UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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¨ | Preliminary Proxy Statement |
¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
x | Definitive Proxy Statement |
¨ | Definitive Additional Materials |
¨ | Soliciting Material Pursuant to §240.14a-12 |
HOUSTON WIRE & CABLE COMPANY
(Name (Name of Registrant as Specified in its Charter)
(Name(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 5, 20153, 2016
To Our Stockholders:
The 20152016 annual meeting of stockholders of Houston Wire & Cable Company will be held at our corporate headquarters, 10201 North Loop East, Houston, Texas 77029 on Tuesday, May 5, 2015,3, 2016, at 8:30 a.m., Central Time. The annual meeting of stockholders is being held for the following purposes:
1. To elect eightsix directors to serve on the Board of Directors until the 20162017 annual meeting of stockholders and until their successors have been elected and qualified (Proposal No. 1);
2. To ratify the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for the year ending December 31, 20152016 (Proposal No. 2);
3. To hold an advisory vote to approve the Company’s executive compensation (Proposal No. 3); and
4. To transact such other business as may properly come before the annual meeting and any adjournment or postponement thereof.
Only stockholders of record at the close of business on March 9, 20157, 2016 are entitled to vote at the meeting or at any postponement or adjournment thereof.
Please act promptly to vote your shares with respect to the proposals described above. You may vote your shares by marking, signing, dating and mailing the enclosed proxy card. You may also vote by telephone or through the Internet by following the instructions set forth on the proxy card. If you attend the annual meeting, you may vote in person, even if you have previously submitted a proxy.
By Order of the Board of Directors, | |
![]() ![]() | |
Nicol G. Graham | |
Vice President, Chief Financial Officer, Treasurer and Secretary |
March 26, 201524, 2016
TABLE OF CONTENTS
2
HOUSTON WIRE & CABLE COMPANY
10201 North Loop East
Houston, Texas 77029
PROXY STATEMENT
The accompanying proxy is solicited on behalf of the Board of Directors of Houston Wire & Cable Company (the “Company,” “we” or “us”) for the 20152016 annual meeting of stockholders that will be held at our corporate headquarters, 10201 North Loop East, Houston, Texas 77029, on Tuesday, May 5, 2015,3, 2016, at 8:30 a.m., Central Time, and at any postponement or adjournment thereof. We are first mailing notice of availability of this proxy statement and the accompanying proxy card and 20142015 annual report to stockholders (which includes our annual report on Form 10-K for the year ended December 31, 2014)2015), on or about March 26, 2015.24, 2016.
What is the purpose of this proxy statement?
This proxy statement provides information regarding matters to be voted on at the 20152016 annual meeting of our stockholders. Additionally, it contains certain information that the Securities and Exchange Commission (the “SEC”) requires us to provide annually to stockholders. The proxy statement is also the document used by our board to solicit proxies to be used at the 20152016 annual meeting. Proxies are solicited to give all stockholders of record an opportunity to vote on the matters to be presented at the annual meeting, even if they cannot attend the meeting. The board has designated James L. Pokluda III and William H. Sheffield as proxies, who will vote the shares represented by proxies solicited by the board at the annual meeting in accordance with the stockholders’ instructions.
What proposals will be voted on at the annual meeting?
Stockholders will vote on the following proposals at the annual meeting:
Only stockholders of record at the close of business on the record date, March 9, 2015,7, 2016, are entitled to receive notice of the annual meeting and to vote the shares of common stock that they held on that date at the meeting, or any postponement or adjournment of the meeting. If your shares are held in “street name,” please refer to the information forwarded to you by your bank, broker or other holder of record to see what you must do to vote your shares.
A complete list of stockholders entitled to vote at the annual meeting will be available for examination by any stockholder at our corporate headquarters, 10201 North Loop East, Houston, Texas 77029, during normal business hours for a period of ten days before the annual meeting and at the annual meeting.
What is the difference between a stockholder of record and a beneficial holder of shares?
If your shares are registered directly in your name with our transfer agent, American Stock Transfer and Trust Company,you are considered a stockholder of record with respect to those shares. If this is the case, we have sent or provided the stockholder proxy materials directly to you.
If your shares are held in a stock brokerage account or by a bank or other nominee (also known as held “in street name”), you are considered the “beneficial holder” of the shares, and your brokerage firm, bank or other nominee is the stockholder of record. If this is the case, the proxy materials have been forwarded to you by your brokerage firm, bank or other nominee. As the beneficial holder, you have the right to direct your broker, bank or other nominee how to vote your shares. Please contact your broker, bank or other nominee for instructions on how to vote any shares you beneficially own.
All stockholders of record as of March 9, 2015,7, 2016, or their duly appointed proxies, may attend the meeting. If you hold your shares in street name, you will need to bring a copy of a brokerage or other account statement reflecting your stock ownership as of the record date and check in at the registration desk at the meeting.
A quorum of stockholders is necessary to hold the annual meeting. The presence at the meeting, in person or by proxy, of the holders of a majority of the shares of common stock outstanding on the record date will constitute a quorum. As of the record date, 17,398,14016,611,014 shares of our common stock were outstanding. Shares covered by proxies received will be considered present at the meeting for purposes of establishing a quorum.
You may vote in person at the meeting or by proxy by any of the following methods:
We recommend that you vote by proxy even if you plan to attend the meeting so that we will know as soon as possible that enough votes will be present for us to hold the meeting. If you vote by proxy, your shares will be voted as you direct on the proxy card, by telephone or via the Internet. If you are a stockholder of record and attend the meeting, you may vote at the meeting or deliver your completed proxy card in person, even if you previously sent in a proxy card or voted by telephone or via the Internet.
If your shares are held in street name, please refer to the information forwarded to you by your broker, bank or other holder of record to see what you must do in order to vote your shares. If you are a street name stockholder and you wish to vote in person at the meeting, you will need to obtain a proxy from the institution that holds your shares and present it to the inspector of elections with your ballot when you vote at the annual meeting.
Can I change my vote after I give my proxy?
You can revoke your proxy, whether it was given by telephone, Internet or mail, before it is voted by:
The last vote you submit chronologically (by any means) will supersede all prior votes.
The powers of the proxy holders with regard to your shares will be suspended if you attend the meeting in person and so request, although attendance at the meeting will not, by itself, revoke a previously granted proxy.
How many votes are required for the proposals to pass?
Each outstanding share entitles its holder to cast one vote on each matter to be voted upon at the annual meeting. Directors are elected by a plurality vote, meaning that the eightsix director nominees receiving the greatest numbers of votes will be elected. The approval of a majority of the votes present, in person or by proxy, at the annual meeting and entitled to vote is required to ratify the selection of our independent public accounting firm and to approve our executive compensation.
How are abstentions and broker non-votes treated?
If a stockholder withholds authority to vote on the election of directors, it will have no effect on the vote. If a stockholder abstains from voting on any other proposal, it will have the same effect as a vote against that proposal.
Broker non-votes with respect to any proposal will have no effect on the outcome of the vote on that proposal. A “broker non-vote” occurs on a proposal when shares held of record by a broker are present or represented at the meeting but the broker is not permitted to vote on that proposal without instruction from the beneficial owner of the shares and no instruction has been given.
What if I do not specify a choice for a matter when returning a proxy?
Stockholders should specify their choice for each matter on the enclosed proxy. If no specific instructions are given, validly submitted proxies will be voted “FOR” the election of all eightsix nominees for director, “FOR” the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm and “FOR” the approval of our executive compensation.
Will anyone contact me concerning this vote?
No arrangements or contracts have been made or entered into with any solicitors as of the date of this proxy statement, although we reserve the right to engage solicitors if we deem them necessary. If done, such solicitations may be made by mail, telephone, facsimile, e-mail or personal interviews.
What are the board’s recommendations?
The board’s recommendations, together with the description of each proposal, are set forth in this proxy statement. In summary, the board unanimously recommends that you vote:
What happens if additional matters are presented at the annual meeting?
Other than the three proposals described in this proxy statement, we are not aware of any other business to be acted upon at the annual meeting. If you grant a proxy, the persons named as proxy holders on the enclosed proxy card will vote your shares on any additional matters properly presented for a vote at the meeting as recommended by the board or, if no recommendation is given, in their own discretion.
Who will tabulate and certify the vote?
Representatives of Broadridge Financial Solutions, Inc. will tabulate the votes. A representative of Schiff Hardin LLP, the Company’s legal counsel, will be the inspector of elections.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of shares of our common stock for each stockholder who is known by us to own beneficially more than 5% of the outstanding shares of our common stock.
Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | ||||||
Royce & Associates, LLC(1) | ||||||||
745 Fifth Avenue | ||||||||
New York, NY 10151 | 2,264,100 | 13.0 | % | |||||
FMR LLC(2) | ||||||||
245 Summer Street | ||||||||
Boston, MA 02210 | 1,278,203 | 7.3 | % | |||||
Van Den Berg Management, Inc.(3) | ||||||||
805 Las Cimas Parkway, Suite 430 | ||||||||
Austin, TX 78746 | 1,245,795 | 7.2 | % | |||||
BlackRock, Inc.(4) | ||||||||
55 East 52nd Street | ||||||||
New York, NY 10022 | 1,179,609 | 6.8 | % | |||||
Capital Research Global Investors(5) | ||||||||
333 South Hope Street | ||||||||
Los Angeles, CA 90071 | 1,150,000 | 6.6 | % | |||||
Dimensional Fund Advisors LP(6) | ||||||||
6300 Bee Cave Road, Building One | ||||||||
Austin, TX 78746 | 890,779 | 5.1 | % |
Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | ||||||
Royce & Associates, LLC(1) | ||||||||
745 Fifth Avenue | ||||||||
New York, NY 10151 | 1,509,971 | 9.1 | % | |||||
FMR LLC(2) | ||||||||
245 Summer Street | ||||||||
Boston, MA 02210 | 1,425,883 | 8.6 | % | |||||
Rutabaga Capital Management, LLC(3) | ||||||||
64 Broad Street, 3rd Floor | ||||||||
Boston, MA 02109 | 1,151,189 | 6.9 | % | |||||
Nierenberg Investment Management Company, Inc.(4) | ||||||||
19605 NE 8th St, Camas | ||||||||
Camas, WA 98607 | 973,616 | 5.9 | % | |||||
Dimensional Fund Advisors LP(5) | ||||||||
6300 Bee Cave Road, Building One | ||||||||
Austin, TX 78746 | 920,050 | 5.5 | % |
(1) | As reported in an amendment to Statement on Schedule 13G filed with the SEC on behalf of Royce & Associates, LLC on January |
(2) | As reported in an amendment to Statement on Schedule 13G filed with the SEC on behalf of FMR LLC and |
(3) | As reported in the Statement on Schedule 13G filed with the SEC on behalf of |
(4) | As reported in an amendment to Statement on Schedule 13G filed with the SEC on behalf of |
(5) | As reported in an amendment to Statement on Schedule 13G filed with the SEC on behalf of |
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The following table sets forth the beneficial ownership of shares of our common stock for (i) each of our directors and nominees, (ii) each of our executive officers named in the Summary Compensation Table on page 2223 and (iii) all of our directors and executive officers as a group. Except as noted below, the nature of beneficial ownership for shares shown in this table is sole voting and sole dispositive power. The information below is as of March 9, 2015,7, 2016, unless otherwise indicated.
Amount and Nature of Beneficial Ownership | Amount and Nature of Beneficial Ownership | |||||||||||||||||||||||||||||||
Name of Beneficial Owner | Shares Owned | Shares Under Options/RSUs Exercisable/Vesting Within 60 Days | Total Number of Shares | Percent of Class | Shares Owned | Shares Under Options/RSUs Exercisable/Vesting Within 60 Days | Total Number of Shares | Percent of Class | ||||||||||||||||||||||||
Michael T. Campbell | 8,044 | (1) | 39,946 | (4) | 47,990 | * | 12,044 | (1) | 45,416 | 57,460 | * | |||||||||||||||||||||
I. Stewart Farwell | 15,000 | 49,946 | 64,946 | * | 15,000 | 55,416 | 70,416 | * | ||||||||||||||||||||||||
James L. Pokluda III | 77,749 | 37,898 | 115,647 | * | 91,636 | 36,864 | 128,500 | * | ||||||||||||||||||||||||
Mark A. Ruelle | - | 4,237 | 4,237 | * | - | 9,707 | 9,707 | * | ||||||||||||||||||||||||
Wilson B. Sexton | 65,000 | 49,946 | (5) | 114,946 | * | 65,000 | 55,416 | (4) | 120,416 | * | ||||||||||||||||||||||
William H. Sheffield | 10,000 | (2) | 49,946 | 59,946 | * | 10,000 | (2) | 55,416 | 65,416 | * | ||||||||||||||||||||||
Scott L. Thompson | 15,000 | 44,946 | (6) | 59,946 | * | |||||||||||||||||||||||||||
G. Gary Yetman | - | 1,817 | 1,817 | * | - | 7,287 | 7,287 | * | ||||||||||||||||||||||||
Nicol G. Graham | 180,106 | (3) | 32,000 | 212,106 | 1.2 | 183,606 | (3) | 34,000 | 217,606 | 1.3 | ||||||||||||||||||||||
All directors and executive officers as a group (9 persons) | 370,899 | 310,682 | 681,581 | 3.8 | ||||||||||||||||||||||||||||
All directors and executive officers as a group (8 persons) | 377,286 | 299,522 | 676,808 | 4.0 |
* | Less than 1% |
(1) | Owned by Mr. Campbell’s individual retirement account. |
(2) | Mr. Sheffield has shared voting power and shared dispositive power with respect to 7,000 of these shares. |
(3) | Includes 60,772 shares owned by Mr. Graham’s individual retirement account. |
(4) | Held in a revocable trust in Mr. |
PROPOSAL NO. 1 — ELECTION OF DIRECTORS
Our amended and restated bylaws provide for each director to stand for election each year at our annual meeting and to serve until the next annual meeting and until a successor is duly elected and qualified.
At the recommendation of the Nominating and Corporate Governance Committee, the board has nominated the persons listed below to serve as directors, each for a one-year term, beginning at the annual meeting on May 5, 20153, 2016 and continuing until the 20162017 annual meeting. The nominees include sevenfive independent directors, as defined in the NASDAQ Listing Rules, and the President and Chief Executive Officer of the Company. All of the nominees currently serve as members of the Board of Directors. The nominees do not include Wilson B. Sexton, who is currently serving as a director and will retire from the board at the conclusion of his current term in accordance with the retirement provisions of the Company’s Corporate Governance Guidelines.
It is the intention of the persons named in the accompanying proxy card, unless otherwise instructed, to vote to elect the nominees named below as the directors. Each nominee has consented to serve as a director if elected at this year’s annual meeting. In the event any nominee is unable to serve as a director, discretionary authority is reserved to the board to vote for a substitute. The board has no reason to believe that any nominee named below will be unable to serve if elected.
The nominees for election to the office of director, and certain information with respect to their backgrounds, are set forth below.
Nominees Standing for Election to the Board
James L. Pokluda III, age 50.51. Director since 2012
President and Chief Executive Officer of the Company
Mr. Pokluda was appointed President in May 2011 and Chief Executive Officer in January 2012. From 2007 until 2011, he served as Vice President – Sales and Marketing. During his 2728 years with the Company, Mr. Pokluda has a demonstrated history of substantial contributions to the Company including the construction and leadership of our long-term growth plan, implementation of the National Service Center, the commercialization of our private branded products, co-leadership of the initial public offering in 2006, follow-on offering in 2007 and acquisitions. Mr. Pokluda served on the Board of Directors of Houston Electrical League (HEL) for several years, is an affiliate member of the National Association of Electrical Distributors (NAED), and a graduate of the College of Engineering at Texas A&M University. In 2012, Mr. Pokluda completed the University of Chicago’s Booth School of Business Executive Education Advanced Management Program. As the only management representative on our board, and someone with experience in all aspects of our business, Mr. Pokluda provides an insider’s perspective in board discussions about our industry and the business and strategic direction of the Company.
Michael T. Campbell, age 70.71. Director since 2008
Independent Director
Mr. Campbell serves on the Board of Directors of Natural Grocers by Vitamin Cottage, Inc., and the Board of Advisors of Lee Truck Equipment, Inc. (d/b/a Casper’s Truck Equipment). He performed project work as a financial and accounting consultant both individually and with Resources Connection from January 2003 to December 2005. Mr. Campbell served in the technical support department of the National Office of Deloitte & Touche LLP, and he was the lead technical accounting and auditing partner in the Denver office prior to his retirement in June 2001. Mr. Campbell is a Certified Public Accountant and holds an M.B.A. degree from the University of Michigan and a B.S. degree from the United States Military Academy. As a result, he has significant expertise with the financial reporting issues facing the Company, including SEC reporting and internal control design and implementation. Mr. Campbell also has extensive experience with mergers and acquisitions, and capital markets transactions. Mr. Campbell is recognized as both a Governance Fellow and a Certified Professional Director in the United States by the National Association of Corporate Directors.
I. Stewart Farwell, age 74.75. Director since 2006
Independent Director
Prior to his retirement in April 2008, Mr. Farwell held various positions at Rheem Manufacturing Company, a leading manufacturer of central heating and cooling products, including President of the Water Heater and HVAC Divisions, Chief Operating Officer and most recently President & CEO. He is currently active in the area of strategic business consulting services. His prior experience also includes serving on the boards of various trade associations and Chairman of the Gas Appliance Manufacturers Association. With more than thirty years’ experience in global manufacturing and distribution operations, including of products with a high copper content, Mr. Farwell provides critical insight into the operational requirements of our company and its end user customers and, in particular, managing the risks presented by fluctuating commodity prices. Mr. Farwell is recognized as a Certified Professional Director in the United States by the National Association of Corporate Directors.
