelines, the Code of Business Conduct and Ethics and other similar governance documents adopted by the Board; and
•overseeing the evaluation of the Board and its committees.committees; and
•developing, with input from executive leadership, the principles guiding our Environmental, Social and Governance efforts and monitoring our progress in meeting such principles
The members of the ESG and Governance and Personnel Development Committee are Charles G. Curtis (Chairman)Nigel J. Jenvey (Chairman since April 2021), David L. Bradshaw, and John W. Chisholm and William F. Hughes, Jr.Chisholm. Our Board has determined that each of the GovernanceESG and Personnel Development Committee members is independent, as defined under the applicable NYSE rules and listing standards. During the last fiscal year there were four meetings of the GovernanceESG and Personnel Development Committee.
Any shareholder may obtain free of charge a printed copy of our Environmental, Social and Governance and Personnel Development Committee Charter by sending a written request to Investor Relations, Natural Gas Services Group, Inc., 508 West Wall Street,404 Veterans Airpark Lane, Suite 550,300, Midland, Texas 79701. You can also view and print a copy of our Governance Committee Charter79705 or by clicking onvisiting the “Governance” tab aton the Investor Relationsinvestor relations page of our website atwww.ngsgi.com.
Nominating Committee
The primary functions of our Nominating Committee include:
•identifying individuals qualified to become board members, consistent with the criteria approved by the Board;
•recommending Director nominees and individuals to fill vacant positions; and
•overseeing executive development and succession and diversity efforts.
The members of the Nominating Committee are John W.C. Chisholm (Chairman)(Chairman since April 2021), David L. Bradshaw,Leslie A. Beyer, and Charles G. Curtis.Nigel J. Jenvey (since April 2021). Our Board of Directors has determined that each of the Nominating Committee members is independent as defined under the applicable NYSE rules and listing standards. During the last fiscal year there were four
meetings of the Nominating Committee.
Any shareholder may obtain free of charge a printed copy of our Nominating Committee Charter by sending a written request to Investor Relations, Natural Gas Services Group, Inc., 508 West Wall Street,404 Veterans Airpark Lane, Suite 550,300, Midland, Texas 79701. You can also view and print a copy of our Nominating Committee Charter79705 or by clicking onvisiting the “Governance” tab aton the Investor Relationsinvestor relations page of our website atwww.ngsgi.com. Our Nominating Committee does not have a diversity policy; however, as discussed below, theThe Committee’s goal is to nominate candidates who possess a range of experiences and backgrounds which will contribute to the board’s overall effectiveness in meeting its duties and forwarding the goals of our company.
OurThe Board is responsible for identifying individuals qualified to become Directors, and nominees are selected by the Board. The Board takes into account many factors, including being highly qualified in terms of business experience, finance and other disciplines relevant to the success of a publicly traded company in today’s business environment; understanding of the Company’s business on a technical level and the industry in which it competes; and educational and professional background. The Board evaluates each individual in the context of the Board as a whole, with the objective of recommending a group that can best support the success of the business and, based on its diversity of experience and backgrounds, represent stockholder interests through the exercise of sound judgment.
The Nominating Committee will consider a Director candidate recommended by a shareholder. A candidate must be highly qualified in terms of business experiencebased on the factors noted above and be both willing and expressly interested in serving on the Board. A shareholder wishing to recommend a candidate for the Committee’s consideration should forward the candidate’s namemust follow Securities and information about the candidate’s qualifications to Natural Gas Services Group, Inc., Nominating Committee, 508 West Wall Street, Suite 550, Midland, Texas 79701, Attn.: John W. Chisholm. Submissions must include sufficient biographical information concerning the recommended individual, including age, employment history for at least the past five years indicating employer's names and descriptionExchange Commission Rule 14a-8 or our advance notice provisions contained in our Bylaws. Please see "Shareholder Proposals" on page 57 of the employer’s business, educational background and any other biographical information that would assist the Committee in determining the qualifications of the individual. The Committee will consider recommendations received by a date not later than 120 calendar days before the date ourthis proxy statement was released to shareholders in connection with the prior year’s annual meeting for nomination at that annual meeting. The Committee will consider nominations received after that date at the annual meeting subsequent to the next annual meeting.further information.
The Committee evaluates nominees for Directors recommended by shareholders in the same manner in which it evaluates other nominees for Directors. Minimum qualifications include the factors discussed above.
Director Independence
The Board has determined that each of the following four members of the Board is “independent” within the meaning of applicable listing standards of the NYSE and under the standards, set forth in Exhibit A to our Environmental Social and Governance and Personnel Development Charter (“Governance Charter”) which are consistent with the NYSE listing standards: Leslie A. Beyer, Nigel J. Jenvey, David L. Bradshaw, and John W. Chisholm, Charles G. Curtis, andChisholm. William F. Hughes, Jr. A copy of Exhibit Awho retired from the Board in April 2021, was also determined to our Governance Charter is available at our website, www.ngsgi.com,be "independent" under the heading “Investor Relations—Governance.”these standards. The Board has made an affirmative determination that each of the four directorsDirectors named above satisfies these categorical standards. In making its determination, the Board examined relationships between directorsDirectors or their affiliates with us and our affiliates and determined that each such relationship, if any, did not impair the director’sDirector’s independence. A copy of Exhibit A to our Governance Charter is available at our website,www.ngsgi.com, under the heading “Investor Relations-Governance.”
Board of Directors Diversity
The Company values diversity and the benefits that a diverse workforce can bring to the Company and to the Board of Directors. Diversity can promote the inclusion of different perspectives and ideas which can lead to more robust discussion regarding strategic and governance policy alternatives and, ultimately, result in better corporate governance and decision making.
The Company seeks to maintain a Board comprised of talented and dedicated directorsDirectors with a diverse mix of expertise, experience, skills and backgrounds. The skills and backgrounds collectively represented on the Board should reflect the diverse nature of the business environment in which the Company operates. As new members of the Board of Directors are considered, diversity considerations should include - but not be limited to - business expertise, geography, age, gender and ethnicity.
The Company is committed to a merit-based system for Board composition within a diverse and inclusive culture which solicits multiple perspectives and views and is free of conscious or unconscious bias. When assessing Board composition or identifying suitable candidates for appointment to the Board, the Company will consider candidates on merit with due consideration to the benefits of diversity and the needs of the Board. The Board and its Nominating Committee are especially cognizant of the benefits of gender and ethnic diversity and will continue to focus on important diversity metrics in future searches.
