UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
Information Required In Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
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ARTHUR J. GALLAGHER & CO.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Arthur J. Gallagher & Co.
2017
Proxy Statement and
Annual Meeting of Stockholders
March 24, 2017
Dear Fellow Stockholder,
Thank you for your continued interest in Arthur J. Gallagher & Co. On behalf of our Board of Directors, I invite you to attend the 2017 Annual Meeting of Stockholders. If you are not able to attend in person, we hope that you will vote by proxy. These proxy materials contain detailed information about the matters on which we are asking you to vote. We hope you will read these materials and then vote in accordance with the Board’s recommendations. Your vote is very important to us.
At Gallagher, sound corporate governance is an integral part of the way we do business. This year’s proxy statement reflects our continued focus on strong performance, an engaged and effective Board, transparent corporate governance structures and regular communication with our stockholders.
2016 Performance. We delivered outstanding financial and operational results in 2016, with strong growth in revenue, expanded margins, improved service quality and disciplined execution of ourtuck-in M&A strategy. During 2016, our combined brokerage and risk management operations’ revenues grew 5% to $4.25 billion, EBITAC grew 17% to $923.0 million, and our adjusted EBITDAC margin expanded by 49 basis points to 25.3%. Our clean energy investments also performed very well in 2016, generating $114 million of netafter-tax earnings. We continued to position the company for growth by investing in people and expanding our product capabilities around the world. I am pleased with our team’s performance and I am excited about our future.
Board Contributions to our Success. Our Board of Directors is comprised of a group of committed and highly qualified individuals who care deeply about our company and bring a diversity of experiences and perspectives to our Board deliberations. In 2016 we continued our commitment to best practices in corporate governance by electing David Johnson as our Lead Director. We also added Ralph Nicoletti as a director and member of the Audit Committee, continuing our commitment to board refreshment. Our directors’ diverse skill sets and independent thought leadership have been invaluable to me and the management team in establishing our long-term business strategy and executing on that strategy. I am grateful to all of our directors for their dedicated service and I encourage you to support each director nominee on this year’s ballot.
Commitment to Stockholder Engagement. Our Board values the feedback and insights gained from our engagement with stockholders. In 2016, in addition to our regular discussions with stockholders regarding our financial results, we engaged with stockholders representing approximately 50% of shares outstanding on matters relating to corporate governance, executive compensation and our proposed long-term incentive plan. We are committed to including our stockholders’ perspectives in our deliberations and we believe that regular communication with our stockholders is necessary in order to ensure thoughtful and informed consideration of evolving corporate governance and executive compensation best practices.
Maintaining Our Culture.This year we will celebrate the 90th anniversary of the founding of Arthur J. Gallagher & Co. Those of you who have followed our company for a number of years will have heard me discuss the competitive advantage of our culture. The values that were instilled in this company in 1927 by my grandfather and our founder, Arthur J. Gallagher, continue to drive our global team’s success today. These traits, articulated in “The Gallagher Way,” include a collaborative and professional sales culture, an unwavering focus on our clients, showing respect and empathy for one another, and a devotion to maintaining the highest standards of moral and ethical behavior. We believe that our culture is a true competitive advantage and a key differentiator when recruiting experienced talent, growing our own talent through our summer internship program, attracting new merger partners, retaining our valued clients and winning new business. As further testament to our unique culture, in 2017 we were pleased to be recognized by the Ethisphere Institute for the 6th consecutive year as one of the World’s Most Ethical Companies.
On behalf of our Board of Directors, thank you for your continued support. We look forward to welcoming you at our 2017 Annual Meeting.
Sincerely,
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| J. Patrick Gallagher, Jr. Chairman of the Board, President and Chief Executive Officer | ||
ARTHUR J. GALLAGHER & CO.
The Gallagher Centre, Two Pierce Place, Itasca, Illinois 60143-3141
March 25, 2014
Dear Stockholder:
Our Annual Meeting will be held on Tuesday, May 13, 2014, at 9:00 a.m., Central Time, at The Gallagher Centre, Two Pierce Place, Itasca, Illinois.
The Notice of Annual Meeting and Proxy Statement accompanying this letter describe the business requiring stockholder action at the meeting. Following the meeting, I will present information on our business and our directors and officers will be available to answer your questions.
Whether or not you plan to attend, please vote your shares by completing a proxy card or by using the toll-free telephone number or Internet voting options described on the proxy card. I also encourage beneficial owners to follow the instructions provided by your broker regarding how to vote. Record holders, and beneficial owners holding a legal proxy from their broker, may revoke previously submitted proxies and vote in person at the meeting.
Cordially,
J. PATRICK GALLAGHER, JR.
Chairman of the Board
Arthur J. Gallagher & Co.
Notice of2017 Annual Meeting of Stockholders
To the Stockholders of
ARTHUR J. GALLAGHER & CO.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Arthur J. Gallagher & Co. will be held on Tuesday, May 13, 2014,16, 2017, at 9:00 a.m., Central Time, at The Gallagher Centre, Two Pierce Place, Itasca, Illinois 60143-3141the time and place, and for the purposes, outlinedset forth below:
| Date: | May |
| Time: | 9:00 | |
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| Place: |
| Record date: | Stockholders of record at the close of business on March | |
| Items of business: | •To elect each of the | ||
• To approve the Arthur J. Gallagher & Co. 2017 Long-Term Incentive Plan, including 16,000,000 shares authorized for issuance thereunder and material terms of the performance goals for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended. | |||
• To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017. | |||
• To approve, on an advisory basis, the compensation of our named executive officers. | |||
• To approve, on an advisory basis, the frequency of holding future advisory stockholder votes to approve the compensation of our named executive officers. | |||
• To transact such other business that properly comes before the meeting. | |||
| Attending the Annual Meeting: | Stockholders who wish to attend the Annual Meeting in person should bring a driver’s license, passport or other form of government-issued identification to verify their identities. In addition, if you hold your shares through a broker, you will need to bring either (1) a letter from your broker stating that you held Gallagher shares as of the record date, or (2) a copy of the notice of Annual Meeting document you received in the mail. | ||
We are making this noticeNotice of annual meetingAnnual Meeting, this Proxy Statement and proxy statementour 2016 Annual Report available on the Internet at www.materials.proxyvote.com/363576 and mailing copies of these materialsProxy Materials to certain stockholders on or about March 25, 2014.24, 2017. Stockholders of record at the close of business on March 17, 201420, 2017 are entitled to notice of and to vote at the Annual Meeting.
By Order of the Board of Directors
WALTER D. BAY
SECRETARY
DATED: MARCH 25, 2014March 24, 2017
ARTHUR J. GALLAGHER & CO.
The Gallagher Centre
Two Pierce Place
Itasca, Illinois 60143-3141
PROXY STATEMENTProxy Statement
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND ANNUAL MEETINGTable of Contents
Why are these proxy materials being provided to stockholders?
NON-GAAP FINANCIAL MEASURES
We are soliciting proxies to be voted at our 2014 Annual Meeting of Stockholders, and at any adjournment or postponement of the Annual Meeting. In connection with this solicitation of proxies, we have made these proxy materials available to you on the Internet or, upon your request, delivered printed versions of these materials to you by mail. BasicFor additional information regarding thenon-GAAP financial measures referred to in this Proxy Statement (EBITAC, EBITDAC, adjusted EBITDAC margin and organic revenue growth), including reconciliations to the most directly comparable GAAP financial measures, see Exhibit B.
| 2017 PROXY STATEMENT | i |
This summary highlights certain information from our Proxy Statement for the 2017 Annual Meeting. You should read the entire Proxy Statement carefully before voting.
2017 Annual Meeting is set forth below:Information
Date: | May | |
Time: | ||
Place: | Arthur J. Gallagher & Co. offices at 2850 Golf Road, Rolling Meadows, Illinois 60008-4002 | |
Record Date: | March |
For additional information about our Annual Meeting, seeQuestions & Answers About the Annual Meeting on page 45.
Voting Recommendations of the Board
Item | Voting Item | Recommendation | Page | |||
1 | Election of directors | FOR each nominee | 4 | |||
2 | 2017 Long-Term Incentive Plan, including approval of the share authorization and material terms of the performance goals under Section 162(m) of the Internal Revenue Code | FOR | 16 | |||
3 | Ratification of independent auditor for 2017 | FOR | 23 | |||
4 | Approval, on an advisory basis, of named executive officer compensation | FOR | 44 | |||
5 | Approval, on an advisory basis, of the frequency of holding future advisory stockholder votes to approve the compensation of our named executive officers | 1 YEAR | 44 | |||
2016 Performance
The company delivered strong results in 2016. We remained focused on the four components of our long-term strategy: (i) organic growth; (ii) mergers and acquisitions; (iii) quality and productivity; and (iv) maintaining our unique culture. Executing on these strategies, we achieved revenue growth of 5% (to $4.25 billion) and EBITAC growth of 17% (to $923.0 million) in our combined brokerage and risk management segments.
Additional highlights of our 2016 performance include the following:
Our stock price increased from $40.94 to $51.96, resulting in total return to stockholders (including dividends) of 31.1%. This performance compares favorably to the S&P 500 and S&P 500 Financials indices, which increased 12.0% and 22.6%, respectively.
| 2017 PROXY STATEMENT | 1 |
What is the purpose of the Annual Meeting?
PROXY STATEMENT SUMMARY
At the Annual Meeting, stockholders will act upon the proposals outlined in this proxy statement, including the election of directors, ratification of our independent registered public accounting firm, approval of our 2014 Long-Term Incentive Plan and approval of the advisory “say-on-pay” resolution. In addition, there will be a presentation by our Chairman and CEO and an opportunity for you to ask questions of the
Our Board of Directors and our senior management team.
What are the Board’s voting recommendations?
The Board recommends that you vote your shares:following table provides summary information about each director nominee and the committees on which they serve.
Name | Director Since | Experience | Other Public Company Boards | Audit | Compensation | Nominating / Governance | ||||||||||||||||
Sherry S. Barrat* | 2013 | Former Vice Chairman of Northern Trust Corporation | 1 |
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William L. Bax* | 2006 | Former Managing Partner of PricewaterhouseCoopers’ Chicago office | 0 |
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D. John Coldman* | 2014 | Former Chairman of The Benfield Group | 0 |
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Frank E. English, Jr.* | 2009 | Former Managing Director and Vice Chairman of Investment Banking, Morgan Stanley & Co. | 2 |
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J. Patrick Gallagher, Jr. | 1986 | Chairman of the Board, President and Chief Executive Officer | 1 | |||||||||||||||||||
Elbert O. Hand* | 2002 | Former Chairman of the Board and Chief Executive Officer, Hartmarx Corporation | 0 |
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David S. Johnson* | 2003 | Lead Director, Arthur J. Gallagher & Co; President and Chief Executive Officer of the Americas, Barry Callebaut AG | 0 |
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Kay W. McCurdy* | 2005 | Of Counsel, Locke Lord LLP | 0 |
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Ralph J. Nicoletti* | 2016 | Executive Vice President and Chief Financial Officer, Newell Brands, Inc. | 0 |
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Norman L. Rosenthal* | 2008 | President, Norman L. Rosenthal & Associates, Inc. | 0 |
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* Independent 
Chair 
Member
Governance and Executive Compensation Highlights
How many votes are needed to approve the matters presented at the Annual Meeting?