Mark A. Ruelle, age 53.54. Director since 2014
President and Chief Executive Officer, Westar Energy, Inc.
Mr. Ruelle has served as a director and President of Westar Energy, Inc., the largest electric utility in Kansas, since May 2011 and as chief executive officer since August 2011. From 2003 to 2011, he was executive vice president and chief financial officer of Westar Energy and between 1997 and 2002 served in various executive positions at Sierra Pacific Resources, Inc., the owner of the largest electric utilities in Nevada. Mr. Ruelle is currently on the Board of Directors of Westar Energy. He currently serves as a director of the Edison Electric Institute, an association of shareholder owned electric companies, as a board member of GO Topeka Economic Development Partnership, and as a trustee for the Stormont-Vail Foundation, a non-profit organization located in Kansas. Mr. Ruelle’s broad experience, including as chief executive and, previously, chief financial officer of Westar Energy, gives him an understanding of the managerial, operational and financial issues faced by a public company. His intimate knowledge of electric utility construction, operations and maintenance activities provides an exceptional understanding of an important segment of the Company’s end user market and valuable insights into customer needs and concerns.
Wilson B. Sexton, age 78. Director since 2006
Chairman of the Board, Pool Corp.
Mr. Sexton has been the Chairman of the Board and a director of Pool Corp., a wholesale distributor of swimming pool supplies, equipment and leisure products since 1993. From January 1999 to May 2001, Mr. Sexton also served as Chief Executive Officer of Pool Corp. He is currently on the Board of Directors of Pool Corp. and Beacon Roofing Supply, Inc. Mr. Sexton is a Certified Public Accountant and holds a B.B.A. degree from Southern Methodist University and is recognized as a Certified Professional Director in the United States by the National Association of Corporate Directors. As chairman and former chief executive officer of Pool Corp., Mr. Sexton understands well the issues facing executive management of a public corporation. He has a strong financial acumen and extensive managerial experience, having led Pool Corp., another wholesale distribution company, through a period of significant growth.
William H. Sheffield, age 66.67. Director since 2006
Independent Director
Mr. Sheffield is a corporate director and serves on the boards of directors of Canada Post Corporation and Velan Inc. and served on the board of Ontario Power Generation Inc. until 2014 and Corby Distilleries Limited until 2009. Mr. Sheffield served as Chief Executive Officer of Sappi Fine Paper from 2001 until 2003. With his knowledge of complex issues surrounding global companies and his understanding of what makes businesses work effectively and efficiently, Mr. Sheffield provides valuable insight to our board and offers particular expertise in labor relations, critical end user markets and board governance issues. He holds an MBA and a BSc, and is recognized as both a Governance Fellow and a Certified Professional Director by the National Association of Corporate Directors in the United States and the Institute of Corporate Directors in Canada.
Scott L. Thompson, age 56. Director since 2006
Former President and Chief Executive Officer, Chairman of the Board, Dollar Thrifty Automotive Group
Mr. Thompson was the President & CEO since 2008 and Chairman of the Board since 2011 of Dollar Thrifty Automotive Group, a NYSE-listed company engaged in the rental car industry, until its sale to Hertz Corporation in 2012. Mr. Thompson was a founder of Group 1 Automotive, Inc., a specialty retailer in the automotive retailing industry, where he served as the CFO and Treasurer from 1996 until 2004. Mr. Thompson is a former member of the board of Dollar Thrifty Automotive Group and a current board member of Asbury Automotive Group and Conn’s, Inc. Mr. Thompson is a Certified Public Accountant and is recognized as a Certified Professional Director in the United States by the National Association of Corporate Directors. As chief executive of Dollar Thrifty, Mr. Thompson successfully led that company through a financial turnaround and subsequent sale to Hertz Corporation. Mr. Thompson’s business experience, proven leadership and financial expertise have increased the effectiveness of our board.
G. Gary Yetman, age 60.61. Director since 2014
Former Chief Executive Officer and President, Coleman Cable, Inc.
Mr. Yetman served as the Chief Executive Officer and President of Coleman Cable, Inc. from 1999 until his retirement following the sale of Coleman Cable in 2014. Prior to that, Mr. Yetman held various senior management positions with Coleman Cable’s predecessor and within the electrical industry. Mr. Yetman’s extensive experience and proven track record within the electrical wire and cable industry make him an excellent addition to our Board of Directors. Mr. Yetman holds an M.B.A. degree from the Lake Forest Graduate School of Management and a B.S. degree from West Virginia University.
Board Recommendation and Stockholder Vote Required
The Board of Directors recommends a vote “FOR” the election of the nominees named above (Proposal No. 1 on the accompanying proxy card).
The eightsix nominees who receive the greatest number of votes will be elected directors.
CORPORATE GOVERNANCE AND BOARD COMMITTEES
The Company is committed to good corporate governance. We regularly review our policies and procedures, giving due consideration to current developments and “best practices.” We believe that we comply with all applicable SEC and NASDAQ rules and regulations, and we have adopted additional corporate governance practices that we believe are in the best interests of the Company and its stockholders.
Our commitment to good corporate governance can be seen through practices such as:
· | Annual election of directors |
· | All independent directors, other than the CEO |
· | Independent chairman of the board |
· | Independent Audit, Compensation and Nomination and Corporate Governance Committees |
· | Regular executive sessions of independent directors |
· | Risk oversight by full board and committees |
· | Regular board and committee self-evaluations |
· | Annual advisory vote on executive compensation |
· | Pay for performance philosophy |
· | Stock ownership guidelines for directors |
· | Prohibitions on hedging, short sales and other speculative transactions |
· | Related Person Transaction Policy |
· | Clawback policy for incentive compensation awards |
These practices and policies are described in further detail below.
Our Board of Directors currently consists of eightseven directors. Upon Mr. Sexton’s retirement at the 2016 annual meeting, the number of directors will be reduced to six. Each director is elected for a term of one year and serves until a successor is duly elected and qualified or until his or her death, resignation or removal. There are no family relationships between any of our directors or executive officers. Our executive officers are elected by and serve at the discretion of the Board of Directors.
Board Leadership Structure and Risk Oversight
Since our IPO, the offices of Chairman and Chief Executive Officer of the Company have been held by different individuals. Our board is led by an independent Chairman. Mr. Thompson served as Chairman, untilwhich since January 1, 2012, at which timehas been Mr. Sheffield assumed the Chairman role.Sheffield. Our Chief Executive Officer, Mr. Pokluda, is the only member of the board who is not an independent director. We believe that this leadership structure enhances the accountability of the Chief Executive Officer to the board and strengthens the board’s independence from management. In addition, separating these roles allows Mr. Pokluda to focus his efforts on running our business and managing the Company in the best interests of our stockholders, while we are able to benefit from Mr. Sheffield’s experience as a member of other public company boards.
The board takes an active role in monitoring and assessing the Company’s risks, which include risks associated with operations, credit, financing and capital investments. Management is responsible for the Company’s day-to-day risk management activities, and our board’s role is to engage in informed risk oversight. The Nominating and Corporate Governance Committee with the assistance of management compiled and prioritized a list of risks to which the Company could be subjected. It also identified the significant risks, which were then reviewed by the board and assigned to one of the standing committees of the board for oversight. In fulfilling this oversight role, our Board of Directors focuses on understanding the nature of our enterprise risks, including our operations and strategic direction, as well as the adequacy of our risk management process and overall risk management system. There are a number of ways our board performs this function, including the following:
The Board of Directors has determined that each person who served as a director in 2014,2015, and each director nominee for 2015,2016, except Mr. Pokluda is “independent” under NASDAQ Listing Rule 5605(a)(2). Under Rule 5605(a)(2), a director is considered independent as long as he or she does not have a relationship with the Company or management which would interfere with the exercise of independent judgment in carrying out the director’s responsibilities. The NASDAQ Listing Rules also enumerate certain relationships which preclude a finding of independence and generally provide that an individual cannot be considered independent if, among other things, he or she is a current officer or other employee of the issuer or directly or indirectly receives certain significant payments from the issuer other than in his or her capacity as a director or board committee member.
Related Person Transaction Policy
The purpose of the Related Person Transaction Policy, as adopted by the Board of Directors, is to provide for the identification, review and consideration of transactions between the Company and any related person. "Related person" means anyone who is, or within the past year was, a director, nominee for director or executive officer of the Company or greater than five percent beneficial owner of the Company's voting securities or any member of their immediate families.
