UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
the Securities Exchange Act of 1934
(Amendment (Amendment No. )
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KELLY SERVICES, INC.Kelly Services, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than The Registrant)
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2017 PROXY STATEMENT
Notice of 2017 Annual Meeting of
Stockholders and Proxy Statement
MAY 10, 2017
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April 10, 20179, 2018
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of Kelly Services, Inc., which will be held at 11:00 a.m., Eastern Daylight Time, on Wednesday, May 10, 2017,9, 2018, in the Auditorium located on the first floor of our headquarters building at 999 West Big Beaver Road, Troy, Michigan 48084-4716.
Matters scheduled for considerationAs explained in the enclosed Proxy Statement, at this Meeting areyear’s meeting you will be asked to vote on the election of Directors, a non-binding advisory votesvote on executive compensation, the amendment and frequency of future voting on executive compensation, approvalrestatement of the Company’s Certificate of Incorporation, an amendment to the Company’s amended and restated equity incentive plan,Bylaws, and the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2017.2018.
Whether you plan to attend or not, please date, sign and return the proxy card in the accompanying envelope. envelope, or vote by telephone or via the Internet as soon as possible so that your shares can be voted at the meeting in accordance with your instructions.Your vote is important to us. If you do attendus. You may, of course, withdraw your proxy and change your vote prior to or at the Annual Meeting and desire to voteby following the steps described in person, you may do so even though you have previously submitted your proxy.the Proxy Statement.
We appreciate the strong support of our stockholders over the years and look forward to seeing you at the Meeting.meeting.
Sincerely, |
TERENCE E. ADDERLEY
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Chairman of the Board |
GEORGE S. C |
President and Chief Executive Officer |
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held May 9, 2018. The following materials, also included with the Notice of Annual Meeting of Stockholders, are available for view on the Internet:
Proxy Statement for the Annual Meeting of Stockholders Annual Report to Stockholders, including Form 10-K, for the year ended December 31, 2017 To view the Proxy Statement or Annual Report visit: www.envisionreports.com/kelyb. |
Please refer to the enclosed Proxy Card and Proxy Statement for information on voting options:
Internet – Scan QR Code – Telephone – Mail
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KELLY SERVICES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of
Kelly Services, Inc.:
Notice is hereby given that the Annual Meeting of StockholdersWe are pleased to invite you to join our Board, senior leadership and other associates of Kelly Services, Inc., a Delaware corporation (the “Company”), willfor the Annual Meeting of Stockholders, to be held at the offices of the Company, 999 West Big Beaver Road, Troy, Michigan 48084-4716, on Wednesday, May 10, 20179, 2018 at 11:00 a.m., Eastern Daylight Time, forTime. The purposes of the following purposes:Annual Meeting are:
1. | To elect Directors as set forth in the accompanying Proxy Statement; |
2. | To approve, by advisory vote, the Company’s executive compensation; |
3. | To |
4. | To approve an amendment to the |
5. | To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the |
6. | To transact any other business as may properly come before the Meeting or any postponement or adjournment thereof. |
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTEFOR EACH DIRECTOR NOMINEE AS SET FORTH IN PROPOSAL 1,FOR THE APPROVAL OF THE COMPANY’S EXECUTIVE COMPENSATION AS SET FORTH IN PROPOSAL 2,FOR THE APPROVAL OF ANNUAL (ONCE EVERY YEAR) VOTING ON EXECUTIVE COMPENSATIONTHE AMENDMENT AND RESTATEMENT OF THE COMPANY’S CERTIFICATE OF INCORPORATION AS SET FORTH IN PROPOSAL 3,FOR THE APPROVAL OF AN AMENDMENT TO THE COMPANY’S AMENDED AND RESTATED EQUITY INCENTIVE PLANBYLAWS AS SET FORTH IN PROPOSAL 4, ANDFOR RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AS SET FORTH IN PROPOSAL 5.
Only holders of record of the Company’s Class B common stock at the close of business on the Record Date, March 20, 201719, 2018, are entitled to notice of and to vote at the Meeting.
To ensure a quorum, it is important thatPlease vote your proxy be mailed promptly inshares by Internet, telephone, or by mail using the enclosed envelope, which requires no postage. We encourage you to vote promptly.