The Board’s Leadership Structure
Under our Corporate Governance Guidelines, our Chief Executive Officer also serves as our Chairman of the Board, and that person is responsible to the Board for the overall management and functioning of the company. Stephen C. Taylor serves as both Chairman of the Board andas well as our President and Chief Executive Officer (“CEO”). The Board believes this is the most effective Board leadership structure at the present time and believes that Mr. Taylor, in his role as Chairman/CEO, has the
ability to execute on both our short-term and long-term strategies necessary for the challenging marketplace in which we compete. The independent directorsDirectors believe that Mr. Taylor's detailed and in-depth knowledge of the issues, opportunities and challenges facing us and our business make him the best qualified directorDirector to develop agendas that ensure that the Board’s time and attention are focused on the most critical matters. Further, as the individual with primary responsibility for managing day-to-day operations, Mr. Taylor is best positioned to chair regular Board meetings and ensure that key business issues and risks are brought to the attention of our Board and/or Audit Committee.
Each of our directors,Directors, other than Mr. Taylor, is independent, and the Board believes that the independent directorsDirectors provide effective oversight of management. The Board may subsequently decide, however, to change that leadership structure which would require a revision to our Corporate Governance Guidelines. The Board believes that it has in place safeguards to ensure that we maintain the highest standards of corporate governance and continued accountability of the CEO to the Board. These safeguards include:
•All members of the Board are independent directorsDirectors except for Mr. Taylor.
•The establishment of the Lead Director position, described below, which assumes the role of ensuring fair, open and independent discussions and decisions amongst the Board. John W. Chisholm currently serves as Lead Director.
•Each of the Board’s standing committees, including the Audit, Compensation, GovernanceESG and Nominating Committees, are comprised of and chaired solely by non-employee directorsDirectors who meet the independence requirements under the NYSE listing standards and other governing laws and regulations. As noted above, these committees meet frequently.
•Review and determination of Mr. Taylor’s compensation and performance remains within the purview of the Compensation Committee.
•The independent directorsDirectors continue to meet in executive sessions without management present to discuss the effectiveness of the company’s management, the quality of the Board meetings and any other issues and concerns.
Lead Director
To promote the independence of the Board and appropriate oversight of management and to demonstrate our commitment to strong corporate governance, the independent directorsDirectors designate an independent, non-employee directorDirector to serve as our Lead Director. The Lead Director helps to facilitate free and open discussion and communication among the independent, nonemployee directors.non-employee Directors. The responsibilities of the Lead Director are set forth in our Corporate Governance Guidelines, which is available under “Investor Relations - Governance Documents” on our website at www.ngsgi.com. Charles G. Curtiswww.ngsgi.com. John W. Chisholm was appointed Lead Director in April 2016.June 2020.
Role in Risk Oversight
Our Board of Directors oversees the management of risks inherent in the operation of our business and the implementation of our strategic plan. Our executive management is responsible for the day-to-day management of risks we face. The Board is periodically advised by management on the status of various factors that could impact our business and operating results, including oil and gas industry issues, operational issues (such as compressor manufacturing issues, backlog for compressor equipment etc.), legal and regulatory risks. The full Board is also responsible for reviewing our strategy, business plan, and capital expenditure budget.
Our Board committees assist the Board in fulfilling its oversight responsibilities in certain areas of risk. Our Audit Committee serves an important role in providing risk oversight, as further detailed in its charter. One of the Audit Committee’s primary duties and responsibilities is to monitor the integrity of our financial statements, financial reporting processes, systems
of internal controls regarding finance,accounting, and disclosure controls and procedures. The Compensation Committee assists the Board with risk management relating to our compensation policies and programs, and the Governance and Nominating Committee assists with risk management relating to Board organization, membership and structure, succession planning for our directorsDirectors and executive officers, and corporate governance.
CODE OF ETHICS
Our Board of Directors has adopted a Code of Business Conduct and Ethics or “Code”(“Code”), which is posted on our website at www.ngsgi.com. You may also obtain a copy of our Code by requesting a copy in writing at 508 West Wall Street,404 Veterans Airpark Lane, Suite 550,300, Midland, Texas 7970179705 or by calling us at (432) 262-2700.
Our Code provides general statements of our expectations regarding ethical standards that we expect our Directors, officers and employees, including our Chief Executive Officer and principal financial officer,Chief Financial Officer, to adhere to while acting on our behalf. Among other things, the Code provides that:
•we will comply with all laws, rules and regulations;
•our Directors, officers and employees are to avoid conflicts of interest and are prohibited from competing with us or personally exploiting our corporate opportunities;
•our Directors, officers and employees are to protect our assets and maintain our confidentiality;
•we are committed to promoting values of integrity and fair dealing; and that
•we are committed to accurately maintaining our accounting records under generally accepted accounting principles and timely filing our periodic reports.
Our Code also contains procedures for our employees to report, anonymously or otherwise, violations of the Code.
SHAREHOLDER ENGAGEMENT
The Company's Board of Directors and executive management believes that building long-term relationships with all Company stakeholders is vital to meeting our strategy for corporate governance.governance goals, and to stand in support of our commercial success. Our shareholders, who invest in our company and elect the board of directors,Board, are entitled to important information about the company's business, policies and practices so they can make informed decisions and knowledgeably participate in the governance process.
The Company’s executive management has directly engaged shareholders throughout the year in many diverse ways including quarterly conference calls, investor and industry conferences and individual meetings initiated by both the Company and shareholders. It is our policy to actively engage our shareholders in dialogue about our financial and operational trends, the structure of our business, and certain governance issues, including executive compensation.
As a resultDuring 2020, due to the COVID-19 pandemic, direct person-to-person meetings with shareholders were limited. However, through virtual road shows, conference calls, and video meetings, we were able to meet with nearly all of past shareholder engagement,our largest institutional shareholders, including multiple touch points with many. In addition, we held virtual road shows, conference calls and video meetings with other current and prospective shareholders. These meetings not only allowed the Company has made several enhancements to communicate about its governance practices including the appointment of a lead director, the adoption of a “majority standard” for the election of directors and minimum equity ownership for officers and directors. In addition, the Compensation Committee considers the annual shareholders’ advisory vote, as well as other stockholder input, when reviewing executive compensation programs, principles and policies.