Under the Policy, any related person transaction must be reviewed, considered, and approved or ratified by the Audit Committee of the Board of Directors directly or through the Chairman of the Audit Committee. The Policy applies to all related person transactions, even if the amount involved does not exceed the $120,000 threshold required for disclosure under the SEC rules. Review of a proposed related person transaction takes into consideration the purpose of, and the potential benefits to the Company from, the related person transaction, and the impact of the related person transaction on a director's independence in the event that the related person is a director or an immediate family member of a director. No member of the Audit Committee may participate in any review, consideration, or approval of any related person transaction with respect to which such member or any of his or her immediate family members is the related person.
The Policy provides that the Company may undertake certain pre-approved related person transactions (e.g., transactions in which the related person's interest derives solely from his or her service as a director of another corporation or entity that is a party to the transaction) without further specific review, consideration and approval. The Company engaged in no related party transactions in 2014.2015.
The board met sixnine times during 2014.2015. Each person who was a director during 20142015 attended at least 75% of the meetings of the board and of the committees on which he served held during the period he was a director. Absent special circumstances, each director is expected to attend the annual meeting of stockholders. All of the directors serving at the time attended the 20142015 annual meeting of stockholders, with the exception of Mr. Gotsch, who retired from the Board of Directors. stockholders.
The Company’s Corporate Governance Guidelines require the independent directors to meet in executive sessions separate from management at least two times a year. The independent directors met in executive sessions five times during 2014.2015.
Committees Established by the Board of Directors
The board has three standing committees: (1) Audit Committee; (2) Nominating and Corporate Governance Committee; and (3) Compensation Committee. As Chairman of the Board, Mr. Sheffield is not a member of any standing committee, but he attends all committee meetings on an ex officio basis.
Audit Committee.The Audit Committee consists of Messrs. Campbell, Ruelle Sexton and Thompson,Sexton, each of whom is independent for purposes of Rules 5605(a)(2) and (c)(2) of the NASDAQ Listing Rules and Rule 10A-3(b)(1) under the Securities Exchange Act of 1934. Mr. Campbell serves as the Chairman. Each of the Audit Committee members is financially literate as determined by our board in its business judgment. The board has also determined that Mr. Campbell is an “audit committee financial expert,” as such term is defined under the applicable SEC rules.
The Audit Committee met fivefour times in 2014.2015. The Audit Committee operates under a charter approved by the Board of Directors, which can be found on the “Investor Relations” section of our website at http://www.houwire.com.Copies will be provided to stockholders upon request.
The principal duties and responsibilities of the Audit Committee are to assist the board in its oversight of:
Our Audit Committee is also responsible for:
• | maintaining free and open communication among the committee, the independent auditors and management of the Company; | |
• | reviewing and approving related person transactions; and | |
• | preparing the report required to be prepared pursuant to the rules of the SEC for inclusion in the Company’s annual proxy statement. |
The Audit Committee has the resources and authority appropriate to discharge its duties and responsibilities, including the authority to select, retain, terminate and approve the fees and other retention terms of counsel, accountants or other experts and advisors, as it deems necessary or appropriate. DuringIn 2014, the Audit Committee requested audit proposals for each of the three years ending December 31, 2017, from five independent accounting firms, including the incumbent independent auditors. After reviewing the proposals and considering the qualifications and fees of each of the firms, the Committee decided to retain the incumbent as its independent accounting firm for 2015 and recommends the incumbent be retained for 2016, subject to annual stockholder ratification. See “Report of the Audit Committee” on page 29.28.
Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee consists of Messrs. Campbell, Farwell, Ruelle and Yetman. Mr. FarwellRuelle serves as the Chairman. The board has determined that all committee members are independent for purposes of Rule 5605(a)(2) of the NASDAQ Listing Rules.
The Nominating and Corporate Governance Committee met four times in 2014.2015. The Nominating and Corporate Governance Committee operates under a charter approved by the Board of Directors, which can be found on the “Investor Relations” section of our website at http://www.houwire.com. Copies will be provided to stockholders upon request.
The principal duties and responsibilities of the Nominating and Corporate Governance Committee are to:
In screening and recommending candidates as directors of the Company, the Nominating and Corporate Governance Committee considers the nature of the expertise and experience required for the performance of the duties of a director of a corporation engaged in the Company’s business and such matters as the relevant business and industry experience, professional background, age, current employment, community service and other board service of candidates for directors, as well as the racial, ethnic and gender diversity of the board. The committee seeks to identify, as candidates for director, persons with a reputation for and record of integrity and good business judgment who (1) have experience in positions with a high degree of responsibility and are leaders in the organizations with which they are affiliated, (2) are free from conflicts of interest that could interfere with a director’s duties to the Company and its stockholders, and (3) are willing and able to make the necessary commitment of time and attention required for effective board service. The Nominating and Corporate Governance Committee also takes into account the candidate’s level of financial literacy. The Nominating and Corporate Governance Committee monitors the mix of skills and experience of the directors in order to assess whether the board has the necessary tools to perform its oversight function effectively. The Nominating and Corporate Governance Committee will consider nominees for our Board of Directors recommended by stockholders, using the same criteria as for other candidates.
The Nominating and Corporate Governance Committee has the authority to retain a search firm to be used to identify director candidates. The Nominating and Corporate Governance Committee has the authority to retain and terminate any such search firm, including authority to approve the firm’s fees and other retention terms. The Nominating and Corporate Governance Committee also has authority to retain other advisors. The Company will provide for appropriate funding, as determined by the Nominating and Corporate Governance Committee, for payment of compensation to any search firm or other advisors. During 2014 at the request of the Board, the Nominating and Corporate Governance Committee conducted a search for additional director candidates. After considering and interviewing several candidates, the committee recommended, and the board nominated, Mark A. Ruelle for election at the 2014 Annual Meeting and recommended, and the board appointed, G. Gary Yetman on November 4, 2014.
Stockholder Recommendations for Director Nominations. As noted above, the Nominating and Corporate Governance Committee considers and establishes procedures regarding recommendations for nomination to the board, including nominations submitted by stockholders. For information on how to nominate a person for election as a director at the 20162017 annual meeting, please see the discussion under the heading “Stockholder Proposals and Nominations for 20162017 Annual Meeting.” The Nominating and Corporate Governance Committee will evaluate all potential candidates in the same manner, regardless of the source of the recommendation. Based on the information provided to the Nominating and Corporate Governance Committee, it will make an initial determination whether to conduct a full evaluation of a candidate. As part of the full evaluation process, the Nominating and Corporate Governance Committee may conduct interviews, obtain additional background information and conduct reference checks of the candidate, among other things. The Nominating and Corporate Governance Committee may also ask the candidate to meet with management and other members of the board.
Compensation Committee.The Compensation Committee consists of Messrs. Farwell, Sexton Thompson and Yetman. Mr. ThompsonFarwell serves as the Chairman. The board has determined that all committee members are (i) independent for purposes of Rules 5605(a)(2) and (d)(2) of the NASDAQ Listing Rules, (ii) “non-employee directors” as defined in Rule 16b-3 under the Securities Exchange Act of 1934, and (iii) “outside directors” as defined by Section 162(m) of the Internal Revenue Code.
The Compensation Committee met five times in 2014.2015. The Compensation Committee operates under a charter approved by the Board of Directors and can be found by accessing the “Investor Relations” section of our website at http://www.houwire.com.Copies of the charter will be sent to stockholders upon request.
The principal duties and responsibilities of the Compensation Committee are as follows:
The Compensation Committee has the authority to delegate any of its responsibilities to subcommittees as it deems appropriate, provided the subcommittees are composed entirely of independent directors. The Compensation Committee also may retain a compensation consultant or other advisors to assist in the evaluation of CEO or executive officer compensation. The Compensation Committee has authority to approve the retention terms and terminate any such consulting firm. The Company will provide for appropriate funding, as determined by the Compensation Committee, for payment of compensation to any consulting firm or other advisors employed by the Compensation Committee. The Compensation Committee was not advised by any consultant in 2014.2015.
The CEO may not be present during any deliberations on his compensation.
The Board of Directors has adopted stock ownership guidelines encouraging each director includingand executive officer to invest in the CEO, to investCompany’s common stock. The recommended level for an independent director is an amount equal to three times an independent director’s annual cash retainer, infor the Company’s common stock.CEO, is an amount equal to two times his base salary and for the CFO, is an amount equal to one time his base salary. The amount invested includes the marketgrant date value as of the date of grant, of shares of restricted stock and restricted stock units held by a director.units. The recommended ownership level should be achieved within five years after becoming a director.director or executive officer. All of the current directors and executive officers, with the exception of Messrs. Ruelle and Yetman (both appointed in 2014), meet the ownership guidelines.
Directors’ transactions in the Company’s common stock are subject to the Company’s Insider Trading Policy. That policy prohibits the Company’s directors, officers and employees from participating in aggressive or speculative transactions with respect to the Company’s stock, including short sales and hedging strategies.
