COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis provides an overview of the philosophy, objectives, process and components of our compensation program for the following named executive officers (collectively, our “Named Executive Officers” or “NEOs”). in Fiscal Year 2023. The compensation program for our NEOs generally is consistent with the compensation program for our other executive officers, and the Compensation Committee generally evaluates compensation programs for executive officers, including NEOs, as a group. The independent members of the Board administer compensation for our President and Chief Executive Officer, and the Compensation Committee administers our compensation program for the other Named Executive Officer compensation program, except certain matters administered by the Board regarding our Chief Executive Officer.Officers.
Our Named Executive Officers are as follows:
| | NAME | | | TITLE IN FISCAL YEAR 20212023 | |
| | EricRobert J. Lindberg,Sheedy, Jr.(1) | | | President and Chief Executive Officer | |
| | Charles C. Bracher(2) | | | EVP, Chief Financial Officer | |
| | Robert Joseph Sheedy, Jr.Steve K. Wilson(3) | | | PresidentEVP, Chief Purchasing Officer | |
| | Pamela B. Burke*Burke | | | EVP, Chief AdministrativeStores Officer General Counsel and Secretary | |
| | Steven K. WilsonAndrea R. Bortner(4) | | | SVP,EVP, Chief PurchasingHuman Resources Officer | |
* Effective
(1)
Mr. Sheedy was promoted from the position of “President” to “President and Chief Executive Officer,” effective January 1, 2022, 2023.
(2)
Mr. Bracher resigned from the Company, effective March 1, 2024.
(3)
Mr. Wilson was promoted from the position of “SVP, Chief Purchasing Officer” to “EVP, Chief Purchasing Officer,” effective January 1, 2023.
(4)
Ms. BurkeBortner was appointed as EVP, Chief Stores Officer, Interim General Counsel and Secretary
Executive Summary
FISCAL YEAR 2021 COMPANY PERFORMANCE
The Fiscal Year 2021 was our second full year as a public company, and one that presented many challenges including the pandemic and global supply chain issues. Due to these challenging macroeconomic conditions, and on the back of very strong COVID-related resultsnot an NEO in Fiscal Year 2020,2022 and therefore such compensation information is not presented herein for comparison.
Executive Summary
FISCAL YEAR 2023 NEO COMPENSATION DETERMINATIONS
| | BASE SALARY | | | AIP | | | EQUITY | |
| | ✓
Reasonable merit base salary increases, including for promotions | | | ✓
No change to target bonus opportunity as a percentage of base salary, other than promotions ✓
Maintain performance metrics, but change weighting for 2023: adjusted EBITDA (from 60% to 70%) and Comparable Store Sales (from 40% to 30%) ✓
Based on our performance, Fiscal Year 2023 AIP bonuses were earned at 111% of target | | | ✓
No change to target equity opportunity as a percentage of base salary or mix of RSUs and PSUs, other than for promotions ✓
No change in PSU performance metrics or weighting | |
FISCAL YEAR 2023 COMPANY PERFORMANCE
During 2023, we increased our top-traffic and bottom-line performance in Fiscal Year 2021 was below both our long-term growth algorithmgained market share, achieved record sales, and our historical track record of double-digit annual growth in Net Sales and Adjusted EBITDA over the prior decade. From 2019 to 2021, we grew Net Sales and Adjusted EBITDA(1) at 9.7% and 8.6%adjusted EBITDA. We also made measurable progress on a compounded basis, respectively.
Despitenumber of our disappointing financial results,strategic initiatives that we are pleased withbelieve will further strengthen our operational performancevalue proposition and progress we made on our growth initiatives. We leveraged our flexible business model to deliver the unbeatable deals and exciting treasure hunt experience that our customers love. We expanded our store base with the opening of 35 net new stores in 2021, representing close to 10% unitcontribute toward long-term growth. In addition, we embarked on several new initiatives to expand our customer reach and engagement, including piloting e-commerce and strategically expanding our product assortment.
Our IOs continued to deliver exceptional values and the WOW! shopping experience to their local communities. While the past year presented our IOs with unprecedented challenges, they rose to the occasion in order to serve their customers and we continued to invest in systems and process improvements to support them.
We realigned our organizational structure to streamline and strengthen corporate resources available to our independent operators, while continuing to support local decision-making and independence. To lead this effort, in late 2021 we took action to promote Ms. Burke to the newly created position of Chief Stores Officer effective on January 1, 2022.
Our Fiscal Year 2021 results reflect solid execution during a challenging environment while continuing to scale our business in support of long-term growth objectives. Financial highlights from Fiscal 2021Year 2023 include:
•
Net Sales decreasedsales increased by 1.8%10.9% to $3.08$3.97 billion. Net Sales were roughly flat versus the prior year after adjusting for the 53rd week in Fiscal 2020.
•
Comparable store sales increased by 7.5%, driven by an 8.3% increase in the number of transactions, partially offset by a 0.8% decrease in average transaction size.
•
(1)
Adjusted EBITDA, adjusted net income and adjusted diluted earnings per share are non-GAAP financial measures, which exclude the impact of certain special items. For supplemental information about these numbers and a reconciliation of adjusted EBITDA and non-GAAP adjusted net incomeGross margin increased by 80 basis points to net income computed in accordance with GAAP see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—GAAP to Non-GAAP Reconciliations” included in our Annual Report on Form 10-K for the fiscal year ended January 1, 2022.31.3%.