As a result of critiques of our executive compensation plan, including whatcurrent business operations with shareholders, the Company believes are errors of fact and interpretation by certain proxy advisory services, and results from past shareholder votesused these meetings to actively solicit shareholders’ views on the Company’s executive compensation structure, we have actively engaged many of our shareholders in ongoing dialogue regarding the structure of our executive compensation plan.
Specifically, since our last proxy statement and annual meeting, we have held meetings with a plethora of the Company’s shareholders about our compensation structurekey corporate governance issues including executive base compensation as well as the Company’s incentiveEnvironmental, Social and Governance (“ESG”) initiatives We have incorporated this feedback into both our compensation programs. These discussions have included information and data regarding the compensation programs of our peers as well as updated information on our Company, its compensation practices and new data including pay ratios and other publicly available information.ESG programs.
The tenor of those discussions and shareholder suggestions resulting from such dialogue have been shared with and considered by our Board of Directors and the Compensation Committee of the Board as they consider and adopt changes to the Company’s executive compensation program. The Board appreciates the input of our shareholders and put considerable weight on suggestions proffered by these key stakeholders. The executive compensation plan of the Company is detailed in this Proxy.
Overall, the Company engages our shareholders on a regular basis. In addition to periodic reports filed with the U.S. Securities and Exchange Commission, the Company holds quarterly conference calls to discuss interim financial and operational results with its stakeholders, participates in several industry conferences which are available to Company stakeholders in person (temporarily suspended due to the COVID-19 pandemic) or via various public online platforms and meets with shareholders in person throughout the year.year (also temporarily suspended due to the COVID-19 pandemic and public health considerations). The Company believes that its consistent and continuous shareholder engagement strategy has created an environment in which shareholders are comfortable in providing candid feedback and critique of the Company’s operations, governance and executive compensation policies.
Additionally, independent Directors have taken a proactive approach in participating in shareholder engagement efforts resulting from feedback received from shareholders and proxy advisory services. Independent Directors continue to regularly review the Company’s shareholder outreach and communication programs and participate as appropriate. The Company anticipates continuing to increase the role of independent Directors in appropriate stakeholder outreach programs.
During 2017,2020, the Company estimates it met with over 100approximately 60 unique shareholders and prospective shareholders (including all of the Company’s twenty largest shareholders, exclusive of index and quantitative funds) atin various meetings across North America. These engagements provideprovided detailed information about the Company’s financial and operational performance as well as key information of certain corporate governance matters, including executive compensation. Such information is publicly disseminated in the form of periodic filings with the U.S. Securities and Exchange Commission, press releases and information on the Company’s website, including in the investor relations section.
CORPORATE RESPONSIBILITY
Natural Gas Services Group believes that effective corporate governance is a combination of oversight, responsiveness and positioning of our business operations on a day-to-day basis with a focus on mitigation of our environmental impact, accountability in corporate governance and progress in our social policies.
Our Board of Directors believes that integrating these values into our everyday business practices creates a holistic approach to good governance and best aligns the interests of our leadership team, our employees and the Company’s other stakeholders. Moreover, as a smaller company, our holistic approach and consistent focus on these important tenets allows us to focus on continuous improvement without an untenable financial impact, providing a mechanism to optimize the interests of all stakeholders.
Further demonstrating our commitment to ESG matters, the Board of Directors has chartered the Environmental, Social and Governance and Personnel Development Committee to proactively engage with management and other NGS stakeholders on key ESG issues. The Committee, to be chaired by recently appointed director Nigel J. Jenvey – a leader in environmental issues in the energy industry – will focus on continuous improvement of the Company’s ESG programs and policies.
Our Environmental Initiatives
Natural Gas Services Group continuously works to eliminate or mitigate our impact on the environment through our innovative product designs, focus on reducing our environmental footprint across all operations, and remediation of our impact through control mechanisms and technologies in all aspects of our business. In addition, our innovation in product design and service delivery systems is intended to support the sustainability goals and initiatives of our customers.
The design and construction of our new corporate headquarters in Midland is an example of our commitment to environmental stewardship. Our state-of-the art headquarters include the use of “daylight harvesting” technologies; “smart lighting” that use artificial intelligence to determine office occupancy times and adjust light accordingly; and advanced mechanical systems including variable refrigerant flow systems and energy recovery systems; and high-performance glass and advanced solar shades that reduce glare and heat gain. These are significant capital investments for a company our size that will have a long-term impact on our environmental footprint.
In addition, we strive to continuously improve the environmental footprint of our core compression equipment and services with new technology and innovations that focus on best-in-class emissions and impact on the environment. Recent innovations include:
• We have and continue to pursue the most energy efficient and emissions-controlled engine systems available for our compression equipment. All of our engines have the latest catalytic technology and air-fuel ratio (AFR) controllers to provide the cleanest fuel burn available, well exceeding EPA standards. These advanced systems continuously monitor multiple engine and compressor parameters to ensure optimum engine emissions efficiencies and adjust to varying fuel quality available from wellhead production.
• To ensure consistent efficient engine performance, we have invested in state-of-the-art emissions detection equipment to ensure our engines exceed all state and federal air emissions regulations. Additionally, we perform preventative maintenance on all engine systems twice per quarter and comprehensive emissions tests to ensure optimum performance. The company is acutely focused on reducing our environment impact on noise, emissions and carbon footprint.
•Our compressor units are equipped with advanced safety and containment features that provide for safe containment and disposal of used oils, antifreeze and other fluids. Skid containment rails and fluid dumps are manifolded together to mitigate the risk of fluid spills and environmental leaks as a result of operating error or system failures. Active monitoring systems provide further assurance of safe and optimal operations.
•In our mechanical compression packages, we have meaningfully reduced our oil consumption and associated disposal issues with a unique engine and compressor lubricating system.
•In our flaring business, we have designed and exclusively sell “Quad O” flare systems which meet the most stringent federal standards, allowing our customers to exceed all emission standards when natural gas flaring is necessary.
•In our Michigan service location, we have installed two oil burner systems which allows us to efficiently recycle waste oil into energy and heat capacity for our service facility.
•We also work with our customers and suppliers toward policies and processes that reduce the environmental impact of our work. We continuously engage with our top customers to share best practices, new technologies and operating innovations that can be implemented to improve our collective environmental footprint.
•We completed construction of our new corporate headquarters in Midland, Texas where we incorporated the latest energy-efficient technologies designed for commercial buildings. Innovations include the use of “daylight harvesting” technologies; “smart lighting” that use artificial intelligence to determine office occupancy times and adjust light accordingly; and advanced mechanical systems including variable refrigerant flow systems and energy recovery systems; and high-performance glass and advanced solar shades that reduce glare and heat gain.