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2 2017 PROXY STATEMENT PROXY STATEMENT SUMMARYWill any matters other than those identified in this proxy statement be decided at the Annual Meeting?As of the date of this proxy statement, we are not aware of any matters to be raised at the Annual Meeting other than those described in this proxy statement. If any other matters are properly presented at the Annual Meeting for consideration, the people named as proxy holders on the proxy card will vote your proxy on those matters in their discretion. If any of our nominees are not available as a candidate for director, the proxy holders will vote your proxy for any other candidate the Board may nominate.Who can vote, and how do I vote?Only holders of our common stock at the close of business on the record date of March 17, 2014 are entitled to notice of and to vote at the Annual Meeting. We have no other outstanding securities entitled to vote, and there are no cumulative voting rights for the election of directors. At the close of business on the record date, we had 134,814,493 shares of common stock outstanding and entitled to vote. Each holder of our common stock on that date will be entitled to one vote for each share held on all matters to be voted upon at the Annual Meeting. “Record holders” may vote (1) by completing and returning a proxy card, (2) on the Internet, or (3) using a toll-free telephone number. Please see the proxy card for specific instructions on how to vote using one of these methods. The telephone and Internet voting facilities for record holders will close at 11:59 p.m. Eastern Daylight Time on May 12, 2014. “Beneficial owners” will receive instructions from their broker or other intermediary describing the procedures and options for voting. Please see the next question and its corresponding answer if you are unsure whether you are a record holder or beneficial owner. Both record holders and beneficial owners may attend the Annual Meeting to vote their shares, but beneficial owners must obtain a “legal proxy” from their brokers or other intermediaries in order to do so.What is the difference between a “record holder” and a “beneficial owner”?If your shares are registered directly in your name, you are considered the “record holder” of those shares. If, on the other hand, your shares are held in a brokerage account or by a bank or other intermediary, you are considered the “beneficial owner” of shares held in street name, and an Internet Availability Notice was forwarded to you automatically from your broker or other intermediary. As a beneficial owner, you have the right to instruct your broker or other intermediary to vote your shares in accordance with your wishes. You are also invited to attend the Annual Meeting. Because a beneficial owner is not the record holder, you may not vote your shares in person at the meeting unless you obtain a “legal proxy” from your broker or other intermediary. Your broker or other intermediary has provided you with an explanation of how to instruct it regarding the voting of your shares. If you do not provide your broker with voting instructions, your broker will not be allowed to vote your shares at the Annual Meeting for any matter other than ratification of the appointment of our independent auditor.What should I do if I receive more than one Internet Availability Notice or proxy card?If you own some shares of common stock directly as a record holder and other shares indirectly as a beneficial owner, or if you own shares of common stock through more than one broker or other intermediary, you may receive multiple Internet Availability Notices or, if you request proxy materials to be delivered to you by mail, you may receive multiple proxy cards. It is necessary for you to vote, sign and return all of the proxy cards or follow the instructions for any alternative voting procedure on each of the Internet Availability Notices you receive in order to vote all of the shares you own. If you request proxy materials to be delivered to you by mail, each proxy card you receive will come with its own prepaid return envelope. If you vote by mail, please make sure you return each proxy card in the return envelope that accompanied the proxy card.May I change my vote after I return my proxy?Yes. Even after you have submitted your proxy, you may revoke or change your vote at any time before the proxy is exercised by delivering to our Secretary, at The Gallagher Centre, Two Pierce Place, Itasca, Illinois, 60143-3141, a written notice of revocation or a duly executed proxy bearing a later date, or by voting in person at the meeting. Beneficial owners must have a “legal proxy” from their broker to vote in person at the meeting. Attendance at the Annual Meeting will not, by itself, revoke a proxy.Who will pay the costs of soliciting these proxies?We will pay the costs of soliciting proxies to be voted at the Annual Meeting. After the Internet Availability Notices are initially distributed, we and our agents may also solicit proxies by mail, electronic mail, telephone or in person. We will also reimburse brokers and other intermediaries for their expenses in sending Internet Availability Notices to beneficial owners. In addition, we2have hired Georgeson Shareholder Services to assist us in soliciting proxies, for which we will pay a fee of $12,000 plus their reasonable out-of-pocket expenses.What is “householding”?We have adopted a procedure approved by the Securities and Exchange Commission (SEC) called “householding.” Under this procedure, multiple stockholders who share the same last name and address will receive only one Internet Availability Notice, or one set of proxy materials if they elect to receive hard copies, unless contrary instructions are received from one or more of the stockholders. Each stockholder will continue to receive a separate proxy card. We have undertaken householding to reduce printing costs and postage fees. Householding does not in any way affect dividend check mailings. Record holders who wish to begin or discontinue householding may contact Broadridge Investor Communication Solutions, Inc. (Broadridge) by calling 1-800-542-1061, or by writing to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, NY 11717. Broadridge will undertake the necessary steps to continue or discontinue householding upon such request of a record holder. Beneficial owners who wish to begin or discontinue householding should contact their broker or other intermediary.What is the deadline for submitting a proposal regarding a director nomination or other item of business to be included in the 2015 proxy statement?The deadline for submitting a proposal to be included in our proxy statement and proxy card for the 2015 Annual Meeting is November 25, 2014. Such proposals must comply with the requirements of Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the Exchange Act), regarding stockholder proposals to be included in company-sponsored proxy materials.How do I submit a proposal regarding a director nomination or other item of business to be presented directly at the 2015 Annual Meeting?Under our bylaws, notice of any matter that is not submitted to be included in our proxy statement and proxy card for the 2015 Annual Meeting, but that a stockholder instead wishes to present directly at the Annual Meeting, including director nominations and other items of business, must be delivered to our Secretary, at Arthur J. Gallagher & Co., The Gallagher Centre, Two Pierce Place, Itasca, Illinois 60143-3141, not later than the close of business on February 12, 2015 and not earlier than the close of business on January 13, 2015. We will not entertain any nominations or other items of business at the Annual Meeting that do not meet the requirements in our bylaws. If we do not receive notice of a matter by February 12, 2015, SEC rules permit the people named as proxy holders on the proxy card to vote proxies in their discretion when and if the matter is raised at the Annual Meeting. Any stockholder proposal relating to a director nomination should set forth all information relating to such person required to be disclosed in solicitations of proxies for contested director elections under Regulation 14A of the Exchange Act, including, among other things, the particular experience, qualifications, attributes or skills of the nominee that, in light of our business and structure, led to the stockholder’s conclusion that the nominee should serve on the Board. The proposal should also include the director nominee’s written consent to be named in our proxy statement as a nominee and to serve as a director if elected. Stockholders are also advised to review our bylaws, which contain additional requirements regarding the information to be included in, and advance notice of, stockholder proposals and director nominations.How do I submit a proposed director nominee to the Board for consideration?Any stockholder who wishes to propose director nominees for consideration by the Board’s Nominating/Governance Committee, but does not wish to present such proposal at an annual meeting, may do so at any time by directing a description of each nominee’s name and qualifications for Board membership to the Chair of the Nominating/Governance Committee, c/o our Secretary at Arthur J. Gallagher & Co., The Gallagher Centre, Two Pierce Place, Itasca, Illinois 60143-3141. The recommendation should contain all of the information regarding the nominee described in the question and answer above and in our bylaws relating to director nominations brought before the Annual Meeting. The Nominating/Governance Committee evaluates nominee proposals submitted by stockholders in the same manner in which it evaluates other nominees.Where can I find the voting results of the Annual Meeting?An automated system administered by Broadridge will tabulate the votes. Voting results will be reported in a Current Report on Form 8-K that we will file with the SEC within four business days following the Annual Meeting.3The2017 Compensation Committee oversees our compensation program for named executive officers on behalf of the Board. In fulfilling its oversight responsibilities,Changes. For 2017, the Compensation Committee reviewed and discussed with managementapproved the Compensation Discussion and Analysis set forth below.In reliance on the review and discussion referred to above, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in our Annual Report on Form 10-K and 2014 proxy statement, which will be filed with the SEC.COMPENSATION COMMITTEEElbert O. Hand(Chair)Sherry S. BarratDavid S. JohnsonKay W. McCurdyCOMPENSATION DISCUSSION AND ANALYSISThis Compensation Discussion and Analysis discusses compensation awarded to, earned by, or paid to the following named executive officers (whom we sometimes refer to as NEOs):J. Patrick Gallagher, Jr. – Chairman, President and Chief Executive OfficerDouglas K. Howell – Chief Financial OfficerJames S. Gault – President, Retail Property/Casualty BrokerageJames W. Durkin, Jr. – President, Employee Benefit Consulting and BrokerageThomas J. Gallagher – Chairman, International BrokerageIn this and other sections of the proxy statement, “Mr. Gallagher” will generally refer to our CEO. Where required for clarity, “Mr. Pat Gallagher” will refer to our CEO and “Mr. Tom Gallagher” will refer to Thomas J. Gallagher. This discussion and analysis contains statements regarding our performance measures, targets, goals and thresholds. These measures, targets, goals and thresholds are disclosed in the limited context of our named executive officer compensation program and should not be interpreted to be statements of management’s expectations or estimates of results or other guidance.We believe that our compensation program for named executive officers is balanced and reasonable and helps us retain and motivate highly talented business leaders through a range of economic cycles. We reward sustained performance by emphasizing a balance of short and long-term compensation vehicles. More than two-thirds of the value of named executive officers’ total direct compensation opportunity is delivered through variable compensation. We tie annual cash incentives to company and/or business unit financial performance metrics, as well as achievement of individual performance goals. We align the financial interests of our named executive officers and our stockholders through: (i) stock options, restricted stock units and performance units with long vesting periods, (ii) significant stock ownership requirements, and (iii) our “Age 62 Plan,” which we believe encourages retention and alignment with stockholder interests by requiring named executive officers to remain employed with us through at least age 62 in order to vest in their awards under the plan.2013 Performance ReviewIn 2013, we maintained our focus on growing our core businesses, executing our acquisition strategy, and improving quality and efficiency. As a result, we achieved year-over-year revenue1 growth of 14.8% (to $2.76 billion) and EBITAC2 growth of 22.9%, (to $528 million). Over the past three years, we increased revenue and EBITAC by compound annual growth rates of 15.5% and1 Revenue is GAAP revenue for our combined brokerage and risk management segments (excludes revenue for our corporate segment). The Compensation Committee uses this measure in the context of determining incentive compensation awards because it provides a meaningful representation of our core operating performance.2 Reconciliations of non-GAAP measures to the most closely comparable GAAP measures are presented in Exhibit B to this proxy statement.418.4%, respectively. Our performance during this period was reflected in our total shareholder return (including dividends), which grew at an effective annualized rate of 21.9%, versus 17.7% for other publicly traded insurance brokers.3 We view this as excellent performance.CEO CompensationDuring the first quarter of 2013, the Compensation Committee increased Mr. Gallagher’s target annual cash incentive award opportunity from 125% to 135% of base salary. The Compensation Committee concluded this increase was appropriate based on our strong performance over the past three years, Mr. Gallagher’s achievement of individual performance goals during the same period, and the Committee’s determination that Mr. Gallagher’s total direct compensation was below that of similarly situated CEOs in our comparison groups (see page 10 for a discussion regarding the Committee’s decision). The Committee favored increasing Mr. Gallagher’s performance-based compensation opportunity, rather than base salary, for further alignment with stockholder interests. Based on the Company performance summarized above and Mr. Gallagher’s achievement of individual goals, in the first quarter of 2014, the Compensation Committee awarded Mr. Gallagher an annual cash incentive payment of $1,350,000 (100% of his target award opportunity).Mr. Gallagher’s total compensation of $4.6 million for 2013, as disclosed in the Summary Compensation Table, represents a year-over-year increase of 2.6%. Over the past three years, when our total shareholder return averaged 21.9% annually, Mr. Gallagher’s pay grew by a compound annual growth rate of 6.6%. We believe this represents strong pay-for-performance alignment.2013 Say-on-Pay VoteIn 2013, we held our annual “say on pay” vote, which resulted in 97.3% of votes cast approving our compensation program for named executive officers. The Compensation Committee evaluated the results of this vote as part of its overall assessment of our compensation program for named executive officers. Noting the strong support expressed by our stockholders, and having determined that our program satisfies its compensation objectives and remains consistent with the compensation philosophy outlined below, the Compensation Committee did not make any material changes to our compensation program for named executive officers (to be reflected in 2013.next year’s Proxy Statement):Performance share unit awards will be based on a new performance measure, growth in adjusted EBITDAC per share, and will be subject to a three-year, rather thanone-year, performance period. The Compensation Committee believes this new performance measure is responsive to stockholder preference for a longer performance period and additional accountability around the use of shares in acquisitions.Our annual cash incentive awards for named executive officers will be based on a combination of adjusted revenue growth and adjusted EBITDAC growth. Maximum payouts will be calculated using a more formulaic approach than in prior years, using a two metric payout grid. Final awards will remain subject to downward adjustment in the Compensation Committee’s discretion.
20142017 Long-Term Incentive Plan
We are submitting a long-term incentiveKey features of the plan and share authorization request submitted for stockholder approval at this year’s Annual Meeting. The size of the share authorization request is 9,000,000 shares, versus 5,500,000 in the prior plan three years ago. The terms of the plan are substantially similar to those of the prior plan. For details regarding the plan, please see “Item 3: Approval of the Arthur J. Gallagher & Co. 2014 Long-Term Incentive Plan” beginning on page 38. The primary purpose of the plan is to align the interests of our key employees with those of our stockholders by rewarding employees for strong long-term financial performance.
The difference in size between the 2014 and 2011 share authorization requests reflects our growth over the past three years. As of December 31, 2010, we had approximately 10,700 employees and revenue of $1.79 billion. As of December 31, 2013, we had approximately 16,400 employees and revenue of $2.76 billion. If the plan is approved, our intention is to increase the number of plan participants over time consistent with the growth of our business.
Key features of our share authorization requestMeeting include the following:
| • | If the plan is approved, our “overhang,” or voting power dilution, will be approximately 13.6% as of March 20, 2017. SeeKey Equity Metrics on page 16 for more information. |
3 Marsh & McLennan Companies, Inc., Aon plc, Willis Group Holdings, Ltd. and Brown & Brown, Inc.
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Key Pay and Governance Practices
The Compensation Committee continually evaluates best practices in executive compensation and governance and considers modifications to our executive compensation program that support our business strategies, provide an appropriate balance of risk and reward for our named executive officers, and align their compensation with long-term stockholder interests. Key pay and governance practices include the following:
Annual cash incentives
Restricted Stock Units and Stock Options
Performance Unit Program (PUP)
Executive pay and governance best practices
4 Information on our website is not part of this proxy statement.
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Compensation Philosophy
The following provides an overview of our compensation philosophy and program for named executive officers:
Other Information
For additional information regarding the Annual Meeting and restricted stock units),this Proxy Statement, please seeQuestions & Answers About the Annual Meeting on page 45. See also the links to other company filings and Age 62 Plan awards.
We structure our compensation program for named executive officers to ensure that a significant portion of the compensation paid is linked to the performance of our business. We provide the variable elements of our program (annual cash incentive compensation and long-term incentive compensation) primarily to encourage and reward performance that leads to strong financial results and creation of long-term stockholder value. In addition, we structure our program to ensure that it is not overly weighted toward annual cash incentive compensation and does not otherwise have the potential to threaten long-term stockholder value by promoting unnecessary or excessive risk-taking by our named executive officers.
Compensation Elementsresources in Exhibit C.
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Compensation Decision-Making Process
The Compensation Committee is responsible for determining compensation opportunities for our named executive officers, establishing the annual total value to be transferred through our long-term incentive plans, and setting thresholds, targets and maximum awards for incentive compensation. To determine compensation opportunities for our named executive officers, the Compensation Committee takes into account the compensation objectives noted above, individual and company performance,
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compensation data for our comparison groups, trends in the financial service and insurance brokerage sectors, best practices, and internal considerations such as the strategic value of a given role, impact on our financial results, tax deductibility and accounting considerations.
Tally Sheets
The Compensation Committee also carefully considers the data compiled in a tally sheet prepared by management for each named executive officer. Tally sheets provide a comprehensive view of our compensation payout exposure under various termination scenarios (for example, voluntary or involuntary termination, retirement, and change in control). The tally sheets also provide details regarding all compensation, benefits and perquisites delivered to our named executive officers during the most recent three-year period and a projection for the coming year.
The tally sheets include a three-year analysis of equity and deferred compensation, and provide insight into total wealth accumulation for each officer, as well as the sensitivity of these figures to changes in our stock price. This information provides a comprehensive context in which the Compensation Committee can determine the appropriate type and amount of compensation for each named executive officer.
Role of the CEO
At the beginning of each year, Mr. Gallagher proposes performance objectives for the company and for himself. The Compensation Committee and the Board review these objectives with Mr. Gallagher and make modifications as necessary. Following this review and discussion, the objectives for Mr. Gallagher and the company are finalized and approved by the Compensation Committee and the Board. The objectives include both quantitative financial measurements and qualitative strategic and operational considerations that focus on factors Mr. Gallagher and the Board believe create long-term stockholder value. Mr. Gallagher reviews and discusses preliminary considerations regarding his own compensation with the Compensation Committee but does not participate in the Compensation Committee’s final determination of his compensation. Mr. Gallagher also reviews the performance of each other named executive officer and presents a summary of these performance reviews to the Compensation Committee, along with preliminary recommendations regarding salary adjustments, if any, and annual award amounts.
Role of the Compensation Consultant
The Compensation Committee has retained Sibson Consulting (Sibson) as its independent executive compensation consultant. Sibson provides expertise on various matters coming before the Compensation Committee. Sibson works with our management team at the direction of the Compensation Committee and only on matters for which the Compensation Committee is responsible, and does not receive other compensation from Gallagher. In connection with its 2013 engagement, Sibson reviewed 2013 proxy season results and implications for our pay practices; assisted in the review and confirmation of our peer group for executive compensation and company performance review purposes; advised the Compensation Committee in connection with the new equity plan described in this proxy statement; provided updates on emerging executive compensation trends, including proxy advisory firm and regulatory developments; and reviewed and assessed all elements of our pay programs for executive officers.
The Compensation Committee has assessed Sibson’s independence pursuant to SEC and NYSE rules and concluded that no conflict of interest exists that would prevent Sibson from serving as an independent consultant to the Compensation Committee.
The Compensation Committee does not target its compensation decisions to any specific percentiles or other absolute measures relating to comparison group data. The Compensation Committee reviews compensation data from two different comparison groups, as a market reference for its named executive officer compensation decisions, as described below.
Survey Comparison Group
This group consists of insurance and general industry companies similar to our company in terms of total assets, revenues or number of employees, which the Compensation Committee uses as a reference point for individual pay levels. In 2013, the Compensation Committee reviewed pay data from two published surveys: (i) theExecutive Compensation Survey conducted by Mercer, and (ii) theTop Management Industry Compensation Survey conducted by Towers Watson. Sibson updated this data based on findings from its own annual private study. The Compensation Committee reviewed this data for companies comparable to us in asset size, revenue size, or total number of employees. When available, information for individual positions was drawn from the “Insurance – Non Healthcare” category; otherwise, general industry data was used. The Compensation Committee also reviewed general industry long-term incentive target award data from both surveys.
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Proxy Comparison Group
This group consists of our direct competitors for executive talent, which the Compensation Committee uses primarily as a reference point for compensation plan structure, pay mix, general equity granting practices, and, to a lesser extent, individual pay levels. The members of this group are selected from the insurance industry (“Broker” or “Carrier” below), and from professional and financial services industries that may be competitors with respect to specific lines of business or executive talent (“Other Relevant Comparator” below). The same group of companies was used for both the 2013 and 2012 studies:
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Selection of the Proxy Comparison Group
The proxy comparison group is selected from insurance brokers, insurance carriers and other professional and financial services firms based on a number of metrics including revenue, number of employees, insurance premiums written, value of claims paid, assets and market capitalization. Our revenue, assets and market capitalization are below the median of the insurance carriers in this group. However, our number of employees, insurance premiums written and value of claims paid (metrics the Compensation Committee believes are important as a reflection of the complexity and degree of difficulty in managing our business) are all above the median compared to the same group. The Compensation Committee places less weight on this group as a reference point for individual pay level decisions because of the differences in revenue and market capitalization. However, the Compensation Committee considers this group a strong reference point for matters such as plan structure, pay mix and equity granting practices.