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Compensation Discussion and Analysis
•
Comparable store sales decreased 6.0% compared to a 12.7% increase in the same period last year, reflecting 2-year stackedWe made steady progress with implementation of new systems, but disruptions impacted comparable store sales growth of 6.7%.by approximately 90 basis points and gross margin by 50 basis points in fiscal 2023.
•
We opened 3628 new stores and closed one store during the year, ending the year with 415 locations.year.
•
Net income decreasedincreased 22.1% to $62.3$79.4 million, or $0.63$0.79 per diluted share.
•
Adjusted EBITDA(1) decreased increased 17.7% to $198.5 million.$252.6 million, or 6.4% of net sales.
•
Adjusted net income(1) decreased increased 15.2% to $89.9$108.1 million, or $0.90$1.07 per adjusted diluted shareshare.(1).
Except where noted, each of the above comparisons is based on a 52-week Fiscal Year 2021 versus a 53-week Fiscal Year 2020. For more complete information regarding our 2021 performance, please review our 2021 Annual Report.•
Net cash provided by operating activities was $303.4 million.
KEY ELEMENTS OF FISCAL YEAR 20212023 NEO COMPENSATION
Substantially consistent with Fiscal Year 2020,2022, the key elements of our NEO pay mixcompensation program in Fiscal Year 20212023 consisted of:
•
Base salarysalary;
•
The AIP, an annual performance-based cash bonus generally based onthat is subject to our achievement of adjusted EBITDA and comparable store sales performance goals (other than for Mr. Wilson, as discussed below)goals; and
•
Long-term equity incentives, consisting of time-vesting restricted stock units (“RSUs”) and performance-vesting stock units (“PSUs”), with the PSUs based onsubject to our achievement of revenue and adjusted EBITDA growth goals over a three-year performance periodperiod.
COMPENSATION MIX FOR NEOS
In Fiscal Year 2023, in line with our compensation philosophy that a significant portion of our executive pay be tied to company performance:
•
performance, approximately 83%85% of our President and Chief Executive Officer’s and 75%73% of our other NEO’s target total compensation is was variable (or “at risk”), with value ultimately tied to either the achievement of objective corporate goals, or stock price performance, or both. In addition, the pay mix also is intended to provide a balance of short-term and long-term performance goals based on Company performance, as well as provide retention and motivation incentives by using time-based and performance-based equity.
•
approximately 64% of our Chief Executive Officer’s and 52% of our other NEO’s target total compensation is performance-based through the achievement of objective corporate goals
We believeThe Compensation Committee believes this pay mix appropriately aligns the interests of executives with those ofand our stockholders. The charts below illustrate the target mix of pay (excluding benefits and perquisites) for our CEO and other NEOs for Fiscal Year 2021.2023.
1
See the Table of Contents for information regarding our non-GAAP financial measures.
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Compensation Discussion and Analysis
Governance and Board Matters—Board of Directors—Board and Committee’s Role in Oversight—Compensation Risk Analysis” above for an additional discussion of risk considerations.
The Role of Stockholder Say-on-Pay Votes
We provide our stockholders with the annual opportunity to cast an advisory vote on our NEO compensation (a Say-on-Pay proposal). The Compensation Committee considered stockholder support for our NEO compensation policies and practices based on the results of our most recent Say-on-Pay proposal at the 2023 annual meeting of stockholders, as well as other general stockholder feedback on compensation, governance and related matters through our periodic engagement. No material changes were made to our NEO compensation policies and practices in Fiscal Year 2023 or 2024 directly as a result of the Say-on-Pay proposal voting results. The Compensation Committee will continue to consider stockholder perspectives, including the results of future Say-on-Pay votes, when making future compensation decisions for our NEOs.
Employment Arrangements with NEOs
AGREEMENT WITH MR. LINDBERGSHEEDY
On October 7, 2014,In connection with Mr. Lindberg’s retirement as Chief Executive Officer, effective December 31, 2022, the Board appointed Mr. Sheedy as President and Chief Executive Officer, effective January 1, 2023. In connection with that appointment, we entered into an Amended and Restated Executive Employment Agreement with Mr. Lindberg,Sheedy pursuant to which he agreed to serve as President and Chief Executive Officer and a Co-Chiefmember of the Board. The independent members of the Board consulted with Korn Ferry in determining Mr. Sheedy’s initial compensation arrangement (in Mr. Sheedy’s capacity as President and Chief Executive Officer.Officer), including obtaining a market-based assessment and analysis. The compensation for Mr. Sheedy was developed using, among other factors, current market conditions for a president and chief executive officer in similarly situated companies. The agreement also contains specified severance benefits upon certain terminations of employment. In consideration forof the benefits provided to Mr. Lindberg,Sheedy, the employment agreement contains non-competition covenants during the term of the agreement as well as confidentiality and employee non-solicitation covenants. See “Potential Payments Upon Termination or Change in Control” for additional information on the terms of this agreement. Other than the agreement with Mr. Lindberg, we have no employment agreements with any of our Named Executive Officers.
