Director Share Ownership Guidelines
Directors are
The Board believes that ownership of common shares further aligns directors’ interests with those of the Company’s shareholders. Accordingly, the Board has adopted share ownership guidelines applicable to our non-employee directors. As of December 31, 2020, non-employee directors were required to maintain ownership of Company common shares with a market value equal to three times the base annual retainer received by the director. IfIn February 2021, the Board increased the non-employee director share ownership guideline to five times the base annual retainer.
Non-employee directors are expected to meet their required ownership level within five years from their appointment. Additionally, if at any time a director is not in compliance with these guidelines, the director will be required to retain 100 percent of the net (after taxes)
of common shares
received. Allreceived until the guideline is met. As of December 31, 2020, all of our non-employee directors
are in compliance withhad met or had time to meet the
guidelines except Karen Austin, who was just appointed to the Board of Directors in January 2019.increased ownership guidelines. Mr. Rosner, as Co-President
and former Board nominee of Vestar Capital Partners LLC,
which had been the Company’s largest shareholder
hasuntil it sold its investment in the Company in the fourth quarter of 2020, was previously exempted from the guidelines as his director share grants and
other compensation
were paid to Vestar.
Beginning in 2021, Mr. Rosner is now subject to the guidelines and will have five years to meet the guidelines.
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PROPOSAL 2
ADVISORY VOTE ON THE COMPENSATION
OF NAMED EXECUTIVE OFFICERSIn accordance with Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or “Dodd-Frank Act,” and the rules of the Securities and Exchange Commission, Triton is providing shareholders with the opportunity to cast an advisory vote on the compensation of its Named Executive Officers as disclosed in this Proxy Statement. This proposal, which is commonly known as a “say-on-pay” proposal, provides shareholders with the opportunity to cast non-binding, advisory votes on the compensation of our Named Executive Officers. Based on the results of the May 10, 2017 shareholder vote on the frequency of holding the advisory vote on the compensation of our Named Executive Officers, and consistent with our recommendation, our Board of Directors has determined that Triton will hold an advisory vote on executive compensation every year.
As described in the Compensation Discussion and Analysis section of this Proxy Statement, Triton seeks to provide its senior executives with compensation packages that fairly reward the executives for their contributions to the Company and allows Triton to recruit and retain high quality individuals. Triton seeks to structure its compensation plans so that they are straightforward for the executives and shareholders to understand and value, and relatively easy for the Company to administer. Triton links a portion of overall compensation to near-term and long-term measures of performance to motivate senior executives and align their interests with those of our shareholders.
The purpose of this proposal is to provide an advisory vote on the overall compensation of the Company’s Named Executive Officers. Accordingly, the Board of Directors will request that the Company’s shareholders vote on the following resolution at the 2019 Annual Meeting of Shareholders:
“RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the named executive officers as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission in the Company’s Proxy Statement for the 2019 Annual Meeting of Shareholders, including in the Compensation Discussion and Analysis, the compensation tables and other related disclosures of the Company’s Proxy Statement.”
While the advisory vote we are asking you to cast is not binding on the Company, the Board of Directors values the opinions of our shareholders regarding the compensation of Triton’s Named Executive Officers. Your advisory vote will serve as an additional tool to guide the Board of Directors and Compensation and Talent Management Committee in the alignment of Triton’s executive compensation programs with the interests of the Company and our shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS AS DESCRIBED INTHIS PROXY STATEMENT.
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COMPENSATION DISCUSSION AND ANALYSIS
This compensation discussion and analysis describes the material elements of our compensation program for our Chief Executive Officer, Chief Financial Officer and three other most highly compensated executive officers (the “Current Named“Named Executive Officers”) who were:
| | |
| | | | | | | | | | | | | | |
| | | | • | | | Brian M. Sondey | | | Chairman, Chief Executive Officer | | | | |
| | | | • | | | John Burns | | | Senior Vice President and Chief Financial Officer | | | | |
| | | | • | | | John F. O’Callaghan | | | Executive Vice President,, Global Head of Field Marketing and Operations | | | | |
| | | | • | | | Kevin Valentine | | | Senior Vice President, Triton Container Sales | | | | |
| | | | • | | | Marc PearlinCarla Heiss
| | | Senior Vice President, General Counsel and Secretary | | | | |
| | | | •
| | | Simon R. Vernon
| | | Former President*
| |
| | | | | |
| | * Mr. Vernon retired, effective February 28, 2018.