Results of the Comparative Market Assessment
In 2013, the Compensation Committee examined the total direct compensation opportunity for each named executive officer as a whole (base salary, annual cash incentives and long-term incentives) as well as each of its components. External compensation data for our survey and proxy comparison groups was used only as a market reference for compensation decisions and the Compensation Committee did not target total compensation to a specific percentile of the data for these groups. The review of survey and proxy comparison group data showed that, while aggregate base salaries and annual cash incentives for our named executive officer group were close to the median for similarly situated named executive officer groups, our named executive officer group’s aggregate long-term incentive compensation, and therefore total direct compensation, was below the median. Based on this market check, the Compensation Committee concluded that, other than with respect to Mr. Gallagher, whose total direct compensation was significantly below the median for similarly situated CEOs in both comparison groups, our named executive officers’ overall compensation opportunity was appropriate given our size relative to our comparison groups (measured by revenue and market capitalization) and direct competitors for talent.
2013 Decisions – By Compensation Element
Base Salary
We provide named executive officers with base salary to compensate them for fulfilling their regular duties and responsibilities. Base salary may be increased from time to time based on job performance, promotion to a new role, significant expansion of duties or market conditions. In the first quarter of 2013, the Compensation Committee increased Mr. Gault’s base salary from $700,000 to $800,000. The Compensation Committee approved this increase because of Mr. Gault’s success in growing our largest business unit through difficult market conditions over the past several years, and because he had not received a salary increase since 2007. The Compensation Committee also increased Mr. Durkin’s base salary from $625,000 to $725,000. The Compensation Committee
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approved this increase because the business unit Mr. Durkin manages has grown in relative size and importance within the company, and because he had not received a salary increase since 2010. The Compensation Committee did not adjust the base salary of any of the other named executive officers. Base salaries for our named executive officers can be found in the Summary Compensation Table.
Annual Cash Incentive Compensation
Our annual cash incentive plan, administered under our stockholder-approved Senior Management Incentive Plan (SMIP), rewards our named executive officers for achieving key annual financial, operational, risk management and strategic goals that drive stockholder value. During the first quarter of each year, the Compensation Committee establishes a minimum level of company financial performance required to fund the plan for that year. If we attain this minimum company financial performance, the Compensation Committee awards cash incentive compensation to our named executive officers based upon a combination of company and/or business unit financial performance goals and individual performance goals.
In 2013, the Compensation Committee increased Mr. Gallagher’s target award opportunity under our annual cash incentive plan from 125% of base salary to 135% of base salary. The Compensation Committee approved this increase because of the company’s strong financial performance over the past three years, as well as Mr. Gallagher’s consistent achievement of individual performance goals during the same period. In approving this increase, the Compensation Committee noted that Mr. Gallagher’s total direct compensation (consisting of base salary, annual cash incentive compensation and long-term incentive compensation) was below that of similarly situated CEOs in our comparison groups. The Compensation Committee favored increasing his performance-based compensation opportunity, rather than base salary, for better alignment with stockholder interests. Target award opportunities for our other named executive officers are 100% of base salary.
The maximum amount that can be awarded under the plan is 150% of the target award. During the first quarter of each year, the Compensation Committee establishes company financial performance goals required for maximum awards. For named executive officers to qualify for the maximum award, these goals must be reached and the named executive officers who lead business units must achieve performance budgets for their business units. Historically, the Compensation Committee has established business unit performance budgets and approved individual performance goals that are aggressive and ensure that maximum awards are difficult to achieve. Final award determinations are made in light of each named executive officer’s target award opportunity, the maximum award for which he qualifies given company and business unit performance, and the level of achievement of individual performance goals. Named executive officers’ achievement of individual performance goals cannot increase the target or maximum award opportunities for which they qualify based on company and business unit performance. In the past three years, none of our named executive officers has received an annual cash incentive payout above the target award opportunity.
Company Performance Measures
The Compensation Committee uses EBITAC in the context of determining incentive compensation awards. The Committee believes this measure of earnings provides a meaningful representation of our operating performance and improves the comparability of our results between periods. See Exhibit B for more information regarding EBITAC.
In the first quarter of 2013, the Compensation Committee established minimum company revenue and EBITAC thresholds for funding the plan and for maximum awards under the plan. The thresholds for maximum awards required at least 5% growth in revenue and 10% growth in EBITAC over 2012 levels. These thresholds, and actual company performance, are set forth below.
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Based solely on company performance, the maximum available award for each named executive officer was 150% of his target award opportunity. However, final award amounts were determined by the Compensation Committee based on these results, achievement of the business unit performance measures described below (for Mr. Gault, Mr. Durkin and Mr. Tom Gallagher) and achievement of individual performance goals.
Business Unit Performance Measures
In the first quarter of 2013, the Compensation Committee established revenue and EBITAC budgets for the business units led by Mr. Gault, Mr. Durkin and Mr. Tom Gallagher. Performance in relation to these budgets determined a possible range of awards.
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Business unit budgets for 2013, and actual performance toward those budgets, are set forth below.
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Based on 2013 company and business unit performance, the maximum award for which Mr. Gault and Mr. Durkin qualified was 150% of their target award opportunity. The maximum award for which Mr. Tom Gallagher qualified was 100% of his target award opportunity. Actual awards were determined by the Compensation Committee after consideration of each named executive officer’s achievement of individual performance goals (as described in detail below).
Our CEO’s Annual Cash Incentive Compensation
The Compensation Committee reviewed Mr. Gallagher’s performance in light of our overall financial performance. In 2013, we achieved year-over-year revenue growth of 14.8% and EBITAC growth of 22.9%. Over the past three years, we increased revenue and EBITAC by compound annual growth rates of 15.5% and 18.4%, respectively. The Compensation Committee also took into consideration the following operating and financial achievements in 2013:
In addition to the above achievements, the Compensation Committee noted that Mr. Gallagher achieved substantially all of his individual performance goals, as follows:
5 Reconciliations of non-GAAP measures to the most closely comparable GAAP measures are presented in Exhibit B to this proxy statement.
11Item 1 – Election of Directors
The Nominating/Governance Committee considers director candidates suggested by stockholders, management or other members of the Board and may hire consultants or search firms to help identify and evaluate potential director candidates. For more sales thorough implementationinformation regarding how stockholders can submit a director candidate for consideration by the Nominating/Governance Committee, see page 47.
The Nominating/Governance Committee evaluates director candidates by considering their judgment, skills, integrity, diversity, business or other experience, and other factors it deems appropriate. The committee looks for candidates who are leaders in the organizations with which they are affiliated and have experience in positions with a high degree of salesresponsibility. The committee considers their potential contributions to the Board and to management, tools
Board Diversity
The Nominating/Governance Committee seeks Board members from diverse professional backgrounds who combine a broad spectrum of experience and expertise with a reputation for integrity. The committee implements this policy through discussions among its members and assesses its effectiveness annually as part of the committee’s and the Board’s self-evaluation process. The committee has also used a search firm on occasion to recruit top talenthelp it identify highly qualified and build organizational talent
Board Nominees and Vote Required
Upon the recommendation of the Nominating/Governance Committee, the Board has nominated our unique Gallagher culture
Basednext annual meeting and the election and qualification of their successors or, if earlier, until their resignation, death or removal. Each of the nominees currently serves on the company’s operating and financial results and Mr. Gallagher’s individual performance, the Compensation Committee awarded Mr. Gallagher an annual cash incentive payment of $1,350,000 (100% of his target award opportunity).
Annual Cash Incentive Compensation of the Other Named Executive Officers
Mr. Gallagher assessed and documented the performance of the other named executive officers and recommended award amounts in light of the maximum award for which each named executive officer was eligible, the level of achievement of applicable financial performance objectives and each officer’s individual performance goals. The Compensation Committee then reviewed and discussed the performance of each named executive officer and approved awards as described in more detail below.
Douglas K. Howell. Mr. Howell has been our chief financial officer since 2003. As the leader of our finance organization, Mr. Howell’s financial objectives focused on our overall performance and were the same as Mr. Gallagher’s. Mr. Howell continued to implement and maintain expense savings initiatives critical to expanding our adjusted EBITDAC margin and successfully managed our tax-advantaged (clean energy) investments. In addition, Mr. Howell achieved substantially all of his individual performance goals, as follows:
Based on this performance, Mr. Howell received an award of $700,000 (100% of his target award opportunity).
James S. Gault. Mr. Gault is the leader of our retail property/casualty brokerage unitBoard and has held this position since 2002. In 2011, Mr. Gault also assumed management responsibilityconsented to serve for our international brokerage unit. In 2013, his units exceeded their combined budget for both revenue and EBITAC, achieving year-over-year EBITAC growth of 28.3% on revenue growth of 17.4%. In addition, Mr. Gault achieved substantially all of his individual performance goals, as follows:
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Based on this performance, Mr. Gault received an award of $800,000 (100% of his target award opportunity).
James W. Durkin, Jr. Mr. Durkin is the leader of our employee benefits brokerage unit and has held this position since 1985. In 2013, his unit exceeded its budget for both revenue and EBITAC, achieving year-over-year EBITAC growth of 21.3% on revenue growth of 19.8%. In addition, Mr. Durkin achieved substantially all of his individual performance goals, as follows:
Based on this performance, Mr. Durkin received an award of $725,000 (100% of his target award opportunity).
Thomas J. Gallagher. Mr. Gallagher is the leader of our international brokerage unit and also manages the Midwest region of our U.S. retail property/casualty brokerage unit. In 2013,serve, the Board named Mr. Gallagher an executive officer of the company. In 2013, the units he leads exceeded their combined budgetsmay nominate another person to stand for revenue and nearly achieved their combined budgets for EBITAC, resulting in year-over-year EBITAC growth of 35.6% on revenue growth of 23.1%. In addition, Mr. Gallagher achieved substantially all of his individual performance goals, as follows:
Based on this performance, Mr. Gallagher received an award of $700,000 (100% of his target award opportunity).
6 Reconciliations of non-GAAP measures to the most closely comparable GAAP measures are presented in Exhibit B to this proxy statement.
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Long-Term Incentive Compensation
Long-term incentives are designed to tie a significant portion of our named executive officers’ compensation to our performance, create a meaningful alignment of our named executive officers’ financial interests with those of stockholders, and encourage long-term retention. Long-term incentive opportunities are greater for those named executive officers who have greater direct impact on our financial results. In 2013, each named executive officer was eligible to receive a long-term incentive award value based on a percentage of base salary. The Compensation Committee determined this percentage using its discretion based upon a number of factors, including retention considerations, internal pay equity considerations, external market data (including long-term incentive opportunities provided to similarly situated executives in the survey and proxy comparison groups – see “Comparative Market Assessment” above) and our historical practices.
The award value for each named executive officer was converted into stock options, restricted stock units and awards under our Performance Unit Program (PUP). The Compensation Committee determines the portion of each award type with the goal of aligning named executive officers’ long-term incentive compensation with company performance. As such, PUP awards, which are performance-based, represented the largest component of long-term incentive awards for each named executive officer. Awards of full-value shares of restricted stock, each of which is subject to a four-year “cliff” vesting period, made up only approximately 15% to 30% of the value of the long-term incentive awards. Target award amounts in 2013 and the approximate allocation among options, restricted stock units and PUP awards, are presented below:
| NAMED EXECUTIVE OFFICER | TARGET PERCENT OF SALARY | TARGET GRANT AMOUNT | OPTIONS | RESTRICTED STOCK UNITS | PERFORMANCE UNIT PROGRAM AWARDS | ||||||||||||||||||||
J. Patrick Gallagher, Jr. | 125% | $ 1,250,000 | 15% | 15% | 70% | ||||||||||||||||||||
Douglas K. Howell | 100% | $ 700,000 | 20% | 30% | 50% | ||||||||||||||||||||
James S. Gault | 70% | $ 560,000 | 17% | 23% | 60% | ||||||||||||||||||||
James W. Durkin, Jr. | 70% | $ 510,000 | 17% | 23% | 60% | ||||||||||||||||||||
Thomas J. Gallagher | 60% | $ 410,000 | 22% | 30% | 48% | ||||||||||||||||||||
Performance Unit Program (PUP)
Under our PUP, which we administer under our stockholder-approved SMIP, the Compensation Committee awards a number of performance units each year to our named executive officers. The 2013 awards are reported in the “Stock Awards” column of the Summary Compensation Table, but will be settled in cash. To encourage a focus on growing our core earnings,election or reduce the number of these units actually earned is based on EBITAC growth thresholds set annuallydirectors.
Each director nominee who receives more “FOR” votes than “AGAINST” votes at the Annual Meeting will be elected. Any incumbent director nominees who receive a greater number of votes “AGAINST” election than votes “FOR” election are required to tender their offer of resignation for consideration by the Compensation Committee. On March 13, 2013,Nominating/Governance Committee in accordance with our Governance Guidelines.
Independent Director Qualifications
The table below summarizes the Compensation Committee grantedkey qualifications and areas of experience that led our Board to conclude that each named executive officer a provisional numberindependent director nominee is qualified to serve on our Board, but is not intended to be an exhaustive list of performance units. For 2013, the number of units earned by the named executive officers was based on the EBITAC growth thresholds set forth below:
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We achieved 2013 EBITAC growth of 22.9%. Accordingly, each named executive officer earned 100% of his provisionally granted performance units. Earned performance units cliff vest on the third anniversary of the first day of the year in which the award was granted (January 1, 2016 for the 2013 awards). On the vesting date, the amount of the payout will be determined by multiplying the number of earned performance units by the trailing twelve month average price of our common stock for the calendar year priortheir qualifications or contributions to the vesting date (the TTM Price). The TTM Price is subject to an upper limit of 150% and a lower limit of 50% of our stock price on the date of grant. Payouts will be made in cash as soon as practicable after the vesting date.
Deferred Equity Participation Plan (Age 62 Plan)
Deferred cash awards under the Age 62 Plan are nonqualified deferred compensation awards under Section 409A of the Internal Revenue Code. All such awards made to our named executive officers have at their election been deemed invested in a fund
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representing shares of our common stock. Awards under the Age 62 Plan do not vest until participants reach age 62 (or the one-year anniversary of the date of grant for participants over the age of 61). Accordingly, amounts in the plan are subject to forfeiture in the event of a voluntary termination of employment prior to age 62 (or the minimum one-year vesting period). Mr. Pat Gallagher, Mr. Gault and Mr. Durkin were each at least 61 years of age as of December 31, 2013. Awards deemed invested in our common stock provide a long-term incentive for our named executive officers to manage our company for earnings growth and total shareholder return. In addition, the deferred realization of these awards encourages retention of our named executive officers until a normal retirement age.
In determining 2013 awards, the Compensation Committee took into account an overall assessment of each individual, including consideration of individual and company performance in 2012 (as described in our 2013 proxy statement). As a result of these assessments, during the first quarter of 2013, the Compensation Committee approved Age 62 Plan awards for each named executive officer at the same level as for the prior year, as follows: Mr. Pat Gallagher – $750,000; Mr. Howell – $400,000; Mr. Gault – $400,000; Mr. Durkin – $350,000; and Mr. Tom Gallagher – $300,000.
Benefits and Perquisites
Under our 401(k) Savings and Thrift Plan (401(k) Plan), a tax qualified retirement savings plan, participating employees, including our named executive officers, may contribute up to 75% of their earnings on a before-tax basis into their 401(k) Plan accounts, subject to limitations imposed by the Internal Revenue Service (IRS). Under the 401(k) Plan, we match an amount equal to one dollar for every dollar an employee contributes on the first 5% of his or her regular earnings. The 401(k) Plan has other standard terms and conditions. We also have a Supplemental Savings and Thrift Plan (Supplemental Plan), which allows certain highly compensated employees, including our named executive officers, to defer additional amounts on a before-tax basis. For a description of the Supplemental Plan, see page 22 under “Nonqualified Deferred Compensation.” We also provide limited perquisites, including reimbursement of certain expenses for named executive officers related to automobile use and certain club memberships, which total no more than 1.0% of total compensation for each named executive officer. The value of the benefits and perquisites received by our named executive officers can be found in the Summary Compensation Table. Our named executive officers are also participants in a pension plan, which we froze as to future benefit accruals in 2005. Please see “Pension Benefits” on page 21 for more details.
Change-in-Control Payments
The change-in-control agreements we have in place with each of our named executive officers provide for severance payments if the executive is terminated within 24 months following a change in control, a so-called “double trigger” (see “Change-in-Control Agreements” beginning on page 23 for more information). We believe it is appropriate to provide a double trigger for such payments because it helps ensure that our named executive officers do not receive an unintended benefit by receiving a severance payment while maintaining their positions following a change in control.