•The Board of Directors regularly considers new technologies to further reduce the Company’s environmental footprint and has directed Company leadership to evaluate further opportunities for reducing the impact on the environment.
Our Social Initiatives
In response to the COVID-19 pandemic, Natural Gas Services Group implemented a sweeping work-from-home policy for the majority of our office employees and we committed to minimize employment disruption to the best of our ability. For our service employees who provide critical services on customer locations, we invested in important personal protective equipment and developed additional safety protocols to ensure appropriate distancing and other COVID-19 safety measures. In 2020, we also invested in significant employee training and development. While the COVID-19 pandemic created unique challenges related to employment and hiring, the Company remains committed to a diverse and inclusive workforce with both executive management and the Board of Directors focused on ensuring equality of opportunity in all our human resources practices.
The Company also believes that workplace and workforce safety is a hallmark of our social responsibility initiatives. As a result, we also incorporate our Health, Safety, Environment and Quality (“HSEQ”) initiatives into these programs and policies. In addition to the protection of the environment, we are steadfastly committed to the safety of our employees and other stakeholders as well as the physical and mental well being of all members of the NGS family. Our commitment centers on mitigating risks to employees and those with whom they interact and maintaining safe work environments and procedures. Our focus on regular, required safety and procedure training helps ensure a consistent and safe work environment. Our strong safety program has allowed NGS to consistently post one of the lowest Total Recordable Incident Rates (“TRIR”) in the industry.
Our Governance Initiatives
The recent creation of the Environmental, Social and Governance and Personnel Development Committee of the Board of Directors is an important step and indication of the Company’s commitment to continuous improvement in corporate governance and responsibility.
This committee was chartered to be proactive in assisting the Board and Company leadership in its oversight of ESG-related policies and issues affecting Natural Gas Services Group, its stockholders, employees, customers and the communities in which the Company operates. We believe that the integration of our environmental and social initiatives with our governance responsibilities is the best way to optimize our commitment to being an industry leader in corporate responsibility.
In addition to the Board ESG Committee, our audit committee is engaged in independently reviewing the Company’s financial governance practices for accuracy and transparency as well as ensuring they provide the Company stakeholders with a consistent method by which to evaluate performance. In connection with this responsibility, in 2020 the Audit Committee received proposals from independent accounting firms and engaged a new independent auditor to perform our annual audit and quarterly reviews. The committee is satisfied this change stands in support of best governance practices.
While qualifying as a smaller reporting company with fewer disclosure requirements, the Board of Directors and leadership of the Company nonetheless have continued to provide an array of disclosures and reports as it remains committed to a high level of transparency, a practice it believes is in the best interests of the Company’s shareholders and other stakeholders.
EXECUTIVE OFFICERS
Biographical information for the executive officers of Natural Gas Services Group who are not Directors is set forth below. There are no family relationships between any Director or executive officer and any other Director or executive officer. Executive officers serve at the discretion of the Board of Directors and until their successors have been duly elected and qualified, unless sooner removed by the Board of Directors. Officers are elected by the Board of Directors annually at its first meeting following the annual meeting of shareholders.
G. Larry Lawrence, 67, became our Chief Financial Officer, Principal Accounting Officer and Corporate Secretary on July 1, 2011. Previously, Mr. Lawrence was our Controller since September 2010. From June 2006 to August 2010, Mr. Lawrence was self-employed as a management consultant doing business as Crescent Consulting. Overlapping this time, from September 2006 to August 2009, he also served as the CFO of Lynx Operating Company. Lynx is a private company engaged in oil and gas production and gas processing activities. From May 2004 through April 2006, Mr. Lawrence served as Controller of Pure Resources, an exploration and production company and wholly owned subsidiary of Unocal Corporation which was acquired by Chevron Corporation. From June 2000 through May 2004, Mr. Lawrence was a practice manager of the Parson Group, LLC, a financial management consulting firm whose services included Sarbanes Oxley engagements with oil and natural gas industry clients. From 1973 through May 2000, Mr. Lawrence was employed by Atlantic Richfield Company where he most recently (from 1993 through 2000) served as Controller of ARCO Permian. Since May 2006, Mr. Lawrence serves as a director of Legacy Reserves, LP. Mr. Lawrence has a Bachelor of Arts in Accounting, with honors, from Dillard University.
James R. Hazlett, 62,66, has served as Vice President-Technical Services since June 2005. He also served as Vice President of Sales of Screw Compression Systems, Inc. from 1997 until June 2007 when Screw Compression Systems, Inc. was merged into Natural Gas Services Group. After the merger in June 2007, Mr. Hazlett continues to remain employed by Natural Gas Services Group as Vice President-Technical Services. From 1982 to 1996, Mr. Hazlett served in management roles for Ingersoll Rand/Dresser Rand, working with compression of all types in several different departments from sales and service to engineering. From 1978 to 1982, Mr. Hazlett was employed by the down-hole tool division of Hughes Tool, designing and installing gas lift and plunger systems.Mr. Hazlett holds a Bachelor of Science degree from the College of Engineering at Texas A&M University and has over 40 years of industry experience.
G. Larry Lawrence, 70, has served as our interim Vice President, Chief Financial Officer, and Corporate Secretary for 2021 and Mr. G.L. Lawrence also served as Vice President, Chief Financial Officer and Corporate Secretary prior to his retirement from the Company on November 15, 2019. Mr. G.L. Lawrence was originally appointed to those positions on July 1, 2011. Previously, Mr. G.L. Lawrence was our Controller since September 2010. From June 2006 to August 2010, Mr. G.L. Lawrence was self-employed as a management consultant doing business as Crescent Consulting. Overlapping this time, from September 2006 to August 2009, he also served as the CFO of Lynx Operating Company. Lynx is a private company engaged in oil and gas production and gas processing activities. From May 2004 through April 2006, Mr. G.L. Lawrence served as Controller of Pure Resources, an exploration and production company and wholly owned subsidiary of Unocal Corporation which was acquired by Chevron Corporation. From June 2000 through May 2004, Mr. G.L. Lawrence was a practice manager of the Parson Group, LLC, a financial management consulting firm whose services included Sarbanes Oxley engagements with oil and natural gas industry clients. From 1973 through May 2000, Mr. G.L. Lawrence was employed by Atlantic Richfield Company, where he most recently (from 1993 through 2000) served as Controller of ARCO Permian. From May 2006 to December 2019, Mr. G.L. Lawrence served as a director of Legacy Reserves Inc. and its predecessor, Legacy Reserves LP. Mr. G.L. Lawrence currently serves as a Director of ProPetro Holding Corporation. Mr. G.L. Lawrence has a Bachelor of Arts in Accounting, with honors, from Dillard University.