| |
EXECUTIVE SUMMARY
2018 Business Overview
2020 Performance Highlights
Triton
ishad a remarkable year in 2020, and we achieved strong performance despite the
world's largest lessorCOVID-19 pandemic and related wide-ranging disruptions. The first half of
intermodal containers. Intermodal containers are large, standardized steel boxes used to transport freight by ship, rail or truck. Because2020 was challenging, as lingering impacts from the trade dispute between the United States and China weighed on container demand at the start of the
handling efficiencies they provide, intermodal containers areyear, while the
primary meansoutbreak of the pandemic and resulting lockdowns led to a sharp decrease in trade volumes during the first and second quarters. Triton’s operations were also impacted by
which many goodsthe pandemic as we were forced to close our offices and
materials are shipped internationally. We also lease chassis, which are usedshift to a remote working environment. Trade volumes, leasing demand and Triton’s performance surged in the second half of 2020 as lockdowns eased and as consumers shifted their spending from experiences and services to goods. Containerized trade volumes reached record levels during the third and fourth quarters of 2020 and Triton secured a substantial share of new leasing activity due to our leading supply capability and reputation for
the transportation of containers.outstanding reliability. Our consolidated operations include the acquisition, leasing, re-leasing and subsequent sale of multiple types of intermodal containers and chassis. As of December 31, 2018, our total fleet consisted of 3,714,103 containers and chassis, representing 6,166,458 twenty-foot equivalent units ("TEU") or 7,595,948 cost equivalent units ("CEU"). We have an extensive global presence, offering leasing service through 23 offices in 16 countries and approximately 400 third-party container depot facilities in approximately 45 countriesutilization reached almost 99.0% as of December 31, 2018.2020. The strong demand for containers also led to significant increases in new and used container prices and market leasing rates. Triton’s profitability also surged in the second half of the year, and our fourth quarter financial results represented a record for Triton. Our primary customers includeannual Adjusted Return on Equity reached 15.9%.
Triton also maintained our focus on disciplined capital management and delivering significant value to shareholders across the
world's largest container shipping lines.Triton achieved outstanding resultscycle of market conditions. While our investment in 2018 and we exceeded all of our primary financial targets. Demand for ournew containers was supported by several factors, including solid trade growth, an increased preference for leasing relative to direct container purchases by our shipping line customers, and a strong leasing share for Triton. Triton took advantagelow in the first half of the favorableyear due to weak demand, we shifted our investment focus to share repurchases, and repurchased 5.1 million shares in 2020. We quickly shifted our focus to value added fleet growth as market conditions surged in the third quarter and have continued growing our strong position to drive highnew container utilization, solid growthfleet into 2021. We paid $2.13 per share on our common shares in 2020 and increased our common share dividend by nearly 10%. We achieved an annual TSR of 28.9%.
Our corporate performance was a key factor in our
container fleet and excellent financial performance. Our Adjusted net income in 2018 was $363 million, an increase of 71% from 2017. Our Adjusted return on equity was 16.7% in 2018, an increase from 11.8% in 2017, and we grew the net book value of2020 Named Executive Officer compensation. The tables below illustrate our
revenue earning assets by 8.8% in 2018. The table below summarizes our financialthree-year performance against
each of the
financial targets
establishedset by
our Board of Directors as partthe Compensation and Talent Management Committee (the “Compensation Committee”) for purposes of our annual incentive plan.
Annual Incentive Plan Financial Performance Targets Despite the weak conditions during the first half of 2020, Triton significantly exceeded the targets for Adjusted Earnings Per Share and Results
Consolidated financial performance | Weighting | Threshold | Target | Maximum | Actual(1) |
Adjusted net income | 60% | $250 million | $295 million | $345 million | $363 million |
Adjusted return on equity | 20% | 11.0% | 13.5% | 16.0% | 16.7% |
Growth in revenue earning assets | 20% | 0.0% | 5.0% | 10.0% | 8.8% |
Adjusted Return on Equity. Triton fell short of the target for Growth in Revenue Earning Assets due to limited container investment in the first half of the year and practical limitations on container production in the second half as container factories needed to ramp-up capacity to meet the surge in demand. | (1) | See Reconciliation of Non-GAAP Financial Measures on page A-1. |
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Financial Performance Goals
For 2020, the Compensation Committee established and set targets for three financial performance metrics: Adjusted Earnings Per Share, Growth in Revenue Earning Assets and Adjusted Return on Equity. In setting the performance targets at the beginning of each year, the Compensation Committee reviews with management the Company’s financial forecasts and business plans and actual and anticipated conditions in the business cycle. The Committee sets targets intended to align executive compensation with the appropriate achievement of profitability, growth and return targets taking into account these factors. The table below summarizes the 2020 targets, weightings and Triton’s actual performance for each of the metrics. Based on these targets, the calculated payout for the financial performance component of the 2020 annual incentive plan was 131%.