EXECUTIVE SEVERANCE PLAN
On November 9, 2020, based on the recommendation of Korn Ferry, and after reviewing peer company and general retail market practices, the Committee adoptedWe maintain the Grocery Outlet Holding Corp. Executive Severance Plan (the “Executive Severance Plan”) to provide severance benefits to certain eligible employees of the Company and its affiliates who experience a termination of employment under the conditions described in the Executive Severance Plan. Eligible employees under the Executive Severance Plan includein Fiscal Year 2023 included all of our Named Executive Officers, other than Mr. Lindberg.Sheedy due to his employment agreement. The purposes of the Executive Severance Plan, among others, isare to assist us in attracting and retaining executives by providing a level of protection against involuntary job loss and to provide appropriate incentives to executives to maintain ongoing alignment with stockholder interests. Eligible employees who receive severance benefits under the Executive Severance Plan will be bound by certain restrictive covenants in favor of the Company, including confidentiality, non-disparagement and non-solicitation covenants. See “Potential Payments Upon Termination or Change in Control” for additional information.
Other Compensation
SPECIAL BONUSBENEFITS
As part of our employee recognition program for all employees, anniversary awards are provided based on significant milestones. Mr. Lindberg received a one-time $5,000 discretionary bonus, as well as a tax gross-up amount on such bonus, in recognition of his 25th anniversary with the Company. Due to the one-time nature of such compensation, such amounts were not considered by the Board and the Compensation Committee for their benchmarking analysis or otherwise in establishing TDC, and therefore discussions regarding the components of TDC and related analyses in this CD&A exclude such amounts.
BENEFITS
We provide various employee benefit programs to our Named Executive Officers, including medical, vision, dental, life insurance, accidental death & dismemberment, long-term disability, short-term disability, health savings accounts and wellness programs. These common benefit programs are generally available to all of our employees on a non-discriminatory basis.
401(K) PLAN AND DISCRETIONARY PROFIT-SHARING PROGRAM
We maintain a defined contribution pension plan (the “401(k) Plan”) for all full-time employees, including our Named Executive Officers, with at least three months of service. The 401(k) Plan is intended to qualify as a tax-qualified plan under Section 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”). The 401(k) Plan provides that each participant may contribute up to 60% of his or hersuch person’s salary up to the legally allowed maximum amount.
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Compensation Discussion and Analysis
2016 AND 2018 DIVIDENDS ON OPTIONS
As previously disclosed in our proxy statement for the 2021 annual meeting of stockholders, we declared cash dividends in respect of our outstanding common stock in 2016 and 2018. Pursuant to the terms of the 2014 Stock Plan, our Board was required to make an equitable adjustment to all outstanding options in connection with the payment of the extraordinary dividend.
As disclosed in the Summary Compensation Table below, Ms. Burke was the only Named Executive Officer during Fiscal Year 2021 holding outstanding options required to be equitably adjusted in connection with the payment of the extraordinary dividend.Table.
Other Equity-Related Policies
STOCK OWNERSHIP GUIDELINES
The Compensation Committee approved the implementation of formal stock ownership guidelines for our management team, which we adopted in September 2019.team. Pursuant to the guidelines, each of our executives with a title of Vice President and above is required to own shares of our common stock having an aggregate fair market value equal to or greater than a multiple of their base salary as set forth below (each as measured with reference to the base salary payable to each executive in the immediately preceding calendar year):
| | TITLE | | | MULTIPLE OF BASE SALARY | |
| | Chief Executive Officer | | | Five | |
| | Executive Officer Level (EVP)Vice President | | | Three | |
| | Senior Vice President and Vice President | | | Two | |
For purposes of the guidelines, the base salary payable will include all base salary payable in a given calendar year (even if the payment of which is deferred to a later calendar year). For purposes of the guidelines, an executive’s holdings include: (i) shares of our common stock owned separately by the executive or owned either jointly or with, or separately by, his or hersuch person’s immediate family,family; (ii) shares of our common stock held in trust for the benefit of the executive or his or hersuch person’s immediate family members,members; (iii) shares of our common stock purchased on the open market,market; (iv) shares of our common stock obtained through stock option exercises (and not thereafter sold),; (v) vested but unexercised stock optionsoptions; and (vi) shares of restricted stock and restricted stock units, in each case, whether vested or unvested; however, unvested however, PSUs are not included when calculating holdings. Executives have five years to attain the specified level of equity ownership. Executives must hold 50% “net shares” (shares of our common stock left after the tax liability is settled) received from their equity awards until the guidelines are met. Our Board may waive compliance with the guidelines on a case-by-case basis where these guidelines would place a severe hardship on an individual, but it is anticipated that waivers will be rare.
All of our Named Executive Officers already maintain an equity ownership position, through direct stock ownership and/or the ownership of stock option and RSU awards that meets the requirements of this policy. In addition to stock ownership levels, the Compensation Committee also periodically reviews our NEOs’ unvested equity levels along with proceeds received from periodic stock sales.
SECURITIES TRADING POLICY
Our insider trading policySecurities Trading Policy is designed to inform, educate and create reasonable processes to prevent the Company and its directors, officers, employees and other specified persons from insider trading violations and the appearance of any related improper conduct. Our insider trading policy specifically prohibits, among other things all directors, officers and other employees from speculating in our stock, including trading in options, warrants, puts and calls, or similar derivative securities, selling our stock short and participating in hedging transactions. Our policy also prohibits our directors, officers and certain other employees from pledging our stock as collateral for a loan.