Our equity plans contain a so-called “single trigger” for accelerated vesting of awards upon a change in control. We believe a single trigger is appropriate because it gives executives the same right as other stockholders to sell their equity in the company at the time of a change in control. Moreover, it may not be possible to replace executives’ existing equity awards with comparable awards of the acquiring company’s stock. Finally, company performance may be negatively affected by integration activities, and individual executives’ ability to affect the performance of the company (and the value of their awards) may be significantly different following a change in control. Our nonqualified plans (the Age 62 Plan and the Supplemental Plan) also contain a single trigger for vesting and payment upon a change in control. Because the benefits under these plans are subject to the claims of our creditors, accelerated vesting and payment provide certainty with respect to benefits that represent a primary source of retirement income and ensures that executives receive the deferred compensation to which they are entitled. Our equity and nonqualified plans do not contain “liberal” change in control definitions (i.e., they do not provide for buyout thresholds lower than 50%, and a change in control is deemed to occur upon completion, rather than stockholder approval, of a transaction). Please see page 23 for a change-in-control definition typical of our plans.
Section 162(m) of the Internal Revenue Code limits the deductibility for Federal income tax purposes of certain compensation payable in a taxable year to certain of our named executive officers to the extent that such compensation exceeds $1 million. However, certain types of compensation are not subject to that limitation, including compensation that meets the requirements under Section 162(m) for “qualified performance-based compensation.” Our SMIP, our 2011 Long-Term Incentive Plan and the 2014 Long-Term Incentive Plan described in this proxy statement are all structured to permit, but not require, the Compensation Committee to award compensation that meets the requirements for “qualified performance-based compensation.” However, the Compensation Committee reserves the right to authorize the payment of nondeductible compensation when appropriate. We make no representation that the compensation of our named executive officers will be fully deductible for Federal income tax purposes.
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We encourage stock ownership by our named executive officers to align their financial interests with those of our stockholders. These guidelines provide that our CEO should own equity having a value not less than six times his base salary, our CFO should own equity having a value not less than four times his base salary, and our other named executive officers should own equity having a value not less than three times their base salaries. Under these guidelines, named executive officers should own the required number of shares within five years of the date they became an executive officer. Any shares pledged as collateral for a loan are not considered when determining whether named executive officers have met their stock ownership guidelines. All of our named executive officers are currently in compliance with these guidelines.
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Summary Compensation Table
| Name and Principal Position | Year | Salary ($) | Stock Awards ($)(1) | Option Awards ($)(2) | Non-Equity Incentive Plan Compensation ($)(3) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(4) | All Other Compensation ($)(5) | Total ($) | ||||||||||||||||||||||||||||||||
J. Patrick Gallagher, Jr. Chief Executive Officer | 2013 | 1,000,000 | 1,004,711 | 268,107 | 1,350,000 | 0 | 995,466 | 4,618,284 | ||||||||||||||||||||||||||||||||
| 2012 | 1,000,000 | 1,110,581 | 188,224 | 1,250,000 | 61,071 | 889,812 | 4,499,688 | |||||||||||||||||||||||||||||||||
| 2011 | 1,000,000 | 882,385 | 134,400 | 1,000,000 | 102,903 | 862,976 | 3,982,664 | |||||||||||||||||||||||||||||||||
Douglas K. Howell Chief Financial Officer | 2013 | 700,000 | 564,048 | 150,200 | 700,000 | 0 | 609,300 | 2,723,548 | ||||||||||||||||||||||||||||||||
| 2012 | 700,000 | 653,493 | 73,984 | 700,000 | 2,718 | 551,632 | 2,681,827 | |||||||||||||||||||||||||||||||||
| 2011 | 600,000 | 353,140 | 53,550 | 600,000 | 4,373 | 433,010 | 2,044,073 | |||||||||||||||||||||||||||||||||
James S. Gault President, Retail Property/Casualty Brokerage | 2013 | 800,000 | 450,455 | 120,160 | 800,000 | 0 | 527,324 | 2,697,939 | ||||||||||||||||||||||||||||||||
| 2012 | 700,000 | 423,164 | 86,496 | 700,000 | 57,556 | 482,684 | 2,449,900 | |||||||||||||||||||||||||||||||||
| 2011 | 700,000 | 401,731 | 60,900 | 700,000 | 96,981 | 364,043 | 2,323,655 | |||||||||||||||||||||||||||||||||
James W. Durkin, Jr. President, Employee Benefit | 2013 | 725,000 | 409,327 | 109,646 | 725,000 | 0 | 471,387 | 2,440,360 | ||||||||||||||||||||||||||||||||
| 2012 | 625,000 | 378,526 | 77,248 | 625,000 | 57,372 | 447,124 | 2,210,270 | |||||||||||||||||||||||||||||||||
| 2011 | 625,000 | 362,270 | 54,600 | 625,000 | 96,722 | 395,772 | 2,159,364 | |||||||||||||||||||||||||||||||||
Thomas J. Gallagher (6) Chairman, International Brokerage | 2013 | 700,000 | 278,107 | 159,963 | 700,000 | 0 | 401,858 | 2,239,928 | ||||||||||||||||||||||||||||||||
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| Named Executive Officer | Age 62 Plan Awards | Supplemental Plan Match | Dividend Equivalents on Unvested RSUs | 401(k) Match | Corporate Auto | Club Memberships Not Exclusively For Business Use and Cell Phone Allowance | ||||||||||||||||||
J. Patrick Gallagher, Jr. | $ | 750,000 | $ | 99,750 | $ | 98,961 | $ | 12,750 | $ | 7,920 | $ | 26,085 | ||||||||||||
Douglas K. Howell | 400,000 | 57,250 | 131,380 | 12,750 | 7,920 | — | ||||||||||||||||||
James S. Gault | 400,000 | 62,250 | 35,379 | 12,750 | 5,520 | 11,425 | ||||||||||||||||||
James W. Durkin, Jr. | 350,000 | 54,750 | 31,937 | 12,750 | 7,920 | 14,030 | ||||||||||||||||||
Thomas J. Gallagher | 300,000 | 50,000 | 30,708 | 12,750 | 4,320 | 4,080 | ||||||||||||||||||
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| 2017 PROXY STATEMENT
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ITEM 1 – ELECTION OF DIRECTORS
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Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table
For information regarding our annual cash incentive compensation program, long-term incentive compensation program consisting of restricted stock units, stock options and PUP awards, and our Age 62 Plan, please see pages 9-15.
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Outstanding Equity Awards at Fiscal Year-End
| Option Awards(1) | Stock Awards | |||||||||||||||||||||||||||
| Name | Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price (#) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(2) | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | |||||||||||||||||||||
J. Patrick Gallagher, Jr. | 4/1/04 | 13,522 | 1,502 | 33.28 | 3/31/14 | — | — | |||||||||||||||||||||
| 7/22/04 | 45,000 | 5,000 | 29.42 | 7/21/14 | — | — | ||||||||||||||||||||||
| 5/17/05 | 14,760 | 3,690 | 27.10 | 5/16/15 | — | — | ||||||||||||||||||||||
| 7/21/05 | 40,000 | 10,000 | 27.25 | 7/20/15 | — | — | ||||||||||||||||||||||
| 5/16/06 | 18,130 | 7,767 | 27.03 | 5/15/16 | — | — | ||||||||||||||||||||||
| 5/15/07 | 16,667 | 0 | 28.65 | 5/14/17 | — | — | ||||||||||||||||||||||
| 3/5/08 | 17,762 | 0 | 23.76 | 3/4/18 | — | — | ||||||||||||||||||||||
| 3/2/10 | 30,450 | 20,300 | 24.13 | 3/1/17 | — | — | ||||||||||||||||||||||
| 3/8/11 | 10,240 | 15,360 | 30.95 | 3/7/18 | — | — | ||||||||||||||||||||||
| 3/16/12 | 0 | 34,600 | 35.71 | 3/15/19 | — | — | ||||||||||||||||||||||
| 3/13/13 | 0 | 35,700 | 39.17 | 3/12/20 | — | — | ||||||||||||||||||||||
| 92,701 | 4,339,927 | |||||||||||||||||||||||||||
Douglas K. Howell | 4/1/04 | 3,381 | 375 | 33.28 | 3/31/14 | — | — | |||||||||||||||||||||
| 7/22/04 | 31,500 | 3,500 | 29.42 | 7/21/14 | — | — | ||||||||||||||||||||||
| 7/21/05 | 28,000 | 7,000 | 27.25 | 7/20/15 | — | — | ||||||||||||||||||||||
| 5/16/06 | 1,813 | 777 | 27.03 | 5/15/16 | — | — | ||||||||||||||||||||||
| 5/15/07 | 11,375 | 0 | 28.65 | 5/14/17 | — | — | ||||||||||||||||||||||
| 10/18/07 | 30,000 | 20,000 | 27.94 | 10/17/17 | — | — | ||||||||||||||||||||||
| 3/5/08 | 6,061 | 0 | 23.76 | 3/4/18 | — | — | ||||||||||||||||||||||
| 3/2/10 | 5,400 | 3,600 | 24.13 | 3/1/17 | — | — | ||||||||||||||||||||||
| 3/8/11 | 4,080 | 6,120 | 30.95 | 3/7/18 | — | — | ||||||||||||||||||||||
| 3/16/12 | 0 | 13,600 | 35.71 | 3/15/19 | — | — | ||||||||||||||||||||||
| 3/13/13 | 0 | 20,000 | 39.17 | 3/12/20 | — | — | ||||||||||||||||||||||
| 57,452 | 2,694,424 | |||||||||||||||||||||||||||
James S. Gault | 7/22/04 | 31,500 | 3,500 | 29.42 | 7/21/14 | — | — | |||||||||||||||||||||
| 7/21/05 | 28,000 | 7,000 | 27.25 | 7/20/15 | — | — | ||||||||||||||||||||||
| 5/15/07 | 7,583 | 0 | 28.65 | 5/14/17 | — | — | ||||||||||||||||||||||
| 3/5/08 | 8,082 | 0 | 23.76 | 3/4/18 | — | — | ||||||||||||||||||||||
| 3/2/10 | 7,650 | 5,100 | 24.13 | 3/1/17 | — | — | ||||||||||||||||||||||
| 3/8/11 | 4,640 | 6,960 | 30.95 | 3/7/18 | — | — | ||||||||||||||||||||||
| 3/16/12 | 0 | 15,900 | 35.71 | 3/15/19 | — | — | ||||||||||||||||||||||
| 3/13/13 | 0 | 16,000 | 39.17 | 3/12/20 | — | — | ||||||||||||||||||||||
| 37,929 | 1,775,156 | |||||||||||||||||||||||||||
James W. Durkin, Jr. | 7/22/04 | 3,000 | 3,000 | 29.42 | 7/21/14 | — | — | |||||||||||||||||||||
| 7/21/05 | 3,000 | 6,000 | 27.25 | 7/20/15 | — | — | ||||||||||||||||||||||
| 3/5/08 | 1,270 | 0 | 23.76 | 3/4/18 | — | — | ||||||||||||||||||||||
| 3/2/10 | 2,300 | 4,600 | 24.13 | 3/1/17 | — | — | ||||||||||||||||||||||
| 3/8/11 | 4,160 | 6,240 | 30.95 | 3/7/18 | — | — | ||||||||||||||||||||||
| 3/16/12 | 0 | 14,200 | 35.71 | 3/15/19 | — | — | ||||||||||||||||||||||
| 3/13/13 | 0 | 14,600 | 39.17 | 3/12/20 | — | — | ||||||||||||||||||||||
| 34,180 | 1,599,722 | |||||||||||||||||||||||||||
Thomas J. Gallagher | 4/1/04 | 1,352 | 150 | 33.28 | 3/31/14 | — | — | |||||||||||||||||||||
| 7/22/04 | 27,000 | 3,000 | 29.42 | 7/21/14 | — | — | ||||||||||||||||||||||
| 7/21/05 | 20,000 | 5,000 | 27.25 | 7/20/15 | — | — | ||||||||||||||||||||||
| 5/15/07 | 2,917 | 0 | 28.65 | 5/14/17 | — | — | ||||||||||||||||||||||
| 3/5/08 | 3,552 | 0 | 23.76 | 3/4/18 | — | — | ||||||||||||||||||||||
| 3/2/10 | 4,966 | 3,310 | 24.13 | 3/1/17 | — | — | ||||||||||||||||||||||
| 3/8/11 | 4,600 | 6,900 | 30.95 | 3/7/18 | — | — | ||||||||||||||||||||||
| 3/16/12 | 0 | 15,200 | 35.71 | 3/15/19 | — | — | ||||||||||||||||||||||
| 3/13/13 | 0 | 21,300 | 39.17 | 3/12/20 | — | — | ||||||||||||||||||||||
| 28,542 | 1,335,570 | |||||||||||||||||||||||||||
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Age: 67 Director Since: 2013 Independent Committee Memberships: Compensation Nominating/Governance | Ms. Barrat retired in 2012 as Vice Chairman of | |
Skills and Qualifications Ms. Barrat’s extensive management, operational and financial experience, in particular her deep understanding of the financial services industry and the privacy and cybersecurity issues facing that industry, greatly enhances the Board’s decision making. | ||
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Age: 73 Director Since: 2006 Independent Committee Memberships: Audit (Chair) | Mr. Bax was Managing Partner of the Chicago office of PricewaterhouseCoopers (PwC), an international accounting, auditing and | |
Skills and Qualifications During his 26 years as a partner and six years as head of PwC’s Chicago office, Mr. Bax gained extensive experience advising public companies regarding accounting and strategic issues. This experience, along with his tenure on the boards of public companies, such as Sears and Andrew, strengthen the Board’s decision making. Additionally, Mr. Bax’s experience advising public companies on accounting and disclosure issues enhances the Board’s ability to oversee our assessment and management of material risks. | ||
| 2017 PROXY STATEMENT | 5 |
ITEM 1 – ELECTION OF DIRECTORS
D. John Coldman Age: 69 Director Since: 2014 Independent Committee Memberships: Compensation | Mr. Coldman began his career working for WT Greig, a reinsurance broker. In 1988, he became Managing Director and | |
Skills and Qualifications The Board greatly benefits from Mr. Coldman’s 45 years of insurance brokerage, management and financial services experience. In addition, Mr. Coldman’s international insurance industry knowledge, his experience within the Lloyd’s and London marketplaces, and his experience with public company matters and mergers and acquisitions all strengthen the Board’s decision making. | ||
Age: 71 Director Since: 2009 Independent Committee Memberships: Audit | Mr. English serves on the board of directors and | |
Skills and Qualifications The Board greatly benefits from Mr. English’s extensive investment banking expertise, particularly in the areas of capital planning, strategy development, financing and liquidity management. | ||