The Board of Directors has adopted an Incentive Compensation Recoupment Policy entitling the Company to recover certain cash or equity based incentive compensation paid to officers (including the CEO and the CFO) in the event of a restatement of the Company’s financial statements due to material noncompliance with financial reporting requirements, regardless of fault, or certain acts of misconduct by the officer. Recoupment covers any incentive compensation that is awarded or paid or that vestsvest within 36 months preceding the date of the restatement or 36 months following the occurrence of the misconduct.
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Stockholders may communicate any concerns they have regarding the Company, including recommendations of candidates for director, to the Board of Directors or to any member of the board via web form by accessing the investor relations section of our website at http://www.houwire.comand clicking on the “Corporate Governance” and “Contact the Board” links, through our Corporate Governance Hotline at 866-373-6359 or by writing to them at the following address:
Houston Wire & Cable Company
Attention: [Board of Directors]/[Board Member]
c/o Chief Financial Officer
10201 North Loop East
Houston, TX 77029
Communications directed to the independent directors should be sent to the attention of the Chairman of the Nominating and Corporate Governance Committee, c/o Chief Financial Officer, at the address indicated above.
Any stockholder or other interested person who has a particular concern regarding accounting, internal accounting controls or other audit matters that he or she wishes to bring to the attention of the Audit Committee may communicate those concerns to the Audit Committee or its Chairman, using the address indicated above.
The independent directors of the Company have unanimously approved procedures with respect to the receipt, review and processing of, and any response to, written communications sent by stockholders and other interested persons to the Board of Directors. Any written communication regarding accounting, internal accounting controls, or other matters are processed in accordance with procedures adopted by the Audit Committee.
The board has adopted a Code of Conduct, most recently updated in March 2014 and reviewed annually, a copy of which may be found by accessing the investor relations section of our website at http://www.houwire.com and clicking on the “Corporate Governance” link. Under the Code of Conduct, we insist on honest and ethical conduct by all of our directors, officers, employees and other representatives, including but not limited to the following:
We are also committed to ensuring that all disclosures in reports and documents that the Company files with the SEC, as well as other public communications made by the Company, are full, fair, accurate, timely and understandable. Further, we will comply with all laws, rules and regulations that are applicable to our activities and expect all of our directors, officers and employees to obey the law. Any violation of applicable law or any deviation from the standards embodied in the Code of Conduct will result in appropriate corrective and disciplinary action, up to and including termination of employment.
Each independent member of the Board of Directors receives an annual cash retainer of $50,000, paid quarterly. The Chairman of the Board receives an additional fee of $40,000 per year, and the Chairmen of the Audit, Compensation and Nominating and CorporationCorporate Governance Committees receive additional annual fees of $10,000, $7,500 and $5,000, respectively, also paid quarterly. There are no additional fees for meeting attendance. Mr. Pokluda does not receive any additional compensation for his service as a director.
In addition, upon election or reelection to the board, each independent director receives a grant of restricted stock units having a fair market value of $50,000, based on the price of the Company’s common stock on the date of grant. The restricted stock units vest on the date of the Company’s annual meeting of stockholders the following year and are settled in shares of common stock at such time as the independent director’s service on the board terminates for any reason. Any dividends declared on the common stock during the term of the restricted stock units will be accrued and paid to the director when the restricted stock units are settled. The restricted stock units are in lieu of stock options, which the Company granted to directors prior to 2011.
We reimburse members of our Board of Directors for any out-of-pocket expenses they incur in connection with services provided as directors. The Nominating and Corporate Governance Committee has adopted a policy encouraging each director to devote at least one day each year to director education and we pay for the cost of attending continuing education programs, up to $5,000 per director per year. Perquisites paid or provided to individual directors in 20142015 were significantly less than the SEC’s minimum threshold for disclosure ($10,000).
The following table sets forth all compensation paid to each of our non-employee directors in 2014:2015:
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | Total ($) | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | Total ($) | ||||||||||||||||||
Michael T. Campbell | 60,000 | 50,000 | 110,000 | 60,000 | 50,000 | 110,000 | ||||||||||||||||||
I. Stewart Farwell | 55,000 | 50,000 | 105,000 | 55,625 | 50,000 | 105,625 | ||||||||||||||||||
Peter M. Gotsch(2) | 14,375 | - | 14,375 | |||||||||||||||||||||
Mark A. Ruelle(3) | 37,500 | 50,000 | 87,500 | |||||||||||||||||||||
Mark A. Ruelle | 51,250 | 50,000 | 101,250 | |||||||||||||||||||||
Wilson B. Sexton | 50,000 | 50,000 | 100,000 | 50,000 | 50,000 | 100,000 | ||||||||||||||||||
William H. Sheffield | 90,000 | 50,000 | 140,000 | 90,000 | 50,000 | 140,000 | ||||||||||||||||||
Scott L. Thompson | 55,625 | 50,000 | 105,625 | |||||||||||||||||||||
G. Gary Yetman(4) | 12,500 | 25,000 | 37,500 | |||||||||||||||||||||
Scott L. Thompson(2) | 43,125 | - | 43,125 | |||||||||||||||||||||
G. Gary Yetman | 50,000 | 50,000 | 100,000 |
(1) | This column shows the aggregate grant date fair value of the restricted stock unit awards granted on May |
(2) | Mr. |
The following table sets forth the aggregate number of restricted stock units and stock options for each of our non-employee directors outstanding as of December 31, 2014.2015. For information regarding Mr. Pokluda’s outstanding equity awards, see the 20142015 Outstanding Equity Awards at Fiscal Year End table.
Name | Stock Options | Restricted Stock Units | ||||||
Michael T. Campbell | 25,000 | 14,946 | ||||||
I. Stewart Farwell | 35,000 | 14,946 | ||||||
Mark A. Ruelle | - | 4,237 | ||||||
Wilson B. Sexton | 35,000 | 14,946 | ||||||
William H. Sheffield | 35,000 | 14,946 | ||||||
Scott L. Thompson | 30,000 | 14,946 | ||||||
G. Gary Yetman | - | 1,817 | ||||||
Total | 160,000 | 80,784 |
Name | Stock Options | Restricted Stock Units | ||||||
Michael T. Campbell | 25,000 | 20,416 | ||||||
I. Stewart Farwell | 35,000 | 20,416 | ||||||
Mark A. Ruelle | - | 9,707 | ||||||
Wilson B. Sexton | 35,000 | 20,416 | ||||||
William H. Sheffield | 35,000 | 20,416 | ||||||
G. Gary Yetman | - | 7,287 | ||||||
Total | 130,000 | 98,658 |
Compensation Discussion and Analysis
This section of the proxy statement is intended to provide stockholders with information about the compensation awarded in fiscal 20142015 to the Company’s executives, including our “named executive officers.” Our named executive officers are James L. Pokluda III, President & Chief Executive Officer, and Nicol G. Graham, Chief Financial Officer.
2014 Executive Compensation
2015 Executive Compensation |
· | Executive compensation is based on (1) base salary, (2) variable incentive cash bonuses and (3) long-term, equity-based incentive awards. |
· | Our variable incentive cash bonuses for |
Objectives of Compensation Program |
Our compensation program aims to attract, motivate and retain qualified, energetic employees who are enthusiastic about our mission and culture. A further objective of our compensation program is to provide incentives and reward each employee for his or her contribution to the Company. In addition, we strive to promote an ownership mentality among key leadership and the Board of Directors. Finally, we endeavor to ensure that our compensation program is perceived as fundamentally fair to all stakeholders.
What Our Compensation Program is Designed to Reward |
Our compensation program is designed to reward each employee’s contribution to the Company. In measuring an officer’s contributions, the Compensation Committee considers a number of factors, including our profitable growth and the achievement of financial performance targets. The total compensation package for each member of our senior management includes incentive compensation that is based primarily on the achievement of financial performance targets. Operating income is the primary basis for determining incentive compensation, and revenue growth and inventory turns are secondary factors. In its simplest definition, operating income is equivalent to operating earnings before interest and taxes. Historically, each employee’s contribution to the Company. In measuring an officer’s contributions, the Compensation Committee considers a number of factors, including our profitable growth and the achievement of financial performance targets. The total compensation package for each member of our senior management includes incentive compensation that is based primarily on the achievement of financial performance targets. Through 2014, operating income was the primary basis for determining incentive compensation, and revenue growth and inventory turns were secondary factors. For 2015, the Compensation Committee decided to replace the three factors with a single performance measure: EBITDA (earnings before interest, income taxes, depreciation and amortization). Each December, the Compensation Committee established operating income, revenue and inventory turns targets for each applicable factor for the upcoming fiscal year based in part upon the incremental improvement in those measures over the prior fiscal year. We have not used stock price performance as a factor in determining annual compensation, because the price of our common stock is subject to a variety of factors outside our control. As discussed below, for 2016 the Compensation Committee has decided to replace the single factor (EBITDA) with three performance measures: EBITDA, Sales of Targeted Products and Working Capital Efficiency. The Committee retains full discretion to adjust the EBITDA amount in the event the Company makes an acquisition during the year or to reflect unusual items.