Except under limited circumstances (relating to Rule 10b5-1 trading plans), persons subject to our policy, their affiliates and certain members of their family may not engage in any transaction of Company securities (or assist or encourage other persons to do so) while aware of material non-public information relating to the Company. Our policy also implements quarterly
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trading blackout periods and pre-clearance requirements, and allows for special blackout periods, for our NEOs and other specified persons to reduce the likelihood of trading at times with significant risk of insider trading exposure.
Further, the policy includes Rule 10b5-1 trading plan guidelines to assist in compliance with the Rule 10b5-1 affirmative defense for insider trading liability, including that such plans can only be adopted or modified when the applicable person is permitted to transact in Company securities under the terms of the policy (including not being aware of any material non-public information), must include the minimum statutory cooling-off period between plan adoption and the first trade under such plan, and must comply with the prohibitions on multiple overlapping plans and limitations on single-trade plans. The adoption, modification or termination of any such plan is subject to pre-clearance requirements.
CLAWBACK POLICYPOLICIES
Pre-October 2023 Policy.In the event that the Compensation Committee determines, in its discretion, that any fraud, willful misconduct or gross negligence by a current or former “Officer” (as that term is defined in Rule 16a-1(f) under the Exchange Act) caused or contributed, directly or indirectly, to the restatement of our reported financial results, our clawback policy, for incentive compensation received prior to October 2, 2023 (“Pre-October 2023 Clawback Policy”), empowers our Compensation Committee to seek recovery of or cancel any “Overpayment”, which is defined as the difference between (i) any incentive compensation paid, granted, vested, settled or accrued based on the belief that the Company, had met or exceeded performance targetsgoals that would not have been met had the financial information been accurate, and (ii) the incentive compensation in which the Officer would have been paid or awarded based on the accurate financial information or restated results, as applicable. TheUnder the Pre-October 2023 Clawback Policy, the Compensation Committee has discretion whether to seek recoupment, taking into account any factors as it deems appropriate.
Current Policy. As required by the listing standards adopted by Nasdaq as a result of SEC rulemaking, our Board recently adopted a new Incentive Compensation Clawback Policy. The policy provides that the Company must promptly recover specified incentive-based compensation that is received by our executive officers on or after October 2, 2023, regardless of fault or misconduct, upon specified accounting restatements of the Company’s financial statement that resulted in such persons receiving an amount that exceeded the amount that would have been received if based on the restated financial statements. There are limited exceptions to the recovery requirement as set forth in the listing standards. Incentive-based compensation is defined as any compensation that is granted, earned, or vested based wholly or in part upon the attainment of a financial reporting measure. The subject compensation will be determined without regard to any net settlement of, or taxes paid or payable or withheld on, such compensation, but there will not be any duplicative recovery by the Company. As specified in the listing standards, the Company cannot indemnify, or pay or reimburse for insurance for, an executive officer for recoveries under this policy. The recovery period under the policy is three full years preceding the date our Board or a committee thereof concludes, or reasonably should have concluded, that an accounting restatement is required. If applicable, the Company will provide the current or former executive officer with a written demand for repayment or return and the method thereof (although the Company provides an executive officer with an opportunity to respond at a meeting or otherwise in advance of such formal notice). If such repayment or return is not made when due, the policy provides that the Company will take all reasonable and appropriate actions to recover such erroneously awarded compensation from such person.
Incentive Plan Policies. The 2019 Incentive Plan and AIP incorporate by reference any Company clawback policies into such plans. In addition, the 2019 Incentive Plan provides that (i) if a participant receives any amount in excess of the amount the participant should have received under the terms of an award for any reason (including financial restatement, mistake in calculation or administrative error) or (ii) if the Compensation Committee determines a participant has engaged in specified detrimental activity (including the disclosure of proprietary or confidential information, activity that would be grounds for a for-cause termination, a breach of restrictive covenants, or fraud or contributing to any financial restatements or irregularities), then it may cancel all outstanding equity awards and require the repayment of any gain realized on the vesting or exercise of equity awards.
TIMING OF EQUITY AWARDS
The Compensation Committee does not coordinate the timing of equity awards to executive officers or employees with the release of material non-public information. Annual equity awards generally are made in the first quarter of each fiscal year during an open window period. New hire equity awards to executive officers are made shortly after commencement of employment.
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Named Executive Officer Compensation Tables
Potential Payments Upon Termination or Change in Control
The information below describes and estimates certain compensation that would have been payable to our Named Executive Officers under existing plans and arrangements if a qualifying termination or change in control occurred on January 1, 2022,December 30, 2023, the last day of our Fiscal Year 2021.2023. These benefits are in addition to benefits available generally to salaried employees. Due to the number of factors that affect the nature and amount of any benefits provided upon the events discussed below, any actual amounts paid or distributed may be different from those estimated below. Factors that could affect these amounts include the timing during the year of any such event and the trading price of our valuationcommon stock at that time. There can be no assurance that a termination or change in control would produce the same or similar results as those described below if any assumption used to prepare this information is not correct in fact.