J. Patrick Gallagher, Jr.
| Vesting Dates | Type of award | Mr. Pat Gallagher | Mr. Howell | Mr. Gault | Mr. Durkin | Mr. Tom Gallagher | ||||||||||||||||
1/1/14 | PUP Award* | 21,061 | 3,597 | 9,704 | 8,690 | 7,812 | ||||||||||||||||
1/1/15 | PUP Award* | 23,150 | 10,350 | 8,350 | 7,500 | 6,350 | ||||||||||||||||
1/1/16 | PUP Award* | 20,750 | 8,900 | 8,600 | 7,800 | 3,800 | ||||||||||||||||
3/2/14 | Restricted Stock Units** | 8,690 | 13,555 | 2,175 | 1,940 | 1,430 | ||||||||||||||||
3/8/15 | Restricted Stock Units** | 6,200 | 7,600 | 2,700 | 2,500 | 2,600 | ||||||||||||||||
3/16/16 | Restricted Stock Units** | 7,950 | 7,950 | 3,500 | 3,100 | 3,250 | ||||||||||||||||
3/13/17 | Restricted Stock Units** | 4,900 | 5,500 | 2,900 | 2,650 | 3,300 | ||||||||||||||||
Total | 92,701 | 57,452 | 37,929 | 34,180 | 28,542 | |||||||||||||||||
Mr. Gallagher has spent his entire career with Arthur J. Gallagher & Co. in a variety of management positions, starting as a Production Account Executive in 1974, then serving as Vice President of Operations from 1985 to 1990, as President and Chief Operating Officer from 1990 to 1995, and as President and Chief Executive Officer since 1995. In 2011, Mr. Gallagher joined the board of directors of InnerWorkings, Inc., a publicly traded global provider of managed print, packaging and promotional solutions, and was appointed to its compensation and nominating/governance committees. He also serves on the Board of Trustees of the American Institute for Chartered Property Casualty Underwriters and on the Board of Founding Directors of the International Insurance Foundation. | ||
Skills and Qualifications Mr. Gallagher’s 42 years of | ||
6 | 2017 PROXY STATEMENT | |
ITEM 1 – ELECTION OF DIRECTORS
Elbert O. Hand Age: 77 Director Since: 2002 Independent Committee Memberships: Compensation (Chair) Nominating/Governance | Mr. Hand is the managing member of Alister MacKenzie Apparel, LLC, a manufacturer and distributor of sports and dress apparel, which heco-founded in 2016. Prior to that, he was Chairman of the Board of Hartmarx Corporation, a publicly traded apparel marketing and manufacturing company, from 1992 to 2004, and served as a member of Hartmarx’s board from 1984 to 2010. He served as Chief Executive Officer of Hartmarx from 1992 to 2002 and as President and Chief Operating Officer from 1987 to 1992. From 1982 to 1989, Mr. Hand also served as President and Chief Executive Officer of Hartmarx’s Men’s Apparel Group. Mr. Hand was a director of Austin Reed Group PLC, a U.K.-based apparel company, from 1995 to 2002, and served as an advisor to the board for a number of years after 2002. From 2010 to 2011, | |
Skills and Qualifications The Board benefits from Mr. Hand’s business acumen gleaned from three decades of leadership roles in the | ||
David S. Johnson Age: 60 Director Since: 2003 Independent Lead Director Committee Memberships: Compensation Nominating/Governance | Mr. Johnson has served as President and |
2013 Option Exercises and Stock Vested
| Option Awards | Stock Awards | |||||||||||||||
| Name | Number of (#) | Value ($) | Number of (#)(1)(2) | Value ($)(1)(2) | ||||||||||||
J. Patrick Gallagher, Jr. | 5,000 | 102,976 | 6,146 | 235,576 | ||||||||||||
Douglas K. Howell | 75,000 | 1,019,850 | 16,779 | 643,139 | ||||||||||||
James S. Gault | 35,000 | 454,274 | 2,797 | 107,209 | ||||||||||||
James W. Durkin, Jr. | 2,000 | 39,620 | 2,197 | 84,211 | ||||||||||||
Thomas J. Gallagher | 10,000 | 207,000 | 1,229 | 47,108 | ||||||||||||
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Skills and Qualifications The Board benefits from Mr. Johnson’s business acumen gleaned from over three decades of experience in the food and beverage industry, including significant experience in sales and marketing. His experience as a senior executive of multinational businesses, such as Barry Callebaut and Kraft, are valuable in the Board’s oversight of our international operations. In addition, his knowledge of corporate governance and executive compensation best practices as a member of Kraft’s Management Committee, as a board member of Michael Foods and as a member of Barry Callebaut’s global executive committee, strengthens the Board’s decision making. | ||
Kay W. McCurdy Age: 66 Director Since: 2005 Independent Committee Memberships: Compensation Nominating/Governance (Chair) | Since 1975, Ms. McCurdy has practiced corporate and finance law at the law firm of Locke Lord LLP, where she has been Of Counsel since 2012 and was a partner from 1983 to 2012. She served on the firm’s Executive Committee from 2004 to 2006. During her career as a corporate and finance attorney, Ms. McCurdy represented numerous companies on a wide range of matters, including financing transactions, mergers and acquisitions, securities offerings, executive compensation and corporate governance. Ms. McCurdy served as a director of Trek Bicycle Corporation, a leading bicycle manufacturer, from 1998 to 2007. In recognition of her ongoing commitment to director education and boardroom excellence, the National Association of Corporate Directors (NACD) has named Ms. McCurdy a NACD Governance Fellow every year since 2010. She is also a director of the Chicago chapter of NACD. | |
Skills and Qualifications Ms. McCurdy’s experience advising companies regarding legal, public disclosure, corporate governance, mergers and acquisitions and executive compensation issues provide her with a depth and breadth of expertise that enhances our ability to navigate legal and strategic issues, and allows her to make valuable contributions to the |
Pension BenefitsBoard.
| Name | Plan Name | Number of Years of Credited Service (#) | Present Value of Accumulated Benefit ($) | |||||||
J. Patrick Gallagher, Jr. | Arthur J. Gallagher & Co. Employees’ Pension Plan | 25 | 555,290 | |||||||
Douglas K. Howell | Arthur J. Gallagher & Co. Employees’ Pension Plan | 1 | 16,476 | |||||||
James S. Gault | Arthur J. Gallagher & Co. Employees’ Pension Plan | 25 | 523,334 | |||||||
James W. Durkin, Jr. | Arthur J. Gallagher & Co. Employees’ Pension Plan | 25 | 605,544 | |||||||
Thomas J. Gallagher | Arthur J. Gallagher & Co. Employees’ Pension Plan | 25 | 328,016 | |||||||
We maintain the Arthur J. Gallagher & Co. Employees’ Pension Plan (the Pension Plan) which is qualified under the Internal Revenue Code and which historically covered substantially all domestic employees. In 2005, we amended the Pension Plan to freeze the accrual of future benefits for all domestic employees effective July 1, 2005. Benefits under the Pension Plan are based upon the employee’s highest average annual earnings for a five calendar-year period with us and are payable after retirement in the form of an annuity or a lump sum. The maximum amount of annual earnings that may be considered in calculating benefits under the Pension Plan is $210,000 (the maximum amount of annual earnings allowable by law in 2005, the last year that benefits accrued under the Pension Plan).
Benefits under the Pension Plan are calculated as an annuity equal to 1% of the participant’s highest annual average earnings multiplied by years of service, and commencing upon the participant’s retirement on or after age 65. The maximum benefit under the pension plan upon retirement would be $53,318 per year, payable at age 65 in accordance with IRS regulations. Participants also may elect to commence their pensions anytime on or after attaining age 55 if they retire prior to age 65, with an actuarial reduction to reflect the earlier commencement date, ranging from 54% at age 55 to no reduction at age 65. Except for Mr. Howell, all of our named executive officers are eligible to take this early retirement option. For additional information on the valuation assumptions with respect to pensions, refer to Note 11 to our consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2013.
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Nonqualified Deferred Compensation
| Name | Plan Name | Executive Contributions in Last Fiscal Year ($)(1) | Registrant Contributions in Last Fiscal Year ($)(2) | Aggregate Earnings in Last Fiscal Year ($)(3) | Aggregate Withdrawals/ Distributions in Last Fiscal Year ($) | Aggregate End | ||||||||||||||
J. Patrick Gallagher, Jr. | Age 62 Plan | — | 750,000 | 2,366,120 | — | 11,179,527 | ||||||||||||||
| Supplemental Plan | 162,500 | 99,750 | 1,132,810 | — | 7,540,538 | |||||||||||||||
Douglas K. Howell | Age 62 Plan | — | 400,000 | 878,223 | — | 4,492,259 | ||||||||||||||
| Supplemental Plan | 920,061 | 57,250 | 1,183,064 | — | 4,889,479 | |||||||||||||||
James S. Gault | Age 62 Plan | — | 400,000 | 1,478,408 | — | 6,960,169 | ||||||||||||||
| Supplemental Plan | 73,958 | 62,250 | 88,547 | — | 2,357,421 | |||||||||||||||
James W. Durkin, Jr. | Age 62 Plan | — | 350,000 | 1,217,609 | — | 6,154,977 | ||||||||||||||
| Supplemental Plan | 132,917 | 54,750 | 549,711 | — | 2,475,865 | |||||||||||||||
Thomas J. Gallagher | Age 62 Plan | — | 300,000 | 847,330 | — | 4,060,814 | ||||||||||||||
| Supplemental Plan | 50,000 | 50,000 | 46,529 | — | 686,554 | |||||||||||||||
| 2017 PROXY STATEMENT | 7 |
ITEM 1 – ELECTION OF DIRECTORS
Ralph J. Nicoletti Age: 59 Director Since: 2016 Independent Committee Memberships: Audit | Mr. Nicoletti has served as Executive Vice President and Chief Financial Officer of Newell Brands, Inc., a publicly traded consumer goods company, since June 2016. From April 2014 to May 2016, Mr. Nicoletti served as Executive Vice President and Chief Financial Officer of Tiffany & Co., the publicly traded jeweler. Prior to joining Tiffany, Mr. Nicoletti was Executive Vice President and Chief Financial Officer of Cigna Corporation, a publicly traded global health services and insurance company, from 2011 to 2013; and of Alberto Culver, Inc., a publicly traded manufacturer and distributor of beauty products, from 2007 to 2011. Prior to that, Mr. Nicoletti held a number of financial management positions at Kraft Foods, Inc., finishing his tenure there as Senior Vice President of Corporate Audit. | |
Skills and Qualifications The Board benefits from Mr. Nicoletti’s financial expertise in various industries and his experience managing privacy and cybersecurity issues. Mr. Nicoletti’s experience as a senior executive of global, multi-national businesses, such as Kraft, Alberto Culver, Cigna, Tiffany and Newell Brands, are | ||
Norman L. Rosenthal, Age: 65 Director Since: 2008 Independent Committee Memberships: Audit | Since 1996, Dr. Rosenthal has been President of Norman L. Rosenthal & Associates, Inc., a management consulting firm that specializes in the | |
Skills and Qualifications Dr. Rosenthal’s extensive experience in the insurance and finance industries is a valuable resource to | ||
8 | 2017 PROXY STATEMENT | |
All amounts in this table pertain to the Supplemental Plan or the Age 62 Plan. The material terms of the Age 62 Plan are provided above on pages 14-15. Under the Supplemental Plan, which allows certain highly compensated employees to defer amounts on a before-tax basis, employees who have compensation greater than an amount set annually by the IRS may elect to defer up to 90% of their salary and up to 100% of their annual cash incentive payment. We match any deferrals of salary and annual cash incentive payments on a dollar-for-dollar basis up to the lesser of (i) the amount deferred or (ii) 5% of the employee’s regular earnings minus the maximum contribution that we could have matched under the 401(k) Plan. All such cash deferrals and company match amounts may be deemed invested, at the employee’s election, in a number of investment options that include various mutual funds, an annuity product and a fund representing our common stock. Such employees may also defer restricted stock unit and PUP awards, but these deferrals are not subject to company matching. Amounts held in the Supplemental Plan accounts are payable as of the employee’s termination of employment, or such other time as the employee elects in advance of the deferral, subject to certain exceptions set forth in IRS regulations.
CORPORATE GOVERNANCE
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POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Change-in-Control Agreements
We provide our named executive officers with change-in-control agreements, which we believe are an important part of their overall compensation. In addition to helping secure their continued dedication to stockholder interests prior to or following a change in control, the Compensation Committee also believes these agreements are important for recruitment and retention, as all or nearly all of our competitors have similar agreements in place for their senior employees. In general, compensation levels under these agreements are separate and unrelated to named executive officers’ overall compensation decisions for a given year.
Double Trigger
Each named executive officer’s change-in-control agreement provides for payments if there is a “Termination” of the individual within 24 months after a “Change in Control” (commonly referred to in combination as a “double trigger”).
Payments upon Double Trigger
Under the change-in-control agreements, each named executive officer subject to Termination within 24 months after a Change in Control is entitled to receive:
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Other Termination and Change-in-Control Payments
The table below shows potential incremental payments, benefits and equity award accelerations upon termination of our named executive officers. The amounts are determined under existing agreements and plans for various termination scenarios. The amounts assume that the trigger events for all such payments occurred on December 31, 2013 and use the closing price of our common stock on that date of $46.93. The amounts in the table below (other than for the Supplemental Plan) do not include the amount of pension or deferred compensation our named executive officers would receive under each termination scenario because these amounts are reflected in the “Pension Benefits”and “Nonqualified Deferred Compensation” tables presented above.
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Executive Benefits and Payments | Voluntary Termination | Termination for Cause | Termination without Cause | Death or Disability | Change in Control | Termination without Cause or Resignation for Good Reason Following Change in Control | ||||||||||||||||||||
J. Patrick Gallagher, Jr. | Severance Pay | $ | — | $ | — | $ | 1,000,000 | $ | — | $ | — | $ | 4,700,000 | |||||||||||||
| Stock Options(1) | 4,519,905 | 3,987,317 | 4,519,905 | 5,893,442 | 5,893,442 | 5,893,442 | ||||||||||||||||||||
| Restricted Stock Units | — | — | — | 1,301,838 | 1,301,838 | 1,301,838 | ||||||||||||||||||||
| PUP Awards | — | — | — | — | 3,037,967 | 3,037,967 | ||||||||||||||||||||
| Age 62 Plan(2) | — | — | 11,179,527 | 11,179,527 | 11,179,527 | 11,179,527 | ||||||||||||||||||||
| Supplemental Plan(3) | 7,540,538 | 7,540,538 | 7,540,538 | 7,540,538 | 7,540,538 | 7,540,538 | ||||||||||||||||||||
| Benefit Plan Participation(4) | — | — | — | — | — | 174,590 | ||||||||||||||||||||
| Excise Tax Gross-Up | — | — | — | — | — | — | ||||||||||||||||||||
| Total | $ | 12,060,443 | $ | 11,527,855 | $ | 24,239,970 | $ | 25,915,345 | $ | 28,953,312 | $ | 33,827,902 | ||||||||||||||
Douglas K. Howell | Severance Pay | $ | — | $ | — | $ | 700,000 | $ | — | $ | — | $ | 2,800,000 | |||||||||||||
| Stock Options(1) | 2,291,221 | 2,291,221 | 2,291,221 | 3,378,317 | 3,378,317 | 3,378,317 | ||||||||||||||||||||
| Restricted Stock Units | — | — | — | 1,624,013 | 1,624,013 | 1,624,013 | ||||||||||||||||||||
| PUP Awards | — | — | — | — | 1,070,377 | 1,070,377 | ||||||||||||||||||||
| Age 62 Plan | — | — | 4,492,259 | 4,492,259 | 4,492,259 | 4,492,259 | ||||||||||||||||||||
| Supplemental Plan(3) | 4,889,479 | 4,889,479 | 4,889,479 | 4,889,479 | 4,889,479 | 4,889,479 | ||||||||||||||||||||
| Benefit Plan Participation(4) | — | — | — | — | — | 158,933 | ||||||||||||||||||||
| Excise Tax Gross-Up | — | — | — | — | 2,648,830 | 4,331,607 | ||||||||||||||||||||
| Total | $ | 7,180,700 | $ | 7,180,700 | $ | 12,372,959 | $ | 14,384,068 | $ | 18,103,275 | $ | 22,744,985 | ||||||||||||||
James S. Gault | Severance Pay | $ | — | $ | — | $ | 800,000 | $ | — | $ | — | $ | 3,200,000 | |||||||||||||
| Stock Options(1) | 1,876,094 | 1,677,049 | 1,876,094 | 2,406,153 | 2,406,153 | 2,406,153 | ||||||||||||||||||||
| Restricted Stock Units | — | — | — | 529,136 | 529,136 | 529,136 | ||||||||||||||||||||
| PUP Awards | — | — | — | — | 1,245,987 | 1,245,987 | ||||||||||||||||||||
| Age 62 Plan(2) | — | — | 6,960,169 | 6,960,169 | 6,960,169 | 6,960,169 | ||||||||||||||||||||
| Supplemental Plan(3) | 2,357,421 | 2,357,421 | 2,357,421 | 2,357,421 | 2,357,421 | 2,357,421 | ||||||||||||||||||||
| Benefit Plan Participation(4) | — | — | — | — | — | 156,861 | ||||||||||||||||||||
| Excise Tax Gross-Up | — | — | — | — | — | — | ||||||||||||||||||||
| Total | $ | 4,233,515 | $ | 4,034,470 | $ | 11,993,684 | $ | 12,252,879 | $ | 13,498,866 | $ | 16,855,727 | ||||||||||||||
James W. Durkin, Jr. | Severance Pay | $ | — | $ | — | $ | 725,000 | $ | — | $ | — | $ | 2,900,000 | |||||||||||||
| Stock Options(1) | 430,523 | 259,913 | 430,523 | 907,738 | 907,738 | 907,738 | ||||||||||||||||||||
| Restricted Stock Units | — | — | — | 478,217 | 478,217 | 478,217 | ||||||||||||||||||||
| PUP Awards | — | — | — | — | 1,121,440 | 1,121,440 | ||||||||||||||||||||
| Age 62 Plan(2) | 5,768,325 | 5,768,325 | 6,154,977 | 6,154,977 | 6,154,977 | 6,154,977 | ||||||||||||||||||||
| Supplemental Plan(3) | 2,475,865 | 2,475,865 | 2,475,865 | 2,475,865 | 2,475,865 | 2,475,865 | ||||||||||||||||||||
| Benefit Plan Participation(4) | — | — | — | — | — | 147,829 | ||||||||||||||||||||
| Excise Tax Gross-Up | — | — | — | — | — | — | ||||||||||||||||||||
| Total | $ | 8,674,713 | $ | 8,504,103 | $ | 9,786,365 | $ | 10,016,797 | $ | 11,138,237 | $ | 14,186,066 | ||||||||||||||
Thomas J. Gallagher | Severance Pay | $ | — | $ | — | $ | 700,000 | $ | — | $ | — | $ | 2,800,000 | |||||||||||||
| Stock Options(1) | 1,360,158 | 1,207,180 | 1,360,158 | 1,881,720 | 1,881,720 | 1,881,720 | ||||||||||||||||||||
| Restricted Stock Units | — | — | — | 496,519 | 496,519 | 496,519 | ||||||||||||||||||||
| PUP Awards | — | — | — | — | 838,993 | 838,993 | ||||||||||||||||||||
| Age 62 Plan | — | — | 4,060,814 | 4,060,814 | 4,060,814 | 4,060,814 | ||||||||||||||||||||
| Supplemental Plan(3) | 686,554 | 686,554 | 686,554 | 686,554 | 686,554 | 686,554 | ||||||||||||||||||||
| Benefit Plan Participation(4) | — | — | — | — | — | 134,170 | ||||||||||||||||||||
| Excise Tax Gross-Up | — | — | — | — | 1,896,411 | 3,592,264 | ||||||||||||||||||||
| Total | $ | 2,046,712 | $ | 1,893,734 | $ | 6,807,526 | $ | 7,125,607 | $ | 9,861,011 | $ | 14,491,034 | ||||||||||||||
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Set forth below is a description of the background of each member of our Board of Directors standing for election at the Annual Meeting, including public and investment company directorships each member held during the past five years and the experience, qualifications, attributes or skills that led the Board to conclude that each such individual should be elected to serve as one of our directors at the Annual Meeting. Our Chairman of the Board, J. Patrick Gallagher Jr., is the brother of Thomas J. Gallagher, who was appointed an executive officer by the Board in 2013.