James R. Lawrence, 51, is our former Vice President, Chief Financial Officer, and Corporate Secretary after resigning from the Company in December 2020. Mr. J.R. Lawrence was appointed to those position on November 16, 2019. Mr. J.R. Lawrence also served as our Corporate Secretary. Mr. J.R. Lawrence, previously served as the Chief Financial Officer of Bold Energy III LLC, a privately held oil and natural gas company that was an affiliate of EnCap Investments. Prior to joining Bold, Mr. J.R. Lawrence served as Vice President-Finance and Treasurer for Legacy Reserves LP, a publicly traded oil and natural gas company, from 2010 to 2014. Prior to joining Legacy, Mr. J.R. Lawrence worked for nine years in investment banking, including the last six years in the Energy Investment Banking Group at Raymond James & Associates, where he served as a Vice President. Mr. J.R. Lawrence holds an MBA with distinction from the Stern School of Business at New York University and a BBA in Accounting and Finance from the University of Texas at Austin. Mr. J.R. Lawrence is also licensed as a Certified Public Accountant in the state of Texas.
Compensation DiscussionEXECUTIVE COMPENSATION
In June 2018, the Securities and Analysis
Compensation DiscussionExchange Commission (“SEC”) approved amendments to the definition of a “smaller reporting company” (SRC) which became effective in September 2018. These amendments greatly expanded the number of companies that qualify as SRCs and Analysis
Thisthereby are eligible to use scaled down disclosures in their SEC filings and reports. For 2020, Natural Gas Services Group, Inc. meets the definition of an SRC. One of the significant SRC benefits is a reduction in the amount of executive compensation disclosure, including deletion of the requirement to provide the compensation, discussion and analysis section our annual proxy statement. Nevertheless, we are cognizant that our compensation disclosure provides important information to our shareholders and have elected to continue with our customary executive compensation disclosures. We believe the following disclosure provides transparency regarding our compensation policies and practices so that our shareholders can make informed decisions and knowledgeably participate in the governance process. As in the past, we intend to continue to engage our shareholders regarding our compensation policies.
This section provides information regarding our executive compensation program in 20172020 for the following executive officers of the Company (collectively, the "named executive officers").:
Stephen C. Taylor, our Chairman, President, and Chief Executive Officer;
G. Larry
James R. Lawrence, our former Vice President and Chief Financial Officer; and
James R. Hazlett, our Vice President-Technical Services.Services; and
G. Larry Lawrence, our interim Chief Financial Officer (as well as our former Vice President and Chief Financial
Officer).
Introduction and Overview
The Compensation Committee or, the “Committee,” of the Board of Directors is responsible for determining the types and amounts of compensation we pay to our executives. The Compensation Committee operates under a written charter that you can view on our website at www.ngsgi.com . www.ngsgi.com. The Board of Directors has determined that each member of the Compensation Committee meets the independence and financial literacy requirements of the New York Stock Exchange NYSE. The Board determines, in its business judgment, whether a particular Director satisfies the requirements for membership on the Compensation Committee set forth in the Compensation Committee’s charter. None of the members of the Compensation Committee are current or former employees of Natural Gas Services Group or any of its subsidiaries.
The Compensation Committee is responsible for formulating and administering our overall compensation principles and plans. This includes establishing the compensation paid to our CEO, meeting and consulting with our CEO to establish the compensation paid to our other executive officers, counseling our CEO as to different compensation approaches, administering our stock equity plans, monitoring adherence to our compensation philosophy and conducting an annual, and sometimes more frequent, reviewinterim, reviews of our compensation programs and philosophy regarding executive compensation.
The Compensation Committee periodically meets in executive session without members of management or management Directors present and reports to the Board of Directors on its actions and recommendations. The Compensation Committee, from time-to-time, also engages compensation consultants and other experts to provide data and guidance on appropriate compensation practices, industry standards, peer selection and other items relevant to the responsibilities and deliberations of the Compensation Committee.
Compensation Philosophy and Objectives
Our compensation philosophy is to provide an executive compensation program that:
•rewards performance and skills necessary to advance our objectives and further the interests of our shareholders;
•is fair and reasonable and appropriately applied to each executive officer;
•is competitive with compensation programs offered by our competitors;competitors and industry peers; and
•serves as an adequate retention tool in a competitive market.market with a finite number of experienced and qualified executives.
The overall objectives of our compensation philosophy are to:
•provide a competitive level of current annual income that attracts and retains qualified executives at a reasonable cost to us;
•retain and motivate executives to accomplish our company goals;goals and uphold and model our company ethics, values and other standards for the Natural Gas Services Group community, including those that stand in support of our ESG principles and initiatives;
•provide long-term incentive compensation opportunities at levels appropriate for the respective responsibilities and performance of each executive;
•align compensation and benefits with our business strategies, and goals;goals and other values and standards;
•encourage the application of a decision making process that takes into account both short-term and long-term risks and the oftentimes volatile nature of our industry; and
•align the financial interests of our executives with those of our shareholders through the grant of equity based rewards.equity-based awards and consider the impact of equity-based awards on shareholders and, where appropriate, consider alternatives to equity-based awards to avoid unnecessary shareholder dilution.
Our Compensation Committee supports these objectives by emphasizing compensation arrangements that we believe are reasonable, and will attract and retain qualified executives, and will reward them for their efforts to further our long-term growth and success. At the same time, we remain cognizant of and aim to balance our executive compensation arrangements with the interests and concerns of our shareholders.
Note Concerning Unique 2020 Considerations: The global COVID-19 pandemic had unexpected impacts on the economy, our industry and our business. While we were able to provide a full array of products and services to our customers, the impact of the pandemic significantly altered the way in which we conducted business and severely disrupted commercial relationships with both customers and vendors. The Compensation Committee recognized the fact such changes had a material impact on the workload on and effort required of our executive leadership team to manage our operations. As such, the Compensation Committee took these extraordinary circumstances, the impact of such on our business and financial performance and the adjustments required of our executives as a result into account when assessing performance and appropriate compensation for 2020.