SEVERANCE BENEFITS UPON TERMINATION FOR MR. LINDBERGSHEEDY
The employment agreement for Mr. LindbergSheedy provides that in the event of a termination of employment without Cause or resignation for Good Reason (as defined in his agreement) he is entitled to (i) accrued base salary and benefits, (ii) continued payment of his base salary payable in equal installments in accordance with ourthe Company’s regular payroll practices for a period of 24 months following the termination date; (ii)months; (iii) an amount equal to two times his target bonus for the year in which the termination date occurs, payable in equal installments for a period of 24 months following the termination date; and (iii)months; (iv) payment for up to 18 months of his medical and dental benefits for him and his dependents which are substantially the same as the benefits provided immediatelybenefits; (v) any unpaid bonus in respect of any fiscal year completed prior to the date of termination; (vi) subject to the satisfaction of applicable performance objectives, payment of a pro-rated bonus with respect to the fiscal year of termination; and (vii) pro-rated vesting of any outstanding time-based restricted stock units or stock options, calculated, in each case, as of the date of termination date (including, in our discretion, payment for the costs associated with continuation coverage pursuant to COBRA)(“Pro Rata Vesting Rights”). Further, if Mr. Lindberg’s agreement further provides that if hisSheedy’s employment is terminated by reason of his death or disability,Disability (as defined in the Employment Agreement), he will be entitled to (i) Pro Rata Vesting Rights; (ii) accrued base salary and benefits; (iii) a lump sum amount equal to his pro rata target annual bonus for the year in which the termination occurs, prorated based onoccurs; and (iv) any unpaid bonus in respect of any fiscal year completed prior to the ratiodate of termination. Upon the effectiveness of such agreement, Mr. Sheedy no longer participated in the Company’s Executive Severance Plan. In consideration for the benefits provided to Mr. Sheedy, the Employment Agreement contains non-competition covenants during the term of the number of days during such year that the executive was employed to 365.agreement as well as confidentiality and non-solicitation covenants.
EXECUTIVE SEVERANCE PLAN
On November 9, 2020, the Compensation Committee adopted the Executive Severance Plan to provide severance benefits to certain eligible employees of the Company and its affiliates who experience a termination of employment under the conditions described in the Executive Severance Plan. Eligible employees under the Executive Severance Plan includein Fiscal Year 2023 included all of the Company’sour Named Executive Officers, other than Mr. Lindberg.Sheedy due to his employment agreement.
Non-Change-in-Control Severance
Under the terms of theOur Executive Severance Plan provides that, if a participant at the executive vice president level or senior vice president level experiences a termination by the Company without Cause (as defined in the 2019 Incentive Plan) or by the participant for Good Reason (as defined in the Executive Severance Plan), either of which is referred to as a “covered termination,” not in connection with a Change in Control (as defined in the 2019 Incentive Plan), the Company will provide the participant with the following severance payments and benefits, subject to his or her continued compliance with a restrictive covenant agreement and the execution and non-revocation of a release of claims. The severance payments and benefits provided to our applicable Named Executive Officers are as follows:
•
an amount equal to 1.0 times the sum of the participant’s annual base salary and target annual bonus, payable in accordance with the Company’s normal payroll practice over 12 months,months; and
•
subject to the participant’s timely election under COBRA, payment, or reimbursement for, the difference between the COBRA premium and the premium paid by active Company employees for the same coverage for 12 months.
Change-in-Control Severance
Under the terms of the Executive Severance Plan, if a participant at the executive vice president or senior vice president level experiences a covered termination within 18 months following a Change in Control, the Company will provide the participant
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Named Executive Officer Compensation Tables
Eligible employees who receive severance benefits under the Executive Severance Plan will be bound by certain restrictive covenants in favor of the Company, including confidentiality, non-disparagement and non-solicitation covenants.
The Executive Severance Plan provides that if payments and benefits provided to the participant would constitute an “excess parachute payment” for purposes of Section 280G of the Code, the participant will either have his or her payments and benefits reduced to the highest amount that could be paid without triggering Section 280G or receive the after-tax amount of his or her payment and benefits, whichever results in the greater after-tax benefit, taking into account the excise tax imposed under Section 4999 of the Code and any applicable federal, state and local taxes.
The Executive Severance Plan may be amended, terminated or discontinued in whole or in part, at any time and from time to time at the discretion of the Board or the Compensation Committee; provided, however, that no adverse amendment, termination or discontinuance may be made without the consent of a participant who has undergone a covered termination prior to the effective date of any such adverse amendment, termination or discontinuance. In addition, following a Change in Control, the Executive Severance Plan may not be amended, terminated or discontinued in whole or in part, at any time prior to the second anniversary of the date of such change in control without the written consent of an affected participant.
ACCELERATED VESTING OF EQUITY AWARDS UPON CERTAIN EVENTS
Time-Vesting Options
EachExcept as set forth below or in an employment agreement (described above), unvested equity awards will terminate as of our Named Executive Officers were granted time-vesting options under the 2019 Incentive Plan in Fiscal Year 2019, which provide that if the executive undergoes a termination of employment without Cause following a Change in Control (each as defined in the 2019 Incentive Plan), such options will become fully vested and exercisable.
In addition, Ms. Burke holds two partially unvested time-based stock option awards that were under the 2014 Stock Plan. Those awards provide that if a Change in Control (as defined in such plan) occurs during the optionee’s employment, the option will, to the extent not vested, become fully vested and exercisable immediately prior to the effective time of such Change in Control.or service.
Performance-Vesting Stock Units (PSUs)
Each of our Named Executive Officers were also granted PSUs under the 2019 Incentive Plan (with all defined terms below defined in the 2019 Incentive Plan). Those awards provide for the following vesting upon various events:
•
if the participant undergoes a termination as a result of participant’s death or disability prior to a Change in Control, a prorated portion of the PSU will vest (at target performance) on the date of such termination;
•
in the event a participant undergoes a termination without Cause a prorated portion of the PSU will remain outstanding, and, in the event of a subsequent Change in Control following such termination, the outstanding portion of the PSU will vest at target performance; and
•
in the event a participant undergoes a termination (i) without Cause, (ii) for Good Reason or (iii) by reason of death or disability, in each case following a Change in Control, the earned PSU will vest in full at target performance on the date of such termination.