SHERRY S. BARRAT
MEMBER OF THE BOARD SINCE 2013
Sherry S. Barrat, 64, currently serves on the Compensation Committee. Ms. Barrat retired in 2012 as Vice Chairman of Northern Trust Corporation, a global financial holding company headquartered in Chicago, Illinois. During her 22-year career at Northern Trust, she served in various leadership roles and was a member of the Northern Trust Management Committee. She was also Global President of Northern Trust’s personal financial services business, which provides asset management, fiduciary, estate and financial planning, and private banking services to individuals and families around the world. Since 1998, Ms. Barrat has served as a director of NextEra Energy, Inc., one of the largest publicly traded electric power companies in the United States, where she is currently chair of theCorporate Governance & Nominating Committee and a member of the Audit Committee. Since January 1, 2013, Ms. Barrat has also served as an independent trustee or director of certain Prudential Insurance mutual funds. Ms. Barrat’s extensive management, operational and financial experience, in particular her deep understanding of the financial services industry, greatly enhance the Board’s decision making.
WILLIAM L. BAX
MEMBER OF THE BOARD SINCE 2006
William L. Bax, 70, currently serves as Chair of the Audit Committee. Mr. Bax was Managing Partner of the Chicago office of PricewaterhouseCoopers (PwC), an international accounting, auditing and consulting firm, from 1997 to 2003, and a partner in the firm for 26 years. He currently serves as a director and audit committee chair of several affiliated mutual fund companies (Northern Funds and Northern Institutional Funds since 2005, and Northern Multi-Manager Funds since 2006). Mr. Bax previously served as a director of Sears Roebuck & Co., a publicly traded retail company, from 2003 to 2005, and Andrew Corporation, a publicly traded communications products company, from 2006 to 2007. During his 26 years as a partner and 6 years as head of PwC’s Chicago office, Mr. Bax gained extensive experience advising public companies regarding accounting and strategic issues. This experience, along with his tenure on the boards of public companies such as Sears and Andrew, strengthen the Board’s decision making. Mr. Bax’s long history advising public companies on accounting and disclosure issues enhances the Board’s ability to oversee our assessment and management of material risks. Additionally, Mr. Bax’s experience as a director of various mutual funds provides us with valuable insight into the perspectives and concerns of our institutional stockholders.
FRANK E. ENGLISH, JR.
MEMBER OF THE BOARD SINCE 2009
Frank E. English, Jr., 68, currently serves on the Audit Committee. Mr. English also serves on the board of directors and audit committee of Tower International, Inc., a publicly traded global automotive components manufacturer, of which he has been a board member or board advisor since August 2010. Since June 2012, Mr. English has also served on the board of directors and the finance and strategy committee, and since 2013 on the compensation and governance committees, of CBOE Holdings, Inc., a publicly traded holding company for various securities exchanges, including the largest U.S. options exchange. Since April 2011, Mr. English has been a Senior Advisor to W.W. Grainger, a publicly traded broad-based distributor of industrial maintenance, repair and operations supplies. From 1976 to 2009, Mr. English served in various senior roles at Morgan Stanley, most recently as Managing Director and Vice Chairman of Investment Banking. Following his retirement in 2009, Mr. English served as a Senior Advisor at Morgan Stanley & Co. until April 2011. The Board greatly benefits from Mr. English’s 33 years of investment banking expertise, particularly in the areas of capital planning, strategy development, financing and liquidity management.
J. PATRICK GALLAGHER, JR.
MEMBER OF THE BOARD SINCE 1986
J. Patrick Gallagher, Jr., 62, has served as Chairman of the Board since 2006. Mr. Gallagher has spent his entire career with Arthur J. Gallagher & Co. in a variety of management positions, starting as a Production Account Executive in 1974, then serving as Vice President–Operations from 1985 to 1990, as President and Chief Operating Officer from 1990 to 1995, and as President and CEO since 1995. In August 2011, Mr. Gallagher joined the board of directors of InnerWorkings, Inc., a publicly traded global provider of managed print, packaging and promotional solutions, and was appointed to its compensation and nominating/governance committees. He also serves on the Board of Trustees of the American Institute for Chartered Property Casualty Underwriters and on the Board of Founding Directors of the International Insurance Foundation. Mr. Gallagher’s 40 years of experience with our
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company and 28 years of service on the Board provide him with a deep knowledge of our company and the insurance and insurance brokerage industries, as well as a depth of leadership experience. This depth of knowledge and experience greatly enhances the Board’s decision making and enables Mr. Gallagher to serve as a highly effective Chairman of the Board.
ELBERT O. HAND
MEMBER OF THE BOARD SINCE 2002
Elbert O. Hand, 74, currently serves as Chair of the Compensation Committee and as a member of the Nominating/Governance Committee. Mr. Hand was Chairman of the Board of Hartmarx Corporation, an apparel marketing and manufacturing company, from 1992 to 2004, and served as a member of Hartmarx’s board from 1984 to 2010. He served as Chief Executive Officer of Hartmarx from 1992 to 2002 and as President and Chief Operating Officer from 1987 to 1992. From 1982 to 1989, Mr. Hand also served as President and Chief Executive Officer of Hartmarx’s Men’s Apparel Group. Mr. Hand was a director of Austin Reed Group PLC, a U.K.-based apparel company, from 1995 to 2002, and served as an advisor to the board for a number of years after 2002. From January 2010 to February 2011, Mr. Hand served as a member of the board and non-executive Chairman of Environmental Solutions Worldwide, Inc., a publicly traded manufacturer and marketer of environmental control technologies. He has also served as a member of Northwestern University’s Kellogg Advisory Board. The Board benefits from Mr. Hand’s business acumen gleaned from three decades of leadership roles in the apparel marketing and manufacturing industry, including significant experience in sales and marketing. Mr. Hand’s long association with U.K. apparel company Austin Reed is valuable to the Board as we continue to expand our U.K. and other international operations.
DAVID S. JOHNSON
MEMBER OF THE BOARD SINCE 2003
David S. Johnson, 57, currently serves as Chair of the Nominating/Governance Committee and as a member of the Compensation Committee. In 2009, Mr. Johnson was appointed President and Chief Executive Officer of the Americas for Barry Callebaut AG, the world’s largest manufacturer of cocoa and chocolate products. He is also a member of Barry Callebaut AG’s global executive committee. Mr. Johnson served as President and Chief Executive Officer, and as a member of the board, of Michael Foods, Inc., a food processor and distributor, from 2008 to 2009, and as Michael Foods’ President and Chief Operating Officer from 2007 to 2008. From 1986 to 2006, Mr. Johnson served in a variety of senior management roles at Kraft Foods Global, Inc., a global food and beverage company, most recently as President of Kraft Foods North America, and as a member of Kraft Foods’ Management Committee. Prior to that, he held senior positions in marketing, strategy, operations, procurement and general management at Kraft Foods. The Board benefits from Mr. Johnson’s business acumen gleaned from nearly three decades of leadership roles in the food and beverage industry. In particular, Mr. Johnson’s experience as an executive at global, multi-national businesses such as Barry Callebaut and Kraft is valuable to the Board as we continue to expand our international operations. Mr. Johnson’s knowledge of corporate governance and executive compensation best practices as a member of Kraft’s Management Committee, as a board member of Michael Foods and as a member of Barry Callebaut AG’s global executive committee, also enables him to make valuable contributions to the Board.
KAY W. MCCURDY
MEMBER OF THE BOARD SINCE 2005
Kay W. McCurdy, 63, currently serves on the Compensation and Nominating/Governance Committees. Ms. McCurdy is Of Counsel at the law firm of Locke Lord LLP, where she was a Partner from 1983 to 2012, and practiced corporate and finance law since 1975. She served on the firm’s Executive Committee from 2004 to 2006. During her nearly four decades as a corporate and finance attorney, Ms. McCurdy represented numerous companies on a wide range of matters including financing transactions, mergers and acquisitions, securities offerings, executive compensation and corporate governance. Ms. McCurdy served as a director of Trek Bicycle Corporation, a leading bicycle manufacturer, from 1998 to 2007. In recognition of her ongoing commitment to director education and boardroom excellence, the National Association of Corporate Directors (NACD) named Ms. McCurdy a 2013 NACD Governance Fellow. Ms. McCurdy’s experience advising companies regarding legal, public disclosure, corporate governance, mergers and acquisitions and executive compensation issues provide her with a depth and breadth of expertise that enhances our ability to navigate legal and strategic issues and allows her to make valuable contributions to the Board.
NORMAN L. ROSENTHAL, PH.D.
MEMBER OF THE BOARD SINCE 2008
Norman L. Rosenthal, Ph.D., 62, currently serves on the Audit Committee. Since 1996, he has been President of Norman L. Rosenthal & Associates, Inc., a management consulting firm that specializes in the property and casualty insurance industry. Prior to 1996, Dr. Rosenthal spent 15 years practicing in the property and casualty insurance industry at Morgan Stanley & Co., a global financial services firm, most recently as Managing Director. Dr. Rosenthal served on the boards of Aspen Insurance Holdings, Ltd., a publicly traded global property and casualty insurance and reinsurance company, from 2002 to 2009, Mutual Risk Management
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Ltd., a publicly traded off-shore provider of alternative commercial insurance and financial services, from 1997 to 2002, Vesta Insurance Group, Inc., a publicly traded group of insurance companies, from 1996 to 1999, and Alliant Insurance Group Inc., a private insurance brokerage and financial services company, from 2005 to 2007. He currently serves on the private company board of The Plymouth Rock Company, a group of auto and homeowners’ insurance companies. Dr. Rosenthal holds a Ph.D. in Business and Applied Economics, with an insurance focus, from the Wharton School of the University of Pennsylvania. Dr. Rosenthal’s extensive experience in the insurance and finance industries is a valuable resource to us and greatly enriches the Board’s decision making. In addition, Dr. Rosenthal’s academic expertise in applied economics, combined with his decades of experience as a management consultant and director in the insurance sector, greatly enhances the Board’s ability to oversee our assessment and management of material risks.
Legal Proceedings Involving Directors and Executive Officers
As of the date of this proxy statement, there is no material proceeding to which any of our directors or executive officers, or any associate of any such director or executive officer, is a party or has a material interest adverse to us or any of our subsidiaries. To our knowledge, none of our directors or executive officers has been subject to any of the events described in Item 401(f) of Regulation S-K, as promulgated by the SEC, during the past ten years.
CORPORATE GOVERNANCEHighlights
We are committed to sound and effective corporate governance. To that end, the Board of Directors has adopted Governance Guidelines that set forth principles to assist the Boardit in determining director independence and other important corporate governance matters. Over the yearspast year, we have taken steps to strengthen our corporate governance in various areas, including the following: all Board members other than
| Our independent directors appointed David Johnson as independent Lead Director for atwo-year term | |
| The Board enhanced the independent Lead Director’s duties and responsibilities (see page 10) | |
| We added new talent to our Board | |
We believe that effective corporate governance should include regular, constructive conversations with our Chairman are independent;stockholders. In 2016, we continued to engage with our directors are elected annually to a one-year term; we have majority voting for director elections; we do not have supermajority voting requirements instockholders, seeking and encouraging feedback about our certificate of incorporation; we do not have a poison pill; and we prohibit hedging and restrict pledging of company stock by directorscorporate governance and executive officers. The Board has also adopted Global Standardscompensation practices from stockholders representing approximately 50% of Business Conduct (the Global Standards) that apply to all directors, executive officers and employees. The Global Standards, along with our Governance Guidelines and the charters of the Audit, Compensation and Nominating/Governance Committees, are available at www.ajg.com/ir, under the heading “Corporate Governance.” We will provide a copy of the Global Standards or Governance Guidelines without charge to any person who requests a copy by writing to our Secretary at The Gallagher Centre, Two Pierce Place, Itasca, Illinois 60143-3141. We intend to satisfy the disclosure requirements of Item 5.05 of Form 8-K regarding any amendment to, or waiver from, the Global Standards by posting such information on our website.outstanding shares.
The Board currently has Audit, Compensation and Nominating/Governance Committees, all of the members of which are independent. The following table setstables below set forth the primary responsibilities, members of, and the number of meetings held by,in 2016 for each committee during 2013:committee.
| Director | Audit | Compensation | Nominating/Governance | |||||
Sherry S. Barrat | X | |||||||
William L. Bax | Chair | |||||||
Frank E. English, Jr. | X | |||||||
J. Patrick Gallagher, Jr. | ||||||||
Elbert O. Hand | Chair | X | ||||||
David S. Johnson | X | Chair | ||||||
Kay W. McCurdy | X | X | ||||||
Norman L. Rosenthal | X | |||||||
James R. Wimmer(1) | X | X | ||||||
Meetings Held in 2013 | 5 | 5 | 3 |
Audit Committee Met 6 times in 2016 Committee Members: William L. Bax (Chair) Frank E. English, Jr. Ralph J. Nicoletti Norman L. Rosenthal | The Audit Committee’s responsibilities include general oversight of the integrity of our financial statements; enterprise risk assessment and management; our compliance with legal and regulatory requirements; our independent registered public accounting firm’s qualifications and independence; and the performance of our internal audit function and independent registered public accounting firm. The Audit Committee manages our relationship with our independent registered public accounting firm and is |
Audit Committee. The Audit Committee is responsible for, among other things, general oversightappointment, retention, termination and compensation of the independent auditor.