The following summary highlights our commitment to executive compensation practices that align the interests of our executives and shareholders:
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| WHAT WE DO | | WHAT WE DON’T DO |
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| ü | Fully independent compensation committee - permits the establishment of competitive compensation practices and the measurement of actual performance in a conflict-of-interest free environment
| | û | No gross-ups - executive officers are not eligible to receive any tax reimbursement payments or “gross-ups” in connection with any severance or change-in-control payments or benefits
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| ü | Broad-based retirement programs - all of our retirement plans are broad-based and are provided to all full-time employees in addition to our executive officers
| | û | Limited perquisites - with the exception of certain expense reimbursements as detailed in the Summary Compensation Table that follows this compensation report, we do not provide any perquisites
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| ü | Independent compensation consultant - the Committee annually engages an independent compensation consultant to assist with its compensation reviews
| | û | Prohibition of hedging and pledging sharesNo stock option exchanges or repricing - we do not permit hedgingallow for stock option exchanges or pledging our shares as collateral for a loan nor do we permit our executives or non-employee directors to engage in any derivatives trading with respect to our commonthe repricing of outstanding stock options without shareholder approval
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| ü | Annual review - the Committee conducts an annual review and approval of the Company’s compensation strategy, including a review of our compensation peer group used for comparative purposes and a review of our compensation related risk profile to ensure that such risks are not reasonably likely to have a material adverse effect on the Company
| | û | No stock option exchanges or repricingPledging and hedging shares - we do not allowpermit pledging our shares as collateral for a loan; and we also strongly discourage our executives and non-employee Directors from entering into hedging or similar monetization transactions with respect to our common stock, option exchanges or the repricing of outstanding stock options without shareholder approvalas any deviation from our hedging policy must be approved in advance by our CEO and Board
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| ü | Risk mitigation - we have certain controls in place (signature authority, compensation structure, etc.) and an analysis is conducted on a quarterly basis
| | û | No related party transactions - we do not have any related party transactions
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| ü | Double-trigger employment - our change-in-control payments and benefits with our Chief Executive Officer are based on a “double-trigger” provision
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| ü | Stock ownership guidelines - stringent ownership policies for directors,Directors, CEO and other officers
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| ü | Clawback policy - applicable to our NEO's ("named executive officers") and other executive officers
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| Three Year Vesting on Equity Awards - equity awards to our NEOs are subject to a three-year vesting requirement
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| Performance Compensations - our cash bonuses are primarily tied to annual financial performance metrics and a portion of our CEO's long-term equity award is tied to our total shareholder return compared to our peer group
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We have chosen to implement a relatively streamlined compensation framework for our executives. We feel that our compensation philosophies and practices are appropriate for a public company of our size. This streamlined framework allows the Company and Compensation Committee to maintain a high degree of transparency, as well as relative certainty for our executives and our shareholders and prospective investors, while minimizing the impact of complex benefit programs that are both costly and potential confusing. Our compensation programs are focused on a simple goal: a fair, reasonable and straightforward compensation program that rewards our leadership team for achievements beneficial to the Company and its shareholders.
Advisory Vote on Compensation; Shareholder EngagementCompensation
At our 2017 Annual Meeting, approximately 68% of the votes cast on the annual advisory “say on pay” proposal were cast in support of the compensation of our named executive officers. This was significantly higher than the vote in 2015 where less than 50% of the votes cast were in support of the proposal and 3% higher than the vote in 2016. We believe the increase in support over the past two years has been due to the significant compensation and governance changes we made as described in this and our past Proxy Statements. However, last year's results were still disappointing, as we believe a sizeable portion of the disapproval votes were the result of the influence of misguided recommendations of certain proxy advisory firms. As noted in Supplemental Proxy Materials submitted by the Company subsequent to the filing of the 2017 Proxy Statement, we believe the reports of certain proxy advisory firms contained factual errors and erroneous assumptions that resulted in misguided conclusions and recommendations.
Although the Advisory Vote on Executive Compensation inis not binding on the Company, the Board of Directors assigns significant weight to the outcome of the vote and responds accordingly. In the past threefive years, the Company’s Board of Directors and executive management considered the results of the vote and recommendations of the proxy advisory firms as it engaged in meaningful review of its corporate governance and executive compensation matters with advisors and other stakeholders. Those discussions included over 200 unique meetings with key institutional shareholders and prospective shareholders during the past three years. The vast majority of input on our compensation programs and executive pay from these shareholders has been positive, As noted above, we believe the preponderance of votes against the Company’s executive compensation program are the product of “automatic” voting procedures by some institutional shareholders based solely upon the recommendations of certain proxy advisory firms which, we note herein, are based on factual inaccuracies and misinterpretations.positive.
The Compensation Committee and Board of Directors believe that our executive compensation program and corporate governance policies are optimal for the Company, continue to align company leadership with the best interests of shareholders, and have facilitated and supported executive compensation that havehas delivered industry-leading results. At the same time, the Compensation Committee also recognizes the ever-evolving compensation and governance landscape.
Below is a summary of the actions we took in response to many of these issues during the last threefive years:
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| Compensation and Governance Concerns | | Responses to the Concerns |
| Insufficient Risk Mitigators (i.e., lack of clawback policy and stock ownership guidelines) | | We have adopted both a Clawback Policy covering our executive officers and Stock Ownership Guidelines covering our executive officers and members of our Board of Directors.
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Equity AwardLong-term incentives for CEO not directly performance driven and one year vesting of Restricted Stock Grants
| | A portion of the equity awardlong-term incentives for our CEO is now objectively calculated based on total shareholder return compared to our peer group, and equityall long-term incentive awards to our executive officers vest in one-third increments over three years. In addition, ourOur Compensation Committee is also in the process of obtaining and reviewingcontinually reviews reports and data relating to the manner in which share awards are determined and vest in keeping with the evolving trends for this type of compensation. Once finalized, we envision implementing these changes with respect to awards granted in 2019.
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| Equity Award for CEO based on one-year TSR | | ForStarting in 2017, the TSR (total shareholder return) performance-driven portion of our CEO’s equity award was based on our three-year TSR results compared to the companies in our peer group.