Time-Vesting Restricted Stock Units (RSUs)
Each of our Named Executive Officers werewas also granted RSUs under the 2019 Incentive Plan (with all defined terms below defined in 2019 Incentive Plan). Those awards provide for full acceleration of the award if the participant undergoes a termination without Cause following a Change in Control.
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date occurs, payable in equal installments for a period of 24 months; (iv) payment for up to 18 months following the termination date; and (iii)of medical and dental benefit payments and,benefits, (v) any unpaid bonus in our discretion, payment for the costs associated with COBRA premium for a periodrespect of 18 months for the executive and his dependents, which benefits are substantially the same as the benefits provided immediatelyany fiscal year completed prior to the date of termination, date.(vi) subject to the satisfaction of applicable performance objectives, payment of a pro-rated bonus with respect to the fiscal year of termination, and (vii) pro-rated vesting of any outstanding time-based restricted stock units or stock options, calculated, in each case, as of the date of termination (“Pro Rata Vesting Rights”). For purposes of calculating (iii)(iv) we used the COBRA premium amounts. The amount shown under the “Bonus” column reflects (iii) and (vi), with the latter being calculated at target performance.
(2)
The employment agreement for Mr. LindbergSheedy provides that if his employment iswas terminated by reason of his death or disability, he willwould be entitled to (i) Pro Rata Vesting Rights, (ii) accrued base salary and benefits, (iii) a lump sum amount equal to his pro rata target annual bonus for the year in which the termination occurs, prorated based onand (iv) any unpaid bonus in respect of any fiscal year completed prior to the ratiodate of the number of days during such year that the executive was employed to 365.termination.
(3)
The form of Time-Based Restricted Stock Unit Notice and Agreement under our 2019 Incentive Plan provides, among other terms, full acceleration of the award if the participant undergoes a termination without Cause following a Change in Control. Additionally, the form of Performance Stock Unit Grant Notice and Agreement under our 2019 Incentive Plan provides, among other terms, (i) in the event a participant undergoes a termination as a result of participant’s death or disability prior to a Change in Control, then a prorated portion of the PSU will vest, with such proration based on the number of days elapsed from the commencement of the performance period through the date of such termination;termination and (ii) in the event a participation undergoes a termination after a Change in Control either without cause,Cause, for good reasonGood Reason or due to participant’s death or disability, then the PSUs will vest in full at target performance as of the date of such termination.
(4)
On June 19, 2019, the Company granted each of Messrs. Lindberg, Bracher and Sheedy and Ms. Burke a time-vesting option to purchase shares of our common stock, respectively, at an exercise price of $22.00. As of January 1, 2022, all shares subject to the option held by each of the executives are unvested. If the executive undergoes a termination of employment without cause following a change in control, the option will become fully vested and exercisable. The amounts above represent the value associated with the accelerated vesting of the unvested shares subject to each option held by the executive upon a change in control, which is the product of (i) the difference between (A) the closing price of our common stock as of December 31, 2021, the last trading day of Fiscal Year 2020 ($28.28) and (B) the exercise price ($22.00); and (ii) the number of unvested shares subject to the option as of January 1, 2022.
(5)
In connection with the Executive Severance Plan described above each of our NEOs (other than Mr. Lindberg)Sheedy for Fiscal Year 2023) is entitled to the following benefits if he or she is terminated without cause,Cause, or by the participant for good reasonGood Reason not in connection with a Change in Control: (i) 1.0 times the sum of the participant’s annual base salary and target bonus, payable in accordance with our regular payroll practices over 12 months;months and (ii) subject to participant’s timely election under COBRA, payment, or reimbursement for, the difference between the COBRA premium and the premium paid by active Company employees for the same coverage for 12 months.
(6)
On March 17, 2017 and December 26, 2018 Ms. Burke was granted time-based stock options under our predecessor 2014 Stock Plan at an exercise price of $8.57 and $11.64, respectively. Those stock options provide that if a Change in Control occurs during the Optionee’s Employment, the Option will, to the extent not vested, become fully vested and exercisable immediately prior to the effective time of such Change in Control.
| | Page | | | 6174 | | | Grocery Outlet 2022 2024 Proxy Statement | | | | |
CEO PAY RATIO
We are providing the following information regarding the ratio of the annual total compensation of EricRobert J. Lindberg,Sheedy, Jr., our President and Chief Executive Officer during Fiscal Year 2023, to the annual total compensation of our median employee.
For Fiscal Year 2021:2023:
| | MEDIAN EMPLOYEE | | | The annual total compensation of our median compensated employee (other than our President and CEO) was $50,531$70,071 | |
| | CHIEF EXECUTIVE OFFICER | | | The annual total compensation of our President and CEO, as reported in the Summary Compensation Table above, was $4,008,965$6,239,771 | |
| | PAY RATIO | | | The annual total compensation of our President and CEO was approximately 79.389.0 times the annual total compensation of our median employee (other than our President and CEO) | |
This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on the methodology described below. Because the SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices, the pay ratio reported by other companies—including companies in our peer group—may not be comparable to the pay ratio reported above. Further, other companies may have different employment and compensation practices, different geographic breadth, and have more or less employees at comparable skill and pay levels. This information is being provided for compliance purposes. Neither the Compensation Committee nor management of the Company used the pay ratio measure in making compensation decisions.