2020 Annual Incentive Plan Company Financial Performance Targets and ResultsConsolidated financial performance | Weighting | Threshold | Target | Maximum | Actual(1) |
Adjusted net income | 60% | $250 million | $295 million | $345 million | $363 million |
Adjusted return on equity | 20% | 11.0% | 13.5% | 16.0% | 16.7% |
Growth in revenue earning assets | 20% | 0.0% | 5.0% | 10.0% | 8.8% |
The Compensation Committee utilized these financial metrics as they incentivize achievement of short-term progress toward long-term value creation and are strong indicators of our overall performance as follows:
| Adjusted EPS | | | Measures on page A-1.our core profitability and success in achieving profitable growth for our shareholders. | |
| Growth in Revenue Earning Assets | | | Measures our ability to grow our business and market position in a competitive environment. | |
| Adjusted Return On Equity | | | Measures how efficiently management uses investors’ capital to generate profits. | |
Individual Performance Goals
For 2020, individual performance objectives set by the Compensation Committee for the Named Executive Officers were tied to numerous specific objectives for the overall company or within their business units or functional areas. These objectives were set in early 2020, before the COVID-19 pandemic. They included achieving target levels for key operating metrics, such as fleet utilization; achieving critical investment goals such as obtaining a target leasing share and target expected returns for new container investments; progressing identified business transformation initiatives to further enhance Triton’s competitive advantages; enhancing Triton’s organization, especially in regard to talent and leadership development; enhancing risk management processes and increasing our corporate focus on ESG initiatives.
The Committee determined that most of the operating and investment goals, as well as several of the organizational goals were exceeded in 2020, despite disruptions caused by the COVID-19 pandemic. Additionally, while progress on some of the strategic and business transformation objectives was mixed, the Committee determined that management’s enhanced focus on delivering the operating and investment objectives, careful management of the increased complexity and risks caused by the pandemic, as well as success in aggressively pursuing the value creation opportunities provided by the surge in trade volumes and leasing demand in the second half of the year, substantially exceeded expectations. Among the key accomplishments influencing the Committee’s decisions on the individual performance portion of the annual incentive awards for 2020 were the following results:
Successfully navigating the rapid transition to remote working globally while managing business continuity risks across all operations and functions.
Significantly growing our market share of leasing transactions.
Achieving nearly 99% equipment utilization rate at the end of the year.
Increasing lease durations for new and used equipment, thus locking in attractive lease rates for extended terms.
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Skillfully managing increased customer credit risk during the first half of the year, including rapidly reducing higher risk exposures and collaboratively working with customers to profitably mitigate short-term challenges.
Rigorously managing the Company’s capital allocation strategy through the pandemic, including focusing on aggressive share repurchases in the first half of the year while market conditions were weak and rapidly pivoting to accelerated fleet growth when market conditions inflected upwards, all while lowering overall leverage, attractively refinancing existing debt and increasing annual dividends by nearly 10%.
Continuously maintaining a focus on employee safety, wellness and engagement.
As a result, the payouts under the individual performance goals for the Named Executive Officers ranged from 135% to 200%, averaging 170%.
COVID-19 Adjustment Factor for 2020 Annual Incentive Plan
In further recognition of the extraordinary personal and business challenges faced in 2020 due to the COVID-19 pandemic and the increased dedication and collaboration required to successfully deliver the Company’s strong financial and operating results while managing increased operational, supply chain, customer credit and human capital risks, including the rapid transition to remote working, the Compensation Committee determined to increase the calculated payout under the annual incentive plan for each of the NEOs by a factor of 1.1 times. Triton included this adjustment factor for all employees participating in the annual incentive plan.