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| Excessive Cash Severance | | We do not feel that the cash severance benefits for our Chief Executive Officer are excessive. Any change of control severance requires a ‘double-trigger’ to be payable and the triggers are limited to the standard "good reason" "Good Reason" events (see page 49)47). We believe the severance benefits are within the norms of companies in our industry that exhibit a similar performance profile that we do, i.e., industry leading total shareholder returns in each ofover the past one,last three and five year periods. Please see the chartstabular disclosure on page 2526 and the 20172020 performance achievements below. The cash severance due to our CEO in connection with "good reason" events (this typically would be an involuntary occurrence) equates to approximately three years of total compensation based upon a year of good performance, which the Company has generally demonstrated.
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| Lack of Lead Independent Director | | We have amended our Corporate Governance Guidelines to include a lead independent director. Charles G. Curtis, our longest tenured independent director, has beenDirector. John W. Chisholm was appointed as our lead director.Lead Director in June 2020.
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Operational Highlights of 2020
•Through the COVID-19 pandemic, we implemented sweeping stay-at-home work policies for our office personnel and provided safe operating standards for our field personnel. We maintained high operational standards while preserving the health and welfare of our team.
•We continued our penetration into the high horsepower market through the addition of 42 new rental fleet units that totaled 23,000 HP with 89% of this being classified as larger horsepower.
•Increased our total rental fleet horsepower to 438,524 horsepower; the fourth consecutive year of increases.
•Increased our average rental fleet horsepower to 197 horsepower per unit. This is an increase of 36% per unit since 2017.
Fiscal Year 2017 Performance
In 2017, our financial performance demonstrated positive results and stable financial condition•NGS recorded a TRIR (Total Recordable Incident Rate) of 0.0 in 2020. This is an OSHA approved calculation that provided excellent shareholder value in a very challenging timeconveys the number of recordable injuries for a service companyevery 200,000 man-hours worked in the oil and gas industry. Some of our financial and operational highlights include:year. This is the third consecutive year that NGS has had decreasing TRIR statistics which allowed us to remain an industry leader in overall safety.
Financial Highlights of 2020
•In one of the most challenging years for oilfield service operations in decades, we delivered 7% higher rental revenue than the prior year. This was in spite of the impact of COVID-19 and the precipitous decline in crude oil prices.
Maintained a strong•Our cash flow from operations increased from $29.4 million in 2019 to $32.7 million in 2020. This increase in cash was accomplished in the midst of the pandemic and conservativean oil-price depression.
•We provided conversion of revenue to operating cash flow of 48%; for every dollar of revenue collected, almost half was available as cash to the Company.
•NGS ended 2020 with $28.9 million in cash on the balance sheet which has allowed the Companyand de minimis debt. This is an increase in cash from $11.6 million compared to weather the oil and gas price downturn while still reporting net income and accumulating cash, while numerous energy service providers have gone into bankruptcy or restructured with significant dilutive effect to shareholders.
Taking advantage of the Company's strong financial position to purchase land and begin construction on its own office building in order to avoid costly and escalating leases in the Midland, Texas area while potentially increasing the value of its investment if commercial real estate prices rise.
Increased cash and cash equivalents (balance sheet) from $64.1 million in 2016 and $69.2 million in 2017, while simultaneously increasing capital expenses.
Maintained debt at a continuing, very low level (less than $500k).
Maintained a positive Current (Quick) Ratio (Current Assets/Current Liabilities, a measure of liquidity) of 14.5 in 2017, an important metric for shareholders in an environment when liquidity tends to decrease (often severely).
Increased capital expenditures from $3.4 million in 2016 to $13.5 million in 2017, in response to increased opportunities and a strategic move into higher-horsepower equipment.
Continued to self-fund growth capital expenditures in excess of $208 million since 2010.
Operating cash flow as a percentage of revenue was 26% in 2017. This means that of every dollar in revenue we turned 26 cents in 2017 of it into real spendable cash.
Free cash flow (cash remaining after funding the Company's capital expenditures) remained healthy at $4.0 million in 2017 and as a percentage of revenue was 5.9%.
Achieved Adjusted EBITDA as a percentage of revenue of 34% in 2017. Adjusted EBITDA reflects net income or loss before interest, taxes, depreciation and amortization and loss on retirement of rental equipment.
Maintained adjusted gross margins in our core rental business above 60% in 2017, notwithstanding the difficult and depressed industry cycle. Adjusted Gross Margin is defined as total revenue less cost of sales (excluding depreciation and amortization expense).
Our SG&A expenses as a percent of total revenue remained relatively steady notwithstanding the significant drop in revenue due to the challenging industry cycle.
For the year 2017, our stock price decreased by 18.5%, while the median decrease for identified public peers was 29.5%, the OSX index decreased 18.6%.
Operational Highlights
During the downturn, the Company was able to retain skilled and experienced employees due to its strong financial position which should benefit the Company as the Midland, Texas employment market becomes even more competitive.
In 2017, we continued to build and set our new 400/600 horsepower gas compressors and 50 to 100 horsepower Vapor Recovery units. Utilization for the equipment continues to be high.
At the end of 2017, we entered the 1300, horsepower rental market, with a significant commitment of almost 22,500 horsepower from a major customer.2020.
Developed with a major customer a unique method of digitally controlling process gas temperatures on our gas compression skids. This resulted in exceptional uptime during the critical winter period.
Elements of Our Compensation Program
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| Element | | Characteristics | | Primary Objective |
| Base Salary | | Cash | | Attract and retain highly talented individuals |
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| Short-Term Incentives | | Cash-based performance awards | | Reward for corporate and individual performance |
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| Long-Term Incentives | | Restricted stock awards along with vesting periodother long-term incentives payable in either cash or stock, all of which potentially vest over three years | | Align the interests of our employees and shareholders by providing employees with incentive to perform technically and financially in a manner that promotes share price appreciation |
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| Other Benefits | | 401(k) matching plans and employee health benefit plans
| | Provide benefits that promote employee health and support employees in attaining financial security |
We do not presently and have not in the past used any of the following types of executive compensation:
•defined benefit pension plans;
•employee stock purchase/ownership plans; or
•supplemental executive retirement plans/benefits (other than a Non-qualifiedNonqualified Deferred Compensation Plan to which named executive officers and other eligible employees can contribute but to which the Company has not contributed).