Elements of the Company’s Compensation Plan and How Each Element Relates to Our Objectives
Annual senior management compensation consists of a base salary component, an incentive component and equity awards, which may include stock options and restricted stock.
Base Salary. We seek to provide our senior management with a level of a base salary in the form of cash compensation appropriate to their roles and responsibilities. Base salaries for members of our senior management are established based on each officer’s qualifications and experience, scope of responsibilities, future potential and past performance. We do not target a particular percentile of compensation paid by any peer group. Base salaries are reviewed annually and adjusted as necessary to realign salaries with market levels, after taking into account individual responsibilities, performance and experience.
Incentive Cash Bonuses. Our practice is to award incentive cash bonuses to our senior management based upon performance objectives of the Company.
Under Mr. Pokluda’s employment agreement as in effect for 2015, the Compensation Committee has decided to replace the three factors with a single performance measure: EBITDA (earnings before interest, income taxes, depreciation and amortization).
Elements of the Company’s Compensation Plan and How Each Element Relates to Our Objectives
Annual senior management compensation consists of a base salary component, an incentive component and equity awards, which may include stock options and restricted stock.
Base Salary. We seek to provide our senior management with a level of a base salary in the form of cash compensation appropriate to their roles and responsibilities. Base salaries for members of our senior management are established based on each officer’s qualifications and experience, scope of responsibilities, future potential and past performance. We do not target a particular percentile of compensation paid by any peer group. Base salaries are reviewed annually and adjusted as necessary to realign salaries with market levels, after taking into account individual responsibilities, performance and experience. Neither of our named executive officers received an increase in base salary in 2014.
Incentive Cash Bonuses. Our practice is to award incentive cash bonuses to our senior management based upon performance objectives of the Company.
Under Mr. Pokluda’s employment agreement as in effect for 2014, his potential bonus was based on achieving a performance target for the applicable fiscal year, as follows:
· | If we achieved less than 93% of the target for the |
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· | If we |
· | If we achieved 114% of the target for the fiscal year, then the incentive bonus would be equal to 50% of the base salary as of the end of that year. |
· | If we achieved 128% of the target for the fiscal year, then the incentive bonus would be equal to 75% of the base salary as of the end of that year. |
· | If we achieved a percentage
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Under Mr. Pokluda’s agreement, the Board of Directors (or the Compensation Committee) establishes the specific performance targets for Mr. Pokluda, normally no later than sixty days after the beginning of each fiscal year. Mr. Pokluda has to agree with the performance target established and the performance target has to be consistent with our business plan approved by the board for such fiscal year. For 2015, the Compensation Committee established the performance target under Mr. Pokluda’s agreement as achieving EBITDA of $26.5 million. Our 2015 EBITDA was $8.9 million, which is less than 93% of the target, so Mr. Pokluda was not entitled to receive, and did not receive, an incentive bonus program at any time, in which case no bonus may be paid.
In 2014, we did not attain the minimum operating income threshold under the Senior Management Bonus Program, and therefore senior management was not entitled to receive a bonus under the terms of the program. However, the Compensation Committee recommended, and the Board approved, the payment of a discretionary bonus to Mr. Graham and other members of senior management equal to 15% of their base salary, as senior management had not earned a bonus for several years and as a means of retention.
For 2015, incentive cash bonuses under both Mr. Pokluda’s amended and restated employment agreement and the Senior Management Bonus Program will be based solely on achieving EBITDA targets approved for 2015. Under Mr. Pokluda’s employment agreement, no bonus will be payable if we fail to achieve at least the threshold performance target; if we achieve the threshold performance target, a bonus of 10% of Mr. Pokluda’s base salary will be payable, increasing proportionally to a maximum bonus of 75% of base salary at the highest performance target. The Senior Management Bonus Program for 2015 operates in a similar manner, except that the maximum bonus will be 50% of base salary, and it is reached at the same EBITDA level as would entitle Mr. Pokluda to a bonus of 50% of his base salary.
Equity Awards. In addition to base salary and incentive compensation, each member of our senior management is eligible to receive stock option and restricted stock grants under our stock plan. We believe that through our broad-based plan, the economic interests of our employees, including our executives, are more closely aligned to those of the stockholders. The number of stock options or shares of restricted stock granted to each executive officer is made on a discretionary basis by the Compensation Committee after consideration of the CEO’s recommendations, rather than pursuant to a formula.
For 2015, Mr. Graham (and all members of senior management, other than Mr. Pokluda) participated in our Senior Management Bonus Program. For each participant under the program, the potential bonus award was based on the participant’s salary at the end of the year. In order for any bonus to be paid for 2015, we needed to achieve the EBITDA threshold of $26.5 million set by the Compensation Committee for the year. If the threshold was met, then the participant was entitled to receive a “basic” bonus equal to a percentage (ranging from 0% to 50%) of his or her salary, depending on our performance with respect to the EBITDA targets. For 2015, all of the bonus was based on performance against the EBITDA targets for operating income (the target for a minimum payout was $26.5 million and for a maximum payout was $32.5 million) and was calculated on a pro rata, straight line basis between the 0% and 50% level, once the specific target was met.
The maximum bonus payable could not exceed 50% of the participant’s base salary. Under the program, all bonuses are payable the year following the year for which performance is being measured, after receipt of (and subject to) the audit of the financial statements for the relevant year. No award is payable under the program for any full or partial year to a participant whose employment terminates prior to the time the bonus is paid. In all cases, the payment is at the discretion of the Compensation Committee, and the Compensation Committee retains the right to terminate a participant’s participation in the bonus program at any time, in which case no bonus may be paid.
In 2015, we did not attain the minimum operating income threshold under the Senior Management Bonus Program, and therefore senior management was not entitled to receive a bonus under the terms of the program.
Equity Awards.In addition to base salary and incentive compensation, each member of our senior management is eligible to receive stock option and restricted stock grants under our stock plan. We believe that through our broad-based plan, the economic interests of our employees, including our executives, are more closely aligned to those of the stockholders. The number of stock options or shares of restricted stock granted to each executive officer is made on a discretionary basis by the Compensation Committee after consideration of the CEO’s recommendations, rather than pursuant to a formula.
How the Company Chose Amounts and/or Formulas for Each Element |
In 2011, our Compensation Committee engaged Towers Watson to provide to the Compensation Committee an executive compensation analysis summarizing data from published surveys and peer company proxy filings. The Compensation Committee used the Towers Watson analysis to gain a market perspective with respect to a compensation package for Mr. Pokluda and other potential additions to the Company’s management team.
The Compensation Committee reviewed the data provided by Towers Watson and then entered into negotiations with Mr. Pokluda regarding a multi-year employment agreement and compensation package. During these negotiations, the committee considered Mr. Pokluda’s tenure with the Company, his contributions to the Company’s growth and his performance in positions of ever-expanding responsibility. On December 20, 2011, the Company and Mr. Pokluda entered into an employment agreement that became effective January 1, 2012 for a term that originally extended until December 31, 2015. The 2011 employment agreement provided for (1) a base salary of $400,000 per year, subject to annual reviews and increases (but not decreases) by the board, (2) an annual bonus opportunity of up to 75% of base salary (50% of base salary at target) based on achieving at least 85% of a performance target for the applicable fiscal year, (3) continued participation in the Company’s Stock Plan and (4) entitlement to all benefits generally available to the Company’s other executive employees. Effective January 1, 2015, the Company and Mr. Pokluda entered into an Amended and Restated Employment Agreement that increased the base salary to $430,000, extended the term of employment and revised the severance provisions. See “Employment Arrangements and Payments upon Termination of Employment.” In addition, in December 2011, 2012 and 2013, Mr. Pokluda received grants of stock options and restricted stock, most of which was performance-based. The committee believes that these grants align Mr. Pokluda’s compensation with the interests of stockholders and, due to the delayed vesting schedule, assist in retaining Mr. Pokluda as our President and Chief Executive Officer.
In considering the grant for December 2014, the Compensation Committee recognized that Mr. Pokluda would not realize any value from the performance based grant made in 2012 and was unlikely to realize value from the grant made in 2013, because the performance targets were not or could not be met. Rather than continue to grant large awards that are contingent on performance in an uncertain market, the committee decided to grant a more modest award that Mr. Pokluda could be more likely to receive. On December 8, 2014, Mr. Pokluda received a grant of 12,336 shares of restricted stock, which vests in equal one third installments on December 8, 2015 through 2017 and is not subject to any performance measures. Also on December 8, 2014, in connection with his agreeing to an amended and restated employment agreement, Mr. Pokluda received a grant of 4,112 shares of restricted stock, which vested on December 8, 2015. On December 15, 2015 Mr. Pokluda received a grant of 28,090 shares of restricted stock, which vest in equal one third installments on December 15, 2016 through December 15, 2018.