The table below shows the actual payouts under the annual incentive plan for each Named Executive Officer for 2020.
| Brian M. Sondey | | | 131% | | | 50% | | | 180% | | | 50% | | | $1,477,250 | | | 110% | | | $1,624,975 | | | 100% | | | 171% | |
| John Burns | | | 131% | | | 50% | | | 135% | | | 50% | | | $379,050 | | | 110% | | | $416,955 | | | 60% | | | 146% | |
| John F. O'Callaghan | | | 131% | | | 50% | | | 200% | | | 50% | | | $472,320 | | | 110% | | | $519,552 | | | 60% | | | 182% | |
| Kevin Valentine | | | 131% | | | 50% | | | 200% | | | 50% | | | $382,305 | | | 110% | | | $420,536 | | | 60% | | | 182% | |
| Carla Heiss | | | 131% | | | 50% | | | 135% | | | 50% | | | $319,200 | | | 110% | | | $351,120 | | | 60% | | | 146% | |
2021 Annual Incentive Plan Individual Performance TargetsDesign Change.
The Compensation Committee regularly reviews and
Resultsrefines our compensation program to ensure it remains competitive, supports strategic objectives and rewards performance. For 2021, the Compensation Committee has approved changes to the annual incentive plan such that the Adjusted Return on Equity metric will be replaced with Cash Flow Before Capital Expenditures, which is a measure we report externally and is viewed by our shareholders as an important measure of liquidity for Named Executive Officers.capital expenditures, dividends, share repurchases and other value creating opportunities. The other financial metrics will remain Adjusted EPS and Growth in Revenue Earning Assets. As discussed below under “Long-Term Equity Based Compensation,” the Committee has added Adjusted Return on Equity as a second performance metric for our long-term performance-based restricted share awards granted in 2021. Individual PerformanceCritical Area
| Weighting
| Target Objective
| Actual Result
|
Marketing and Container Fleet Performance
|
45%
| | | | |
•
| Achieve 96% average Utilization for 2018
| •
| Exceeded – average utilization 98.6% in 2018
|
•
| Win 25% of new build leasing share
| •
| Exceeded – Estimate new lease share above 25% in 2018
|
•
| Realize average dry container sale prices at residual values or better
| •
| Exceeded – Average dry sales prices 30% above residual values in 2018
|
•
| Reduce end-of-lease volatility
| •
| Achieved – Average initial lease duration for new containers approx. 7 yrs. in 2018
|
•
| Extend a large portion of expired leases
| •
| Not Achieved – unable to extend a number of large expirations on acceptable terms in 2018
|
Corporate Structure and Capital Management
| 35%
| •
| Implement corporate structure enhancements
| •
| Achieved – Completed corporate structuring, funding, and assets transfers in 2018
|
•
| Complete meaningful financings with new sources/structures
| •
| Not Achieved - Did not utilize new sources but financing programs very successful overall
|
•
| Make significant progress streamlining financial structure
| •
| Not Achieved
|
New Organization in Final Form
| 20%
| •
| New organization structure functioning smoothly
| •
| Achieved – all internal and external processes functioning smoothly and more efficiently
|
•
| Fully implement organizational changes
| •
| Achieved – all planned merger related organizational changes implemented
|
•
| Achieve $40 million run rate savings by end of Q1 2018
| •
| Mostly achieved Shortfall of $2 -$3 Million expected to be achieved in 2019
|
Long-Term Equity Based Compensation
We utilize long-term equity
based compensation for key employees, including our Named Executive Officers, to align their compensation with the growth of long-term value for our shareholders, to motivate them to achieve long-range goals and
to retain their services over the vesting period.as a retention tool. The Compensation Committee administers our long-term
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equity compensation plans and determines the individuals eligible to receive awards, the types of awards, the number of common shares subject to the awards, the pricevalue and timing of awards, and the other terms, conditions, performance criteria and restrictions on the awards. Long-term incentive awards earned by our Named Executive Officers are subject to our clawback policy.
Currently, the Company utilizes
a mix of time-based and performance-based restricted
common share grants asshares for its long term incentive compensation
awards.awards, as further described below. In determining the numbervalue of awards granted to the Named Executive Officers, the Compensation Committee consideredconsiders individual performance, the importancecontributions of each executive officer to the Company’s success, each executive officer’s relative experience and future leadership potential and how the executive officer’s total and long-term equity-linked compensation comparedcompare to levels at our selected peer group companies.