Determining the Median Employee
We had previously identified a median employee for disclosure in our 2021 proxy statement using the methodology set forth below. For purposes of determining our CEO pay ratio for Fiscal Year 2021, SEC rules allowand we met various conditions that allowed us to use the same median employee (or comparable employee) for three years as long as there has been no changeending in our employee population or employee compensation programs that we reasonably believe would result in a significant change to our CEO pay ratio disclosure. During the last completed fiscal year, we determined there has been no change in our employee population or employee compensation programs that would significantly impact our CEO pay ratio disclosure, and given that we have used the same median employee for this pay ratio calculation as we had used in the prior year.
EMPLOYEE POPULATION
As previously disclosed, toFiscal Year 2022. To identify our new median employee in Fiscal Year 2020,2023, we used our employee population data as of December 1, 20202023 as the reference date. As of such date, our employee population consisted of approximately 960990 individuals, approximately 70%57% of which were hourly employees and all of whom were located in the United States. For purposes of the pay ratio calculation, our employee population consists of all full- and part-time employees at all locations (other than our President and CEO), including all temporary employees employed as of the measurement date.
METHODOLOGY FOR DETERMINING OUR MEDIAN EMPLOYEE
To identify the median employee from our employee population, we used Box 1 Form W-2 earnings for Fiscal Year 20202023 as reflected in our U.S. and local payroll records, pluswhich includes the value of all benefits and employee discounts provided to all employees on a non-discriminatory basis. In identifying the median employee, we annualized the compensation for full-timefull- and part-time employees hired during the fiscal year, and we did not make any cost-of-living adjustments.
Annual Total Compensation of Median Employee
We calculated the median employee’s compensation for Fiscal Year 20212023 on the same basis as required by the Summary Compensation Table, pluswhich includes the value of benefits provided to our median employee under non-discriminatory benefit plans available to all employees during Fiscal Year 2021.2023.
Annual Total Compensation of CEO
With respect to the annual total compensation of our President and CEO, we used the amount reported in the “Total” column of our 20212023 Summary Compensation Table included in this Proxy Statement, and addedwhich includes the value of benefits provided to our CEO under non-discriminatory benefit plans available to all employees during Fiscal Year 2021.2023.
| | Page | | | 6281 | | | Grocery Outlet 2022 2024 Proxy Statement | | | | |
Security Ownership of Certain Beneficial Owners and Management
| | NAME OF BENEFICIAL OWNER | | SHARES
BENEFICIALLY
OWNED | | PERCENTAGE
BENEFICIALLY
OWNED | | NAME OF BENEFICIAL OWNER | | SHARES
BENEFICIALLY
OWNED | | PERCENTAGE
BENEFICIALLY
OWNED
(%) | |
| | Robert Joseph Sheedy, Jr.(10) | | | | 198,924 | | | | | * | | | Kenneth W. Alterman(10) | | | | 78,300 | | | | | * | | |
| | Steven K. Wilson(11) | | | | 202,161 | | | | | * | | | John E. Bachman(11) | | | | 15,872 | | | | | * | | |
| | Pamela B. Burke(12) | | | | 80,440 | | | | | * | | | Mary Kay Haben(12) | | | | 15,872 | | | | | * | | |
| | Erik D. Ragatz(13) | | | | 211,917 | | | | | * | | | Thomas F. Herman(13) | | | | 20,390 | | | | | * | | |
| | S. MacGregor Read, Jr.(14) | | | | 4,628,721 | | | | | 4.8% | | | Carey F. Jaros(14) | | | | 13,571 | | | | | * | | |
| | Kenneth W. Alterman(15) | | | | 68,310 | | | | | * | | | Eric J. Lindberg, Jr.(15) | | | | 3,292,394 | | | | | 3.3 | | |
| | John E. Bachman | | | | 5,882 | | | | | * | | | Gail Moody-Byrd(16) | | | | 12,811 | | | | | * | | |
| | Mary Kay Haben(16) | | | | 5,882 | | | | | * | | | Erik D. Ragatz(17) | | | | 440,471 | | | | | * | | |
| | Thomas F. Herman(17) | | | | 60,400 | | | | | * | | | Jeffrey R. York(18) | | | | 73,296 | | | | | * | | |
| | Carey F. Jaros | | | | 3,581 | | | | | * | | | All current directors and other executive officers as a group (17 persons)(19) | | | | 4,545,108 | | | | | 4.5 | | |
| | Norman S. Matthews(18) | | | | 156,393 | | | | | * | | | |
| | Gail Moody-Byrd | | | | 2,821 | | | | | * | | | |
| | Jeffrey R. York | | | | 138,306 | | | | | * | | | |
| | All directors and executive officers as a group (17 persons)(19) | | | | 11,072,773 | | | | | 11.2% | | | |
*
Indicates beneficial ownership of less than 1%.