Each executive officer’s current and prior compensation is considered in setting future compensation. The elements of our plan (base salary, bonus, stock options and restricted stock) are similar to the elements used by many companies. We do not have a formula for allocating between cash and non-cash compensation. In considering annual stock plan grants in December 2015, the committee recognized the Company’s performance in 2015, despite extremely difficult market conditions and determined to grant restricted stock awards to Mr. Graham and other members of senior management for 2015, as an equity incentive. Mr. Graham received a grant of 3,500 shares of restricted stock, which vests in equal one third installments on December 15, 2018 through 2020.
Our chief executive officer provides recommendations to the Compensation Committee regarding most compensation matters, including compensation of other members of key management.
With respect to current employees, we establish stock plan grant dates well in advance of any actual grant. The timing of each grant is determined to coincide with a scheduled meeting of our Board of Directors and its Compensation Committee and, except in highly unusual circumstances, we will not allow discretionary grants at other dates. The grant date is established when our Compensation Committee approves the grant and all key terms have been determined. The exercise price of each of our stock options is the market closing price on the grant date. If at the time of any planned stock plan grant any member of our Board of Directors or any executive officer is aware of material non-public information, we would not generally make the planned grant. In such event, as soon as practical after material information is made public, the Compensation Committee would call a special meeting and otherwise take all necessary steps to authorize the delayed grant. Regarding the grant process, the Compensation Committee does not delegate any related function, and executive officers are not treated differently from other employees.
At our 2015 annual meeting of stockholders, we held a non-binding advisory vote on our executive compensation. Over 96% of the outstanding shares voted to approve our executive compensation. Given this high percentage of votes in favor of our executive compensation, the Compensation Committee determined not to make any significant changes in our compensation practices for 2016.
2016 Compensation
Effective January 1, 2016, the Compensation Committee increased Mr. Pokluda’s annual salary to $440,000 and Mr. Graham’s annual salary to $246,764. In addition, for 2016, incentive cash bonuses for both Mr. Pokluda and the Senior Management Bonus Program will be based upon three performance measures: EBITDA, Sales of Targeted Products and Working Capital Efficiency (with relative weightings of 60%, 20% and 20%, respectively) and to provide bonus opportunities ranging from 0% to 75%. Under Mr. Pokluda’s employment agreement, no bonus will be payable if we fail to achieve at least the threshold performance target; if we achieve the threshold performance target, a bonus of 10% of Mr. Pokluda’s base salary will be payable, increasing proportionally to a maximum bonus of 75% of base salary at the highest performance target. The Senior Management Bonus Program for 2016 operates in a similar manner, except that the maximum bonus will be 50% of base salary, and it is reached at the same performance level as would entitle Mr. Pokluda to a bonus of 75% of his base salary.
In 2011, our Compensation Committee engaged Towers Watson to provide to the Compensation Committee an executive compensation analysis summarizing data from published surveys and peer company proxy filings. The Compensation Committee used the Towers Watson analysis to gain a market perspective with respect to a compensation package for Mr. Pokluda and other potential additions to the Company’s management team.
The Compensation Committee reviewed the data provided by Towers Watson and then entered into negotiations with Mr. Pokluda regarding a multi-year employment agreement and compensation package. During these negotiations, the committee considered Mr. Pokluda’s tenure with the Company, his contributions to the Company’s growth and his performance in positions of ever-expanding responsibility. On December 20, 2011, the Company and Mr. Pokluda entered into an employment agreement that became effective January 1, 2012 for a term that originally extended until December 31, 2015. The 2011 employment agreement provided for (1) a base salary of $400,000 per year, subject to annual reviews and increases (but not decreases) by the board, (2) an annual bonus opportunity of up to 75% of base salary (50% of base salary at target) based on achieving at least 85% of a performance target for the applicable fiscal year, (3) continued participation in the Company’s 2006 Stock Plan and (4) entitlement to all benefits generally available to the Company’s other executive employees. Under the employment agreement, if the Company terminated Mr. Pokluda’s employment without cause, or if Mr. Pokluda terminated his employment for good reason, Mr. Pokluda would have been entitled to severance equal to one year’s base salary or, if following a change in control of the Company, two years’ base salary. The employment agreement also limited Mr. Pokluda’s ability to compete with the Company for a specified period after his employment ends. See “Employment Arrangements and Payments upon Termination of Employment for a discussion of changes made to Mr. Pokluda’s employment agreement effective January 1, 2015.
In addition, on December 20, 2011, Mr. Pokluda received (1) a grant of 26,576 shares of restricted stock and a grant of options to purchases 64,330 shares of common stock for $14.11 per share (the closing price of the Company’s common stock on the Nasdaq Global Market on the date of grant), each of which will vest in two equal installments on December 31, 2016 and December 31, 2017, (2) a grant of 14,175 shares of performance based restricted stock, which has been forfeited because the Company failed to achieve a performance target for the three year period ended December 31, 2014, and (3) as part of the Company’s regular annual awards, a grant of options to purchase 8,580 shares of common stock for $14.11 per share, which vests in five equal annual installments beginning December 20, 2012. Mr. Pokluda received further grants on December 17, 2012, of 17,953 shares of performance based restricted stock, which will vest only if the Company achieves a performance target for the three year period ending December 31, 2015, and on December 20, 2013, of 11,338 shares of performance based restricted stock, which will vest only if the Company achieves a performance target for the three year period ending December 31, 2016. The committee believes that these grants align Mr. Pokluda’s compensation with the interests of stockholders and, due to the delayed vesting schedule, will assist in retaining Mr. Pokluda as our President and Chief Executive Officer.
In considering the grant for December 2014, the Compensation Committee recognized that Mr. Pokluda would not realize any value from the performance based grant made in 2012 and was unlikely to realize value from the grant made in 2013. Rather than continue to grant large awards that are contingent on performance in an uncertain market, the committee decided to grant a more modest award that Mr. Pokluda could be more likely to receive. On December 8, 2014, Mr. Pokluda received a grant of 12,336 shares of restricted stock, which vests in equal one third installments on December 8, 2015 through 2017 and is not subject to any performance measures. Also on December 8, 2014, in connection with his agreeing to an amended and restated employment agreement, Mr. Pokluda received a grant of 4,112 shares of restricted stock, not subject to any performance measures, which will vest on December 8, 2015.
Each executive officer’s current and prior compensation is considered in setting future compensation. The elements of our plan (base salary, bonus, stock options and restricted stock) are similar to the elements used by many companies. We do not have a formula for allocating between cash and non-cash compensation. In considering annual stock plan grants in December 2014, the committee recognized the Company’s improved performance in 2014, despite difficult market conditions and determined to grant restricted stock awards to Mr. Graham and other members of senior management for 2014, as an equity incentive. Mr. Graham received a grant of 2,500 shares of restricted stock, which vests in equal one third installments on December 8, 2017 through 2019.
Our chief executive officer provides recommendations to the Compensation Committee regarding most compensation matters, including compensation of other members of key management.
With respect to current employees, we establish stock plan grant dates well in advance of any actual grant. The timing of each grant is determined to coincide with a scheduled meeting of our Board of Directors and its Compensation Committee and, except in highly unusual circumstances, we will not allow discretionary grants at other dates. The grant date is established when our Compensation Committee approves the grant and all key terms have been determined. The exercise price of each of our stock options is the market closing price on the grant date. If at the time of any planned stock plan grant any member of our Board of Directors or any executive officer is aware of material non-public information, we would not generally make the planned grant. In such event, as soon as practical after material information is made public, the Compensation Committee would call a special meeting and otherwise take all necessary steps to authorize the delayed grant. Regarding the grant process, the Compensation Committee does not delegate any related function, and executive officers are not treated differently from other employees.
At our 2014 annual meeting of stockholders, we held a non-binding advisory vote on our executive compensation. Over 99% of the outstanding shares voted to approve our executive compensation. Given this high percentage of votes in favor of our executive compensation, the Compensation Committee determined not to make any significant changes in our compensation practices for 2015.
Tax Considerations
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We have structured our compensation program to comply with Internal Revenue Code Sections 162(m) and 409A. Section 162(m) of the Internal Revenue Code imposes a limitation on tax deductions of any publicly-held corporation for compensation paid to certain executives in excess of $1,000,000 in any taxable year, unless the compensation is performance-based. Section 409A of the Internal Revenue Code addresses certain nonqualified deferred compensation benefits payable to an executive and provides that, if such benefits do not comply with Section 409A, they will be taxable in the first year they are not subject to a substantial risk of forfeiture. In such case, the executive is subject to regular federal income tax, interest and an additional federal income tax of 20% of the benefit includible in income. We have no individuals with non-performance based compensation paid in excess of the Internal Revenue Code Section 162(m) tax deduction limit.