Independence and Audit Committee Financial Experts
Each member of the Audit Committee meets the additional heightened independence and other requirements of the NYSE listing standards and SEC rules. In addition, the integrity of our financial statements, risk assessment and risk management, our compliance with legal and regulatory requirements, our independent registered public accounting firm’s qualifications and independence, and the performance of our internal audit function and independent registered public accounting firm. The Audit Committee manages our relationship with our independent registered public accounting firm and is responsible for the appointment, retention, termination and compensation of the independent auditor. Each member of the Audit Committee meets the additional heightened independence and other requirements of the NYSE listing standards and SEC rules. The Board has determined that each of Mr. Bax and Mr. Nicoletti qualifies as an “audit committee financial expert” under SEC rules.
Compensation Committee Met 4 times in 2016 Committee Members: Sherry S. Barrat D. John Coldman Elbert O. Hand (Chair) David S. Johnson Kay W. McCurdy | The Compensation Committee’s responsibilities include reviewing and approving compensation arrangements for our executive officers, including our CEO; administering our equity compensation and other benefit plans and reviewing our overall compensation structure to avoid incentives that promote excessive risk-taking by executive officers and other employees. The Compensation Committee may, and in 2016 did, engage a compensation consultant to assist it in carrying out its duties and responsibilities, and has the sole authority to retain and terminate any such compensation consultant, including sole authority to approve any such consultant’s fees and other retention terms. For more information regarding the role of the committee’s compensation consultant in setting compensation, see page 31. Independence Each member of the Compensation Committee meets the additional heightened independence and other requirements of the NYSE listing standards. |
| 2017 PROXY STATEMENT | 9 |
CORPORATE GOVERNANCE
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Compensation Committee. The Compensation Committee is responsible for, among other things, reviewing compensation arrangements for our executive officers, including our CEO, for administering our equity compensation and other benefit plans, and for reviewing our overall compensation structure to avoid incentives that promote excessive risk-taking by executive officers and other employees. The Compensation Committee is permitted to delegate its authority under its charter to subcommittees when it deems appropriate. The Compensation Committee may, and in 2013 did, engage a compensation consultant to assist it in carrying out its duties and responsibilities, and has the sole authority to retain and terminate any compensation consultant, including sole authority to approve any consultant’s fees and other retention terms. For more information regarding the roles of our CEO and compensation consultant in setting compensation, please see page 8.
Nominating/Governance Committee. The Nominating/Governance Committee is responsible for, among other things, identifying qualified Board and Board committee candidates, recommending changes to the Board’s size and composition, determining outside director compensation, recommending director independence standards and governance guidelines, and reviewing and approving related party transactions.
Director Qualifications. When identifying director candidates, in addition to evaluating the candidates’ independence under applicable SEC rules and NYSE listing standards, the Nominating/Governance Committee considers other factors as it deems appropriate, including the candidate’s judgment, skill, integrity, diversity, and business or other experience. Directors should have experience in positions with a high degree of responsibility, be leaders in the organizations with which they are affiliated, be selected based on contributions they can make to the Board and management and be free from relationships or conflicts of interest that could interfere with the director’s duties to us and our stockholders. The Nominating/Governance Committee may consider candidates suggested by stockholders, management or members of the Board and may hire consultants or search firms to help identify and evaluate potential nominees for director. For more information regarding how stockholders can submit director nominees for consideration by the Nominating/Governance Committee, please see page 3.
Board Diversity. The Nominating/Governance Committee seeks Board members from diverse professional backgrounds who combine a broad spectrum of experience and expertise with a reputation for integrity. The Nominating/Governance Committee implements this policy through discussions among committee members and assesses its effectiveness annually as part of the self-evaluation process of the Nominating/Governance Committee and the Board.
Nominating/ Governance Committee Met 3 times in 2016 Committee Members: Sherry S. Barrat Elbert O. Hand David S. Johnson Kay W. McCurdy (Chair) | The Nominating/Governance Committee’s responsibilities include identifying qualified Board and Board committee candidates; recommending changes to the Board’s size and composition; determining outside director compensation; recommending director independence standards and governance guidelines; reviewing and approving related person transactions (as defined under SEC rules) and reviewing legal and regulatory compliance risks relating to corporate governance. |
J. PatrickPat Gallagher Jr. currently serves as Chairman of the Board and CEO. With the exception of the Chairman, all Board members are independent and actively oversee the activities of the Chairman and other members of the senior management team. AtWe believe that our Board leadership structure allows us to take advantage of Pat Gallagher’s extensive experience and knowledge of our business, which enriches the Board’s decision making. Pat Gallagher’s role as Chairman and CEO also enhances communication and coordination between management and the Board on critical issues.
David Johnson was elected by the Board in 2016 to serve as our independent Lead Director for atwo-year term. Under our Governance Guidelines, the Lead Director may serve up to two consecutivetwo-year terms. The Board also expanded the duties and responsibilities of the independent Lead Director as set forth below.
Independent Lead Director Duties & Responsibilities |
Act as a liaison between the Chairman and the independent directors |
Be available for consultation and communication with stockholders as appropriate |
Call and preside over executive sessions of the independent directors without the Chairman or other members of management present |
Consult with the Chairman and approve Board meeting agendas and schedules |
Consult with the Chairman and approve information provided to the Board |
Consult with committee chairs with respect to agendas and information needs relating to committee meetings |
Work closely with and act as an advisor to the Chairman; be available to discuss with other directors concerns about the company or the Board and relay those concerns, where appropriate, to the Chairman or other members of the Board; and be familiar with corporate governance best practices |
Provide leadership to the Board if circumstances arise in which the role of the Chairman may be, or may be perceived to be, in conflict |
Perform such other duties and responsibilities as the Board may determine |
The independent directors meet regularly in executive sessions. Executive sessions are held at the beginning and at the end of each regularly scheduled meeting of the Board the independent directors select an independent Lead Director who serves until the end of the next regularly scheduled meeting of the Board. The responsibilities of the Lead Director include acting as a liaison between the Chairman and the independent directors, coordinating with the Chairman regarding information sent to the Board, coordinating with the Chairman regarding Board meeting agendas and schedules, and being available for consultation and communication with stockholders as appropriate. In addition, the Lead Director is authorized to call and preside over executive sessions of the independent directors without the Chairman or other members of management present. The independent directors also meet regularly in executive sessions. An executive session is held in conjunction with each regularly scheduled Board meeting, and othermeeting. Other executive sessions may be called by the Lead Director at his or her discretion or at the request of the Board. The committees of the Board also meet regularly in executive sessions without management. We believe that our Board leadership structure allows us to take advantage of Mr. Gallagher’s extensive experience and knowledge of our business, which enriches the Board’s decision making. Mr. Gallagher’s role as Chairman and CEO also enhances communication and coordination between management and the Board on critical issues.sessions.
10 | 2017 PROXY STATEMENT | |
CORPORATE GOVERNANCE
Board’s Role in Risk Oversight
TheOverview.The Board exercises its responsibilityis responsible for oversight and monitoring of management’s risk assessment andour enterprise risk management functions primarily throughprogram. In carrying out this responsibility, the Board has designated the Audit Committee. Committee with primary responsibility for overseeing enterprise risk management. The other committees of the Board also oversee the management of risks within their areas of responsibilities. The Nominating/Governance Committee reviews legal and regulatory compliance risks as they relate to corporate governance structure and processes and the Compensation Committee reviews risks related to compensation matters. The Board receives periodic reports from each committee and from management on our major risks and steps undertaken to monitor and mitigate such risks.
Audit Committee.The Audit Committee, fulfillsat each of its oversight roleregularly scheduled meetings, monitors management’s risk management function by discussing, among other things, guidelines and policies regarding risk assessment and risk management, our major financial risk exposures and steps taken by management to monitor and control such exposures. To fulfill itsOur Global Chief Compliance Officer, who chairs an enterprise risk oversightmanagement committee including key members of management, attends each Audit Committee meeting and monitoring roles,reports on significant risk and compliance issues. In addition, the Audit Committee oversees an internal audit department, the head of which reports directly to the Audit Committee (other than with respect to the department’sday-to-day operations). The internal audit department is independent from management and its responsibilities are defined by the Audit Committee. At least annually, the head of the internal audit department is required to confirm to the full Board the department’s organizational independence.Committee defines its responsibilities. Among other things, the purpose of the department is to bring a systematic and disciplined approach to evaluating and improving the effectiveness of our risk management, control and governance processes. The internal audit department evaluates the effectiveness of our risk management processes, performs consulting and advisory
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services for us related to risk management, and reports significant risk exposures, including fraud risks, to the Audit Committee. The Audit Committee periodically reports to the full Board a summary of its activities and any key findings that arise from its risk oversight and monitoring functions.
In addition, theCompensation Committee.The Compensation Committee reviews our overall compensation policies and practices to determine whether our program provides incentives for executive officers and other employees to take excessive risks. Based upon an analysis conducted by management and discussions between management and ourthe Compensation Committee, the Compensation Committee has determined that our overall compensation policies and practices do not present risks that are likely to have a material adverse effect on us or our business. In reaching this determination, our Compensation Committee and management noted the following: (i) no single business unit bears a disproportionate share of our overall risk profile; (ii) no single business unit is significantly more profitable than the other business units; (iii) our compensation practices are substantially consistent across all business units both in the amount and types of compensation awarded; and (iv) substantially all of our revenue-producing employees are sales professionals whose compensation is tied to the amount of revenue received by the company. In addition,company; and (v) our annual cash incentive program targets payouts for our CEO at 135% of base salary, and for other executive officers at 100% of base salary, and caps payouts at 150% of target. Wetarget (i.e., 225% of base salary for our CEO and 150% of base salary for the other executive officers). A significant portion of our senior executives’ compensation is deferred and invested in Gallagher stock through our DEPP and our senior executives own significant amounts of Gallagher stock. In addition, our equity plans
permit the use of a variety of equity compensation awards, including performance share units, stock options, and restricted stock units, with multi-year vesting and overlapping maturity. Based on the above, we believe that our compensation practices help ensure that no single year’s results and no single corporate action has a disproportionate effect on executive officers’ annual compensation, and encourage steady and consistent long-term performance by our executive officers. In addition, our equity plans permit the use of a variety of equity and equity-based compensation awards including stock options, restricted stock units, performance units and deferred cash and equity awards, with multi-year vesting and overlapping maturity. Together with our executive stock ownership guidelines and our conservative approach to annual cash incentives, the Compensation Committee believes this mix of incentives encourages executive officers to achieve both short-term operating and long-term strategic objectives, including the long-term performance of our stock.
IndependenceIndependence.. The Board has conducted its annual review of the independence of each director nominee under NYSE standards and the independence standards set forth in Appendix A of our Governance Guidelines (available on our website located at www.ajg.com/ir, under the heading “Corporate Governance”). Based upon its review, the Board has concluded in its business judgment that, with the exception of J. Patrick Gallagher, Jr., our Chairman and CEO, all of the director nominees are independent. Pat Gallagher is the brother of Tom Gallagher, one of our named executive officers.
Attendance. The Board expects each director to attend and participate in all Board and applicable committee meetings. Each director is expected to prepare for meetings in advance and to dedicate the time necessary to discharge properly his or her responsibilities at each meeting and to ensure other commitments do not materially interfere with his or her service on the Board. During 2013,2016, the Board met sevensix times. All of the nominees attended 75% or more of the aggregate meetings of the Board and the committees on which they served during 2013. We2016. All of our Board members attended our 2016 Annual Meeting, and we expect all Board members to attend our 2017 Annual Meeting. All of our Board members attended our Annual Meeting held on May 15, 2013.
Stockholder Communications with the Board. A stockholder or other party interested in communicating with the Board, any of its committees, the Chairman, the Lead Director, thenon-management directors as a group or any director individually may do so by writing to their attention at our principal executive offices, Arthur J. Gallagher & Co., c/o Corporate Secretary, 2850 Golf Road, Rolling Meadows, Illinois 60008-4002.
Global Standards of Business Conduct. The Gallagher Centre, Two Pierce Place, Itasca,Board has also adopted Global Standards of Business Conduct (the Global Standards) that apply to all directors, executive officers and employees. The Global Standards, along with our Governance Guidelines and the charters of the Audit, Compensation and Nominating/Governance Committees, are available at www. ajg.com/ir, under the heading “Corporate Governance.” We will provide a copy of the Global Standards or Governance Guidelines without charge to any person who requests a copy by writing to our Corporate Secretary at 2850 Golf Road, Rolling Meadows, Illinois 60143-3141. These communications are distributed60008-4002. We intend to satisfy the Board, Committee Chair, Chairman, Lead Director, non-management directors as a group,disclosure requirements of Item 5.05 of Form8-K regarding any amendment to, or individual director, as applicable.waiver from, the Global Standards by posting such information on our website.
| 2017 PROXY STATEMENT | 11 |
CORPORATE GOVERNANCE
DIRECTOR COMPENSATIONDirector Compensation
The Board sets the amount and form of director compensation based upon recommendations made by the Nominating/Governance Committee. Mr.Pat Gallagher receives no additional compensation for his service as a director. A substantial portion of eachnon-employee director’s total annual compensation consists of equity grants, in the form of restricted stock units and/or stock options.units. Under our stock ownership guidelines, directors with at least five years of service are expected to own an amount of our common stock with a value equal to fourfive times the cash portion of the annual director retainer. In 2013,2016, the annual cash retainer was $90,000. Any shares pledged as collateral for a loan are not considered when determining whether directors have met their stock ownership guidelines. As of March 17, 2014, the record date, none of our directors had outstanding pledges of Gallagher stock.
On May 15, 2013,June 1, 2016, eachnon-employee director (other than Ms. Barrat) was granted 2,950 restricted stock units, with respect to 2,500 shares of common stock, which vest on the first anniversary of the date of grant (or immediately upon a director’s departure from the Board). Ms. Barrat,Mr. Nicoletti, who joined our Board on July 25, 2013,in January 2016, was also granted 867 restricted stock units on August 2, 2013 with respect to 1,875 shares of commonMarch 1, 2016 (representing a prorated stock award for the 2015/2016 service period), subject to the same vesting conditions. Committee Chairs receive additional annual fees as follows: $15,000$25,000 for the Audit Committee, $10,000$20,000 for the Compensation Committee and $7,500$15,000 for the Nominating/Governance Committee. The Lead Director receives an additional annual fee of $30,000. Directors are reimbursed for travel and accommodation expenses incurred in connection with attending Board and committee meetings.
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Directors may elect to defer all or a portion of their annual cash retainer or restricted stock units under our Deferral Plan for Nonemployee Directors (Director Deferral Plan).Directors. Deferred cash retainers and restricted stock units are converted to notional stock units, which are credited with dividend equivalents when dividends are paid on our common stock. Deferred restricted stock units are distributed in the form of common stock, and deferred cash retainers and accrued dividend equivalents are distributed in cash, at a date specified by each director or upon such director’s departure from the Board.