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Shares
2020 Long-Term Incentive Program Awards
All share awards granted under the 2016 Equity Incentive Planour equity incentive program have a 3 year3-year cliff vesting period, with 50% of the shares constituting time-based awards contingent on the executive’s continued employment with the Company through the vesting date, and 50% constituting performance-based awards. Awards will pay out in Triton common shares, plus dividends accrued over the vesting period on earned shares. For performance-based share awards granted in 2020, the level of vesting will be contingent on the Company’s relative TSR over the vesting period (subject to the executive’s continued employment with the Company through the vesting date as well as the Company’s total shareholder return (“TSR”) over the three-year performance periodemployment) versus the TSR over the same period of the following peer companies:
| •
| |
| United Rentals
| | | | | | | | | | | | | | | | |
| | | | • | Aircastle
|
• | Hub Group
| •
| Forward Air
|
•
| Matson
| •
| Mobile Mini
|
•
| GATX
| •
| Textainer Group Holdings
|
•
| H&E Equipment Services
| •
| CAI International, Inc.
|
• | Air Lease Corp. | | | • | | | Herc Holdings, Inc. | | | | |
| | | | • | | | Atlas Air Worldwide Holdings | | | • | | | Hub Group, Inc. | | | | |
| | | | • | | | CAI International, Inc. | | | • | | | Matson, Inc. | | | | |
| | | | • | | | Forward Air Corporation | | | • | | | Mobile Mini Inc.(1) | | | | |
| | | | • | | | GATX Corporation | | | • | | | Textainer Group Holdings | | | | |
| | | | • | | | H&E Equipment Services, Inc. | | | • | | | Werner Enterprises, Inc. | | | | |
| | | | | | | | | | | | | | | | | |
(1)
| Effective July 1, 2020, Mobile Mini Inc. was replaced with the go-forward entity from its merger with WillScot Corporation, Willscot Mobile Mini. |
CalculationThe performance-based share awards granted in 2020 will vest between 50% and 150% of Performance Share Award Grants for Shares Grantedthe target award granted in 2018 underaccordance with the 2016 Equity Incentive Plan:
methodology set forth below:The TSR of each peer company over the three-year performance period will be calculated and ranked, provided that Textainer will be included on the list three times and CAI will be included on the list twice, as they are direct competitors of the Company and provide a common basis for comparison.
If the Company’s TSR over the three-year performance period is in the bottom one-third of the list of peer companies, 50% of the target performance basedperformance-based restricted shares will vest.
If the Company’s TSR over the three-year performance period is in the middle one-third of the list,peer companies, 100% of the target performance basedperformance-based restricted shares will vest.
If the Company’s TSR over the three-year performance period is in the top one-third of the list,peer companies, 150% of the target performance basedperformance-based restricted shares will vest.
Using December 31, 2018 asThe peer companies used for purposes of the measurement date,2020 performance-based share awards are substantially similar to the maximum number of performance shares would have been achieved.
Long-term incentive awards earnedpeer group used by ourMeridian to assess market-based compensation for Named Executive Officers for 2020, except that Textainer and CAI, the Company’s publicly traded container leasing peers, are subjectincluded in the relative TSR peer group and Aircastle Limited was removed due to our Clawback Policy.
its acquisition in the first quarter of 2020. The following table lists the restricted share grants made to the Named Executive Officers in 2018:
Current 2020:
Named Executive Officers’ 2018 2020 Share Grants | | Time Based | Time and Performance Based |
Name | Vesting Date | Minimum | Target | Maximum |
Brian M. Sondey | January 1, 2021 | 27,337 | 13,668 | 27,337 | 41,005 |
John Burns | January 1, 2021 | 6,054 | 3,027 | 6,054 | 9,081 |
John F. O’Callaghan | January 1, 2021 | 5,208 | 2,604 | 5,208 | 7,812 |
Kevin Valentine | January 1, 2021 | 4,882 | 2,441 | 4,882 | 7,323 |
Marc Pearlin | January 1, 2021 | 3,255 | 1,627 | 3,255 | 4,882 |
| Brian M. Sondey | | | January 10, 2023 | | | 31,347 | | | 15,674 | | | 31,347 | | | 47,021 | |
| John Burns | | | January 10, 2023 | | | 6,399 | | | 3,199 | | | 6,398 | | | 9,598 | |
| John F. O’Callaghan | | | January 10, 2023 | | | 5,882 | | | 2,941 | | | 5,881 | | | 8,822 | |
| Kevin Valentine | | | January 10, 2023 | | | 5,753 | | | 2,876 | | | 5,752 | | | 8,629 | |
| Carla Heiss(1) | | | — | | | — | | | — | | | — | | | — | |
(1)
| Ms. Heiss received a share grant upon joining the Company in December 2019 intended to cover the 2020 compensation period and thus pursuant to her employment offer letter did not receive an equity incentive award in 2020. |