Employment Arrangement
On January 1, 2015, we entered into an amended and restated employment agreement with Mr. Pokluda, our President and Chief Executive Officer. The amended agreement extends the original agreement through December 31, 2016 and provides for automatic one-year extensions thereafter, subject to either party giving 12 months’ prior written notice to the contrary. The amended agreement provides for a base salary of $430,000 per year, subject to annual reviews and increases (but not decreases) by our board, and an annual bonus opportunity of up to 75% of base salary, as described above. Mr. Pokluda’s agreement provides for reimbursement of reasonable business expenses, the employment benefits generally available to our executives and four weeks of vacation per year. Mr. Pokluda may participate in our Stock Plan. Under the employment agreement, if the Company terminates Mr. Pokluda’s employment without cause, or if Mr. Pokluda terminates his employment for good reason, Mr. Pokluda will be entitled to receive as severance the payments described under “Potential Payments upon Termination of Employment or Change in Control of the Company” below. The employment agreement limits Mr. Pokluda’s ability to compete with the Company for a period of one year following the termination of his employment for any reason or two years if he is receiving severance benefits due to a qualifying termination prior to a change in control.
Our other members of senior management are elected by and serve at the discretion of the Board of Directors.
Potential Payments upon Termination of Employment or Change in Control of the Company
Under his Amended and Restated Employment Agreement with the Company, Mr. Pokluda is entitled to certain benefits upon his termination of employment from the Company. These benefits are in addition to the benefits to which the executive officers would be entitled upon a termination of employment generally (i.e., vested retirement benefits accrued as of the date of termination, stock-based awards that are vested as of the date of termination and the right to elect continued health coverage pursuant to COBRA). The incremental benefits are described below.
Termination Prior to a Change in Control. If prior to a Change in Control (as defined in Mr. Pokluda’s employment agreement) Mr. Pokluda’s employment is terminated by the Company without Cause, Mr. Pokluda terminates his employment for Good Reason, or his employment terminates due to Disability, he is entitled to (i) continued payment of then current base salary for 24 months, (ii) two payments, each equal to the amount of his incentive bonus for the most recently completed fiscal year, paid when incentive bonuses for the two following years are paid to other executive employees, (iii) immediate vesting of a percentage of the 64,330 stock options granted in 2011 and the 26,576 shares of restricted stock granted in 2011 equal to the percentage of the applicable vesting period elapsed as of the date of termination, and (iv) continued participation in the Company’s health plan for 36 months (provided that COBRA is elected) with the premiums for the first 18 months at active employee rates. Except as provided in the preceding sentence, equity awards will vest pursuant to the terms of our Stock Plan.
Termination Following a Change in Control. If following a Change in Control (as defined in Mr. Pokluda’s employment agreement) Mr. Pokluda’s employment is terminated by the Company without Cause or Mr. Pokluda terminates his employment for Good Reason, he is entitled to (i) the same benefits as in the case of termination prior to a Change in Control, except that the 24 months of base salary and two years of incentive bonuses are payable in a lump sum within ten days after termination, and (ii) full vesting of the outstanding equity awards granted to him prior to amendment of our Stock Plan in February 2014. If any excise tax would be triggered by the benefits paid to Mr. Pokluda, and the after-tax value of the benefits is less than the value of the benefits reduced so that no excise tax is payable, then the benefits will be reduced accordingly.
Termination Due to Death. If Mr. Pokluda’s employment is terminated due to his death, his estate will be entitled to a pro rata portion of the bonus payable for the year of termination had he remained employed through the end of the year, and his surviving spouse and dependents can elect continued participation in the Company’s health plan for 36 months (provided that COBRA is elected) with the premiums for the first 18 months at active employee rates. Equity will vest pursuant to the terms of our Stock Plan.
In each case, benefits are conditioned on the execution of a release of claims, and Mr. Pokluda is subject to a two-year non-compete restriction.
Under Mr. Pokluda’s amended employment agreement, the terms “Cause,” “Disability” and “for Good Reason” are defined as follows:
“Cause” shall exist if there is (i) a material neglect by Mr. Pokluda of his assigned duties, which includes any failure to follow the written direction of the board or to comply with the Company’s code of ethics or written policies, or repeated refusal by Mr. Pokluda to perform his assigned duties, in each case other than by reason of disability, which continues for 30 days following receipt of written notice from the board; (ii) the commission by Mr. Pokluda of any act of fraud or embezzlement against Company or any of its affiliates or the commission of any felony or act involving dishonesty; (iii) the commission by Mr. Pokluda of any act of moral turpitude which actually causes financial harm to the Company or any of its affiliates; (iv) a material breach by Mr. Pokluda of the confidentiality provisions of the employment agreement or any other confidentiality or non-disclosure agreement of Mr. Pokluda with the Company; or (v) Mr. Pokluda’s commencement of employment with another company while he is an employee of the Company without the prior consent of the board.
“Disability” means, in the sole judgment of the board, Mr. Pokluda’s inability to engage in any substantial gainful activity by reason of any medically-determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.
“For Good Reason” shall mean voluntary termination of the employment agreement by Mr. Pokluda if, without the prior consent of Mr. Pokluda: (a) the Company shall relocate its principal executive offices to a location outside the Houston, Texas metropolitan area; (b) there is a material reduction by the Company in Mr. Pokluda’s responsibilities, duties, authority, title or reporting relationship; or (c) the Company acts in any way that would materially reduce Mr. Pokluda’s base salary or if the Company adversely affects Mr. Pokluda’s participation in or materially reduces Mr. Pokluda’s benefit under any benefit plan of the Company in which Mr. Pokluda is participating; provided, however, that termination for Good Reason by Mr. Pokluda shall not be permitted unless (x) Mr. Pokluda has given the Company at least 30 days’ prior written notice that he has a basis for a termination for Good Reason, which notice shall specify the facts and circumstances constituting Good Reason, and (y) the Company has not remedied such facts and circumstances constituting Good Reason within such 30-day period.
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The Compensation Committee of the Board of Directors has furnished the following report to the stockholders of the Company in accordance with rules adopted by the SEC.
The Compensation Committee of the Company states that the committee reviewed and discussed with management the Company’s Compensation Discussion and Analysis contained in this proxy statement.
Based upon the review and discussions referred to above, the Compensation Committee recommended to the Board of Directors that the Company’s Compensation Discussion and Analysis be included in this proxy statement.
This report is submitted on behalf of the members of the Compensation Committee:
I. Stewart Farwell, Chairman | ||
Wilson B. Sexton | ||
G. Gary Yetman |
Dated: March 7, 2016
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Messrs. Farwell, Sexton and Yetman. Mr. Farwell serves as the Chairman. None of the members of the Compensation Committee is or ever was an officer or employee of the Company or any of its subsidiaries, andnone of the executive officers of the Company served on the board of directors or compensation committee of any entity whose officers served either on the Company’s Board of Directors or Compensation Committee.
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Summary Compensation Table
The following table and related notes set forth information concerning the compensation paid to our Chief Executive Officer and President and our Chief Financial Officer for fiscal years 2015, 2014 and 2013. Because our Chief Executive Officer and President and our Chief Financial Officer are our only executive officers, the following compensation disclosures have been limited to those two individuals. We collectively refer to these executive officers throughout this section as our “named executive officers.”
Name and Principal Position | Year | Salary ($)(1) | Bonus ($)(2) | Stock Awards ($)(3) | Option ($)(4) | Non Equity Incentive Plan Compensation ($)(5) | All Other Compensation ($)(6) | Total ($) | ||||||||||||||||||||||
James L. Pokluda III, | 2015 | 445,538 | 150,000 | - | - | 12,337 | 607,875 | |||||||||||||||||||||||
President & | 2014 | 410,000 | - | 200,000 | - | - | 15,093 | 625,093 | ||||||||||||||||||||||
Chief Executive Officer | 2013 | 409,577 | - | 150,002 | - | - | 11,559 | 571,138 | ||||||||||||||||||||||
Nicol G. Graham, | 2015 | 248,330 | - | 18,690 | - | - | 11,390 | 278,410 | ||||||||||||||||||||||
Chief Financial Officer | 2014 | 230,362 | 34,554 | 30,400 | - | - | 3,059 | 298,375 | ||||||||||||||||||||||
2013 | 228,147 | - | - | �� | - | - | 11,123 | 239,270 |
(1) | Salary adjustments were effective as of January 1, 2015 for Mr. Pokluda and Mr. Graham. The amounts for 2015 differ slightly from base salary as there was an extra bi-weekly pay period in 2015. |
Dated: March 9, 2015
(2) | Reflects a discretionary bonus. |
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Messrs. Farwell, Sexton, Thompson and Yetman. Mr. Thompson serves as
(3) | This column shows the |
(4) | The Company has not granted stock options since 2011. |
(5) | The Company did not achieve the threshold set under Mr. Pokluda’s employment agreement or the Senior Management Bonus Program in any of |