(1)
Based upon statements contained in a Schedule 13G/A filed by Jackson Square Partners, LLCCapital Research Global Investors on February 11, 2022.9, 2024. According to the Schedule 13G/A, Jackson Square Partners, LLCCapital Research Global Investors has sole voting power over 8,573,211 of the reported shares, shared voting power over none of the reported shares and sole dispositive power over all of the reported shares. The address of Jackson Square Partners, LLCCapital Research Global Investors is One Letterman Drive, Building A, Suite A3-200, San Francisco,333 South Hope Street, 55th Floor, Los Angeles, California 94129.90071.
(2)
Based upon statements in a Schedule 13G/A filed by The Vanguard Group on February 10, 2022.13, 2024. According to the Schedule 13G/A, The Vanguard Group has sole voting power over none of the reported shares, shared voting power over 41,82033,187 of the reported shares, sole dispositive power over 8,274,9799,137,601 of the reported shares and shared dispositive power over 119,153135,419 of the reported shares. The address of The Vanguard Group is 100 Vanguard Blvd., Malvern, Pennsylvania 19355.
(3)
Based upon statements in a Schedule 13G/A filed by BlackRock, Inc. on February 3, 2022.January 25, 2024. The report includes holdings of various subsidiaries of the holding company, none of whom are reportedcompany; BlackRock Fund Advisors is the only subsidiary to report that it beneficially ownowns more than 5% of our common stock. According to the Schedule 13G/A, BlackRock, Inc. has sole voting power over 7,749,9538,525,761 of the reported shares, shared voting power over none of the reported shares, sole dispositive power over 8,220,7298,804,831 of the reported shares and shared dispositive power over none of the reported shares. The address of BlackRock, Inc. is 55 East 52nd Street,50 Hudson Yards, New York, New York 10055.10001.
(4)
Based upon statements contained in a Schedule 13G13G/A filed by Capital Research Global InvestorsAllianceBernstein L.P. on February 11, 2022.14, 2024. According to the Schedule 13G Capital Research Global Investors13G/A, AllianceBernstein L.P. has sole voting power over 6,876,0314,757,486 of the reported shares, shared voting power over none of the reported shares and sole dispositive power over all5,023,084 of the reported shares. The address of Capital Research Global Investors is 333 South Hope Street, 55th Fl, Los Angeles, California 90071.
(5)
Based upon statements contained in a Schedule 13G filed by Capital World Investors on February 11, 2022. According to the Schedule 13G Capital World Investors has sole votingshares, and shared dispositive power over all143,393 of the reported shares. The address of Capital World InvestorsAllianceBernstein L.P. is 333 South Hope501 Commerce Street, 55th Fl, Los Angeles, California 90071.Nashville, Tennessee 37203.
(5)
Consists of 97,103 shares held directly by Mr. Sheedy and 101,584 shares issuable upon the exercise of options which were fully vested as of April 9, 2024.
(6)
Based upon statements contained in a Schedule 13G/A filed by Mackenzie Financial Corporation on February 4, 2022. According to the Schedule 13G Mackenzie Financial Corporation has sole voting and dispositive power over all of the reported shares. The address of Mackenzie Financial Corporation is 180 Queen Street West, Toronto, Ontario M5V 3K1.
(7)
Based upon statements contained in a Schedule 13G filed by Parnassus Investments LLC on February 16, 2022. According to the Schedule 13G Mackenzie Financial Corporation has sole voting and dispositive power over all of the reported shares. The address of Parnassus Investments LLC is 1 Market Street, Suite 1600, San Francisco, CA 94105.
(8)
Consists of (i) 15,554102,419 shares of Common Stockheld directly by Mr. Bracher, (ii) 1,410 shares directly held by Mr. Lindberg, (ii) 2,065,228Bracher’s spouse, and (iii) 116,195 shares of Common Stock issuable upon the exercise of options exercisable fully vested as of April 9, 2024. Not included in the table above are 1,200 shares held in a trust for Mr. Bracher’s children over which Mr. Bracher has no voting or investment power.
(7)
Consists of 125,078 shares held directly by Mr. Wilson and 56,120 shares issuable upon the exercise of options fully vested as of April 9, 2024.
(8)
Consists of 42,593 shares held directly by Ms. Burke and 124,360 shares issuable upon the exercise of options fully vested as of April 9, 2024.
(9)
Consists of 26,765 held by the Bortner Family Trust, of which Ms. Bortner is a Trustee.
(10)
Consists of (i) 30,050 shares directly held by Mr. Alterman, (ii) 39,592 shares directly held by the Alterman Revocable Trust, of which Mr. Alterman is a Trustee (iii) 2,821 shares held as fully vested DSUs under our Director Deferral Program, and (iv) 5,837 shares of RSUs that will vest within 60 days followingof April 11, 20229, 2024.
(11)
Consists of 10,035 shares directly held by Mr. Bachman and 5,837 shares of RSUs that will vest within 60 days of April 9, 2024.
(12)
Consists of (i) 3,061 shares directly held by Ms. Haben, (ii) 6,974 shares held as fully vested DSUs under our Director Deferral Program, and (iii) 5,837 shares of RSUs that will vest within 60 days of April 9, 2024.
(13)
Consists of (i) 4,153 shares directly held by Mr. Herman, (ii) 10,400 shares directly held by the Thomas F. Herman Separate Property Trust, of which Mr. Herman is a Trustee, and (iii) 5,837 shares of RSUs that will vest within 60 days of April 9, 2024.
(14)
Consists of 7,734 shares directly held by Ms. Jaros and 5,837 shares of RSUs that will vest within 60 days of April 9, 2024.
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