Non-Employee Director Compensation Table
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(2) | Option Awards ($)(3) | All Other Compensation ($)(4) | Total ($) | Fees Earned or Paid in Cash ($) | Stock Awards ($) (1) | Option Awards ($) (2) | All Other Compensation ($) | Total ($) | ||||||||||||||||||||||||||||
Sherry S. Barrat | 45,000 | 84,675 | — | 656 | 130,331 | 90,000 | 139,211 | — | — | 229,211 | ||||||||||||||||||||||||||||
William L. Bax | 105,000 | 113,950 | — | 3,500 | 222,450 | 113,750 | 139,211 | — | — | 252,961 | ||||||||||||||||||||||||||||
D. John Coldman | 90,000 | 139,211 | — | — | 229,211 | |||||||||||||||||||||||||||||||||
Frank E. English, Jr. | 90,000 | 113,950 | — | 3,500 | 207,450 | 90,000 | 139,211 | — | — | 229,211 | ||||||||||||||||||||||||||||
Elbert O. Hand | 100,000 | 113,950 | — | 3,500 | 217,450 | 108,750 | 139,211 | — | — | 247,961 | ||||||||||||||||||||||||||||
David S. Johnson | 97,500 | 113,950 | — | 3,500 | 214,950 | 115,000 | 139,211 | — | — | 254,211 | ||||||||||||||||||||||||||||
Kay W. McCurdy | 90,000 | 113,950 | — | 3,500 | 207,450 | 101,250 | 139,211 | — | — | 240,461 | ||||||||||||||||||||||||||||
Norman L Rosenthal | 90,000 | 113,950 | — | 3,500 | 207,450 | |||||||||||||||||||||||||||||||||
James R. Wimmer | 90,000 | 113,950 | 3,500 | 207,450 | ||||||||||||||||||||||||||||||||||
Total | 707,500 | 882,325 | — | 25,156 | 1,614,981 | |||||||||||||||||||||||||||||||||
Ralph J. Nicoletti | 90,000 | 174,419 | — | — | 264,419 | |||||||||||||||||||||||||||||||||
Norman L. Rosenthal | 90,000 | 139,211 | — | — | 229,211 | |||||||||||||||||||||||||||||||||
| (1) |
| This column represents the full grant date fair value of restricted stock |
| The directors did not receive stock option awards in |
12 | 2017 PROXY STATEMENT | |
CORPORATE GOVERNANCE
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONSCertain Relationships and Related Party Transactions
How We Review and Approve Related party transactions approval policyParty Transactions
We have adopted written policiesreview all relationships and procedures for the review and approval or ratification of any “related party transaction,” defined as any transaction, arrangement or relationshiptransactions in which we are a participant,the company and our directors and executive officers or their immediate family members participate if the amount involved exceeds $120,000$120,000. The purpose of this review is to determine whether such related parties have a material interest in the transaction, including a material indirect interest. The company’s legal staff is primarily responsible for making these determinations based on the facts and one of our executive officers, directors, director nominees, 5% stockholders (or their immediate family members)circumstances, and for developing and implementing processes and controls for obtaining and evaluating information about related party transactions. As required by SEC rules, we disclose in this Proxy Statement all such transactions that are determined to be directly or any entity with which any of the foregoing persons is an employee, general partner, principal or 5% stockholder, each of whom is referredindirectly material to as a “related person,” has a direct or indirect interest as set forth in Item 404 of Regulation S-K, as promulgated by the SEC. The policy provides that management must present torelated party. In addition, the Nominating/Governance Committee eachreviews and approves, ratifies or disapproves any such related party transaction. In the course of reviewing and determining whether or not to approve or ratify a disclosable related party transaction, for the Committee’s review and approval (other than related party transactions involving director and executive officer compensation matters, certain ordinary course transactions, transactions involving competitive bids or rates fixed by law, and transactions involving services as a bank depository, transfer agent or similar services). The Committee must reviewcommittee considers the relevant facts and circumstances of the transaction, including if the transaction is on terms comparable to those that could be obtained in arms’-length dealings with an unrelated third party and the extentfollowing factors:
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Related party transactionsParty Transactions for 2016
Since the beginning of fiscal 2013, we have engaged inIn 2016, the following related party transactionsrelatives of Pat Gallagher were employed with immediate family members of some of our executive officers, in each case on terms commensurate with that of other employees with equivalent qualifications and responsibilities and holding similar positions:
Thomas J.Tom Gallagher, one of our named executive officers, is a brother of our CEO. Because of histheir status as aour named executive officer, hisofficers, their compensation arrangements with the companyus are disclosed elsewhere in this proxy statement and do not require disclosure under this section.the “2016 Summary Compensation Table” below.
| 2017 PROXY STATEMENT | 13 |
CORPORATE GOVERNANCE
SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENTSecurity Ownership by Certain Beneficial Owners and Management
The table below presents information concerning beneficial ownership of our common stock as of March 17, 2014 by: (i) each person we know to be the beneficial owner of more than 5% of our outstanding shares of common stock;stock (as of December 31, 2016); (ii) each of our named executive officers, directors and director nominees;nominees (as of March 20, 2017); and (iii) all of our executive officers and directors as a group.group (as of March 20, 2017). The percentage calculations in this table are based on a total of 134,814,493179,475,539 shares of our common stock outstanding as of the close of business on March 17, 2014.20, 2017. Unless otherwise indicated below, to our knowledge, the individuals and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned by them, subject to community property laws where applicable. In addition, unless otherwise indicated, the address for all persons named below is c/o Arthur J Gallagher & Co., The Gallagher Centre, Two Pierce Place, Itasca,2850 Golf Road, Rolling Meadows, Illinois 60143.60008-4002.
| Common Stock Issuable Within 60 Days | |||||||||||||||||||||||||
| Name | Shares of Common Stock(1) | Stock Options(2) | Restricted Stock Units(3) | Total Beneficial Ownership | Percent of Common Stock Outstanding | ||||||||||||||||||||
5% Stockholders | |||||||||||||||||||||||||
BlackRock, Inc.(4) 40 East 52nd Street New York, NY 10022 | 10,736,413 | N/A | N/A | 10,736,413 | 8.0 | % | |||||||||||||||||||
Capital Group International, Inc.(5) 11100 Santa Monica Blvd., 15th Floor Los Angeles, CA 90025 | 7,676,221 | N/A | N/A | 7,676,221 | 5.7 | % | |||||||||||||||||||
The Vanguard Group(6) 100 Vanguard Blvd. Malvern, PA 19355 | 7,305,441 | N/A | N/A | 7,305,441 | 5.4 | % | |||||||||||||||||||
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| Common Stock Issuable Within 60 Days of March 20, 2017 | |||||||||||||||||||||||||||||||||||||||||||||
| Common Stock Issuable Within 60 Days | |||||||||||||||||||||||||||||||||||||||||||||
| Name | Shares of Common Stock(1) | Stock Options(2) | Restricted Stock Units(3) | Total Beneficial Ownership | Percent of Common Stock Outstanding | Shares of Common Stock (1) | Stock Options | Restricted Stock Units (2) | Total Beneficial Ownership | Percent of Common Stock Outstanding | |||||||||||||||||||||||||||||||||||
5% Stockholders | |||||||||||||||||||||||||||||||||||||||||||||
The Vanguard Group (3) 100 Vanguard Blvd. Malvern, PA 19355 | 17,002,774 | N/A | N/A | 17,002,774 | 9.5 | % | |||||||||||||||||||||||||||||||||||||||
BlackRock, Inc. (4) 55 East 52nd Street New York, NY 10022 | 14,488,986 | N/A | N/A | 14,488,986 | 8.1 | % | |||||||||||||||||||||||||||||||||||||||
JPMorgan Chase & Co. (5) 270 Park Ave. New York, NY 10017 | 13,609,878 | N/A | N/A | 13,609,878 | 7.6 | % | |||||||||||||||||||||||||||||||||||||||
NEOs, directors and nominees | |||||||||||||||||||||||||||||||||||||||||||||
J. Patrick Gallagher, Jr. | 810,753 | (7) | 234,736 | — | 1,045,489 | * | |||||||||||||||||||||||||||||||||||||||
Douglas K. Howell | 124,604 | (8) | 138,084 | — | 262,688 | * | |||||||||||||||||||||||||||||||||||||||
James S. Gault | 226,930 | (9) | 67,825 | — | 294,755 | * | |||||||||||||||||||||||||||||||||||||||
James W. Durkin, Jr. | 430,468 | (10) | 27,110 | — | 457,578 | * | |||||||||||||||||||||||||||||||||||||||
Thomas J. Gallagher | 302,906 | (11) | 54,990 | — | 357,896 | * | |||||||||||||||||||||||||||||||||||||||
Pat Gallagher | 829,502(6 | ) | 125,330 | — | 954,832 | * | |||||||||||||||||||||||||||||||||||||||
Doug Howell | 168,764(7 | ) | 93,563 | — | 262,327 | * | |||||||||||||||||||||||||||||||||||||||
Jim Gault | 178,345(8 | ) | 37,134 | — | 215,479 | * | |||||||||||||||||||||||||||||||||||||||
Jim Durkin | 311,751(9 | ) | 45,205 | — | 356,956 | * | |||||||||||||||||||||||||||||||||||||||
Tom Gallagher | 408,919(10 | ) | 50,135 | — | 459,054 | * | |||||||||||||||||||||||||||||||||||||||
Sherry S. Barrat | — | — | 1,875 | 1,875 | * | 9,096 | — | 2,950 | 12,046 | * | |||||||||||||||||||||||||||||||||||
William L. Bax | 30,470 | — | 2,500 | 32,970 | * | 34,320 | — | 2,950 | 37,270 | * | |||||||||||||||||||||||||||||||||||
D. John Coldman | 2,782 | — | 2,950 | 5,732 | * | ||||||||||||||||||||||||||||||||||||||||
Frank E. English, Jr. | 18,245 | — | 2,500 | 20,745 | * | 10,150 | — | 2,950 | 13,100 | * | |||||||||||||||||||||||||||||||||||
Elbert O. Hand | 29,966 | — | 2,500 | 32,466 | * | 29,316 | — | 2,950 | 32,266 | * | |||||||||||||||||||||||||||||||||||
David S. Johnson | 25,166 | 43,750 | 2,500 | 71,416 | * | 45,878 | — | 2,950 | 48,828 | * | |||||||||||||||||||||||||||||||||||
Kay W. McCurdy | 23,245 | 33,249 | 2,500 | 58,994 | * | 31,095 | — | 2,950 | 34,045 | * | |||||||||||||||||||||||||||||||||||
Ralph J. Nicoletti | 867 | — | 2,950 | 3,817 | * | ||||||||||||||||||||||||||||||||||||||||
Norman L. Rosenthal | 16,825 | (12) | 18,750 | 2,500 | 38,075 | * | 24,675(11 | ) | — | 2,950 | 27,625 | * | |||||||||||||||||||||||||||||||||
James R. Wimmer | 30,160 | (13) | 25,000 | 2,500 | 57,660 | * | |||||||||||||||||||||||||||||||||||||||
All directors and executive officers as a group (18 people) | 2,269,050 | 777,978 | 19,375 | 3,066,403 | 2.3 | % | |||||||||||||||||||||||||||||||||||||||
All directors and executive officers as a group (20 people) | 2,282,849 | 502,910 | 26,550 | 2,812,309 | 1.6 | % | |||||||||||||||||||||||||||||||||||||||
| * | Less than 1% |
| (1) | Includes “notional stock units” held under our Supplemental Plan (see page |
14 | 2017 PROXY STATEMENT | |
CORPORATE GOVERNANCE
| Allnon-employee director unvested restricted stock units vest immediately upon a director’s departure from the Board, and are included because a director could depart the Board at his or her discretion and acquire rights to the underlying stock within 60 days. |
| (3) | Share total obtained from a Schedule 13G/A filed on February 9, 2017 by The Vanguard Group. Vanguard disclosed that it had sole voting power with respect to 279,097 of these shares, shared voting power with respect to 27,591 shares, sole investment power with respect to 16,693,251 shares, and shared investment power with respect to 309,523 shares. |
| (4) | Share total obtained from a Schedule |
| (5) | Share total obtained from a Schedule |
| Includes |
| Includes |
| Includes |
| Includes 8,889 notional stock units (see footnote (1) above) |
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| Includes |
| Includes 2,500 shares held in a joint brokerage account with Caryl G. Rosenthal and 2,000 shares held in a joint brokerage account with Marisa F. Rosenthal. Dr. Rosenthal has shared voting and investment power with respect to these shares. |
Section 16(a) Beneficial Ownership Reporting Compliance
Our executive officers, directors and 10% stockholders are required under the Exchange Act to file reports of ownership and changes in ownership with the SEC and the NYSE. Copies of these reports must also be furnished to us. Based on a review of copies of Forms 3, 4 and 5 furnished to us or filed with the SEC, or written representations that no additional reports were required, we believe that, during the last fiscal year, our executive officers, directors and 10% stockholders timely filed all reports required by Section 16(a) of the Exchange Act.
EQUITY COMPENSATION PLAN INFORMATION
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
| E19367-P87844 | KEEP THIS PORTION FOR YOUR RECORDS | |
| DETACH AND RETURN THIS PORTION ONLY |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
ARTHUR J. GALLAGHER & CO.
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| The Board of Directors recommends you vote FOR the following: | ||||||||||||||||||||||||
| 1. |
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1a. | Sherry S. Barrat | ☐ | ☐ | ☐ | ||||||||||||||||||||
1b. | William L. Bax | ☐ | ☐ | ☐ | The Board of Directors recommends you vote FOR proposals 2, 3 and 4. | For | Against | Abstain | ||||||||||||||||
1c. | D. John Coldman | ☐ | ☐ | ☐ | 2. | Approval of the 2017 Long-Term Incentive Plan including Authorized Shares thereunder and Material Terms of Performance Goals. | ☐ | ☐ | ☐ | |||||||||||||||
1d. | Frank E. English, Jr. | ☐ | ☐ | ☐ | ||||||||||||||||||||
1e. | J. Patrick Gallagher, Jr. | ☐ | ☐ | ☐ | 3. | Ratification of the Appointment of Ernst & Young LLP as our Independent Auditor for 2017. | ☐ | ☐ | ☐ | |||||||||||||||
1f. | Elbert O. Hand | ☐ | ☐ | ☐ | ||||||||||||||||||||
1g. | David S. Johnson | ☐ | ☐ | ☐ | 4. | Approval, on an Advisory Basis, of the Compensation of our Named Executive Officers. | ☐ | ☐ | ☐ | |||||||||||||||
1h. | Kay W. McCurdy | ☐ | ☐ | ☐ | The Board of Directors recommends you vote for 1 YEAR on the following proposal. | 1 Year | 2 Years | 3 Years | Abstain | |||||||||||||||
1i. | Ralph J. Nicoletti | ☐ | ☐ | ☐ | 5. | Advisory Vote on the Frequency of Future Stockholder Votes to Approve the Compensation of our Named Executive Officers. | ☐ | ☐ | ☐ | ☐ | ||||||||||||||
1j. | Norman L. Rosenthal | ☐ | ☐ | ☐ | ||||||||||||||||||||
| Yes | No | |||||||||||||||||||||||
Please indicate if you plan to attend this meeting. | ☐ | ☐ | ||||||||||||||||||||||
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. | ||||||||||||||||||||||||||
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice &
| Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint Owners) | Date |
V.1.1
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The 2017 Notice and Proxy Statement and 2016 Annual Report are available at www.proxyvote.com.
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M71518-P46595
E19368-P87844
ARTHUR J. GALLAGHER & CO.
Annual Meeting of Stockholders
May 13, 201416, 2017 9:00 AM CDT
This proxy is solicited by the Board of Directors
The undersigned hereby appoints J. Patrick Gallagher, Jr. and Walter D. Bay, each of whom is an officer of Arthur J. Gallagher & Co., or either of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of common stockCommon Stock of ARTHUR J. GALLAGHER & CO. that the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held at 9:00 AM, CDT on May 13, 2014,16, 2017, at The Gallagher Centre, Two Pierce Place, Itasca,2850 Golf Road, Rolling Meadows, IL 60143,60008, and any adjournment or postponement thereof. In their discretion, the proxies are authorized to vote upon such other business as may properly come before theAnnual Meeting of Stockholders or any adjournment thereof (including, if applicable, on any matter which the Board of Directors did not know would be presented at the Annual Meeting of Stockholders.Stockholders by a reasonable time before the proxy solicitation was made or for the election of a person to the Board of Directors if any nominee named in Proposal 1 becomes unable to serve or for good cause will not serve).
This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors’ recommendations.
Continued and to be signed on reverse side
V.1.1