Assistance Provided to the Committee
The Compensation Committee makes all compensation decisions regarding our executive officers. Stephen C. Taylor, our Chief Executive Officer, annually reviews the performance of each of our executive officers (other than the Chief Executive Officer whose performance is reviewed by the Compensation Committee) and presents recommendations to the Compensation Committee with respect to salary and cash bonus percentage adjustments and restricted stock grants for our executives (other than the Chief Executive Officer whose salary, cash bonus percentage adjustments and restricted stock grants and other long-term incentives are determined solely by the Compensation Committee). The Compensation Committee may exercise its discretion in modifying any recommendations made by our Chief Executive Officer.
The Compensation Committee also seeks the input and insight of Mr. Taylor concerning specific factors that Mr. Taylor believes to be appropriate for the Compensation Committee’s consideration and which the Compensation Committee may not be aware of, such as extraordinary efforts or accomplishments of our executive officers. Mr. Taylor, from time-to-time, also advises the Compensation Committee on generalother topics such as the moralerelated to compensation and retention of our executives.executives as requested.
Natural Gas Services Group’s accounting department assists the Compensation Committee in the compensation process by gathering and organizing data, which is then presented to the Compensation Committee by Mr. Taylor for the Committee’sits review.
Since 2012, our Compensation Committee has engaged an independent compensation consultant, Longnecker & Associates (the “Compensation Consultant”), to obtain objective, expert advice and assist with compensation matters concerning our Chief Executive Officer and Directors. Our Compensation Consultant advised the Compensation Committee on a variety of compensation related issues in 20172020 with respect to our Chief Executive Officer, including:
•competitive pay analysis on executive compensation;
•pay levels of the Chief Executive Officer;
•our executive compensation program design, including short-term incentive plan design, long-term incentive plan design, and pay mix; and
•analysis and recommendations concerning peer group companies.
In the course of conducting its activities, our Compensation ConsultantsConsultant communicated with the Compensation Committee and presented its findings and recommendations for discussion. During 2017,2020, our Compensation Consultants also met with our Chief Executive Officer to review its compensation report.
Since its engagement, our Compensation Consultants hasConsultant did not providedprovide any services to the Company, or received any payments from the Company, other than in its capacity as a consultant to the Compensation Committee. The Compensation Committee has assessed whether the services provided by our Compensation ConsultantsConsultant raised any conflicts of interest pursuant to the SEC rules, and has concluded that no such conflicts of interest existed since its engagement and through 2017.2020.
Competitive Pay Analysis
To evaluate the competitiveness of our Chief Executive Officer's base salary, determine total cash compensation (i.e.(e.g., base salary plus target short-term cash incentive award), long-term incentive awards, and total direct compensation (i.e.(e.g. base salary, target short-term cash incentive award, and long-term incentive awards), our Compensation ConsultantsConsultant provided the Compensation Committee with competitive pay information derived from a custom peer group (the “Custom Peer“Peer Group”) and referred to a variety of published compensation surveys utilizing companies that operate within the natural gas compression and energy services industries. In connection with compiling the data, our Compensation Consultants reportConsultant reports blended data from the Custom Peer Group and the industry-specific published compensation surveys in order to provide the Compensation Committee with relevant comparable data.
The companies comprising the Custom Peer Group in our Compensation Consultants’ compensation report used in connection with 2017 included:
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NGS Custom Peer Group | |
Company Name | Company Description |
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Hornbeck Offshore Services | Hornbeck Offshore Services provides offshore marine support and transportation services primarily to companies involved in the offshore exploration and production of oil and natural gas. |
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Archrock Partners, L.P. | Archrock Partners, L.P. provides natural gas contract compression services to customers in the United States. |
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Dawson Geophysical Company | Dawson Geophysical Company provides onshore seismic data acquisition and processing services in the United States. |
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CARBO Ceramics, Inc. | CARBO Ceramics Inc. is a technology and service company that provides engineered oilfield production enhancement, industrial performance enhancement, and environmental protection solutions. |
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Gulf Island Fabrication, Inc.
| Gulf Island Fabrication Inc. fabricates offshore drilling platforms and other specialized structures.
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CSI Compressco LP | CSI Compressco LP provides compression services and equipment for natural gas and oil production, gathering, transportation, processing, and storage.
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Geospace Technologies Corporation | Geospace Technologies Corporation provides seismic data acquisition products and services to the oil and gas industry. |
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Key Energy Services, Inc. | Key Energy Services offers onshore energy production services, including drilling and workover rigs, tubing, frac stock and well testing, and fluid services. |
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RigNet, Inc. | RigNet, Inc. provides remote communications services for the oil and gas industry. |
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Mitcham Industries, Inc. | Mitcham Industries, Inc., through its subsidiaries, engages in the leasing, sale, and service of geophysical and other equipment to the seismic industry worldwide. |
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USA Compression Partners, LP | USA Compression Partners, LP provides natural gas compression services under term contracts with customers in the oil and gas industry in the U.S. |
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Flotek Industries, Inc. | Flotek Industries, Inc. develops and supplies drilling, completion and production technologies and related services to the energy and mining industries in the U.S. and internationally. |
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TETRA Technologies, Inc. | TETRA Technologies, Inc. operates as a diversified oil and gas services company through four divisions: Fluids, Production Testing, Compression and Offshore. |
The Compensation Committee, with the assistance of the Compensation Consultant, reviewed the companies comprising the Custom Peer Group in order to maintain its appropriateness for the competitive pay analysis. These companies were generally selected since they are all companiesas peers in the energy and energyoilfield services industry of similar size based on market capitalization and the majority have relatively similar market capitalization.other competitive variables. The Compensation Committee believes market capitalization should be the Customprimary metric used when selecting industry peers for executive compensation purposes. The Compensation Committee believes the Peer Group reflects our current competitors for employee talent and that it provides an appropriate comparison of peer setcompanies for the purposes of evaluating our pay practices and the Chief Executive Officer’s pay levels.
The published compensation surveys consisted of the following 2017 materials:
Economic Research Institute --
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Executive Compensation Assessor
The Compensation Committee used the competitive pay information and surveys as a “market check” to ensure, in its subjective judgment, that the Chief Executive Officer’s base salary, target total cash compensation, long-term incentive awards and total direct compensation remain competitive. The Compensation Committee does not target any individual pay component to fall within a specific range or percentile of the competitive pay information. While the competitive pay information is important to the Compensation Committee’s approval process, it is just one of several factors considered by the Compensation Committee in approving executive compensation and the Compensation Committee has discretion in determining the nature and extent of its use.
The table below shows the aggregate one, three and five-year Total Shareholder Return (“TSR”) for the Company as well as the median TSR for the peer group utilized by the Company.