April | By Order of the Board of Directors | |||
999 West Big Beaver Road | JAMES M. POLEHNA | |||
Troy, Michigan 48084-4716 |
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Proxy Summary
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We provide below highlights of certain information in this Proxy Statement. As it is only a summary, please refer to the complete Proxy Statement and Kelly’s 20162017 Annual Report before you vote.
2018 ANNUAL MEETING OF STOCKHOLDERS
Kelly continues to be a key metric to measure our drive for profitable growth. Our 2016 conversion rate was 7.0%, or 7.4% excluding restructuring expenses, compared to 7.2% in 2015.
Cash from operating activities and free cash flow generation increased year over year and we endedfocus on accelerating the year with no outstanding debt.
Kelly remains focused on executingexecution of our strategy with increased speed and precision, making the necessary investments and adjustments to advance that strategy. We have set our sights on becoming an even more focused,competitive, consultative and profitable company, and we are reshaping our business to make that vision a reality. We will continue to rebalancemeasure our resources to align with our goals for growth, intentionally focusing more of our workforce in roles that drive increasedprogress against both revenue and gross profit for the Company. We will primarily measure our progress against gross profit growth, as well as earnings and an improved conversion rate. The goals we have established are based on the current economic and business environment, and may change as conditions warrant.
Key Executive Compensation Program Highlights for Fiscal 20162017
We continue to evaluate our executive compensation program and make changes to further align it with our strategic priorities and to reward both short and long-term business success. We believe we have designed a program that aligns with stockholder interests, incentivizes growth and operational excellence, and demonstrates a clear linkage between compensation and performance. The program continues to seek to minimize incentives for management to take excessive risks. The Committee worked with management and its independent compensation consultant, as described later in this document, to review current compensation programs, including the incentive plans, and made the decisions described below in 2016.2017.
Reflecting the Company’s commitment to driving a high-performance culture our executive compensation program emphasizes at-risk incentive awards that can be earned over one and three-year periods. As our business evolves and we strive for performance that is better than the prior year, the design of our incentive plans has changed to ensure continued alignment to our business strategy for driving long-term stockholder value. The executive compensation program, particularly the annual and long-term incentive plans, are designed to directly support the Company’s strategic transformation to a more efficient, profitable, growth-focused, and performance-driven organization. Incentive payouts earned for performance cycles ending in 2017 are commensurate with the earnings, gross profit, expense management and total stockholder return results that were achieved. Annual incentive awards for corporate performance were earned at approximately target, commensurate with our performance on earnings, gross profit and expense goals. Long-term incentive
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Compensation Discussion and Analysis
awards for the performance share periods ending in 2017 were earned at 115% of target for gross profit results and 200% of target for our total shareholder return relative to the market. The 2018 incentive designs, which are briefly summarized below and will be discussed in further detail in next year’s proxy filing, are similar to the 2017 incentive designs discussed below, with the requirement for performance set meaningfully above 2017 actual results to earn the target award.
The Board has adopted two plans that provide the framework for all incentive compensation opportunities for our Executive Officers.
The Short Term Incentive Plan (“STIP”) provides for annual cash-based incentive opportunities that are based upon the achievement of one or more performance measures, as selectedestablished by the Committee.
The Equity Incentive Plan (“EIP”) provides the Committee the ability to grant long-term incentive (“LTI”) opportunities, in various award types, that focus on the longer termlong-term performance of the Company and align the interests of Executive Officers with those of shareholders. During 2016,stockholders. The Committee amended the Committee began discussions around amending the EIP and at their meeting on February 15, 2017 approvedapproving the following key changes subject to receiving shareholder approvalthe EIP, which was approved by stockholders at the Company’s annual meeting on May 10, 2017:2017 Annual Meeting:
Add a definition of change-in-control (“CIC”) and provide for the treatment of long-term incentives upon a “double trigger”: a CIC and qualifying termination of employment.
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20162017 STIP Design and Results
Approved multiple, balanced performance measures for the corporate component of the 2016 STIP and2017 STIP. 2017 target goals that supported our business strategy andfor each measure were set at budgeted numbers, which were substantially higher than 20152016 actual results:
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As in prior years, Executive Officers who are responsible for providing direct leadership to a business unit have 70%at least 50% of their STIP award opportunity based on the achievement of specific business unit measures and 30%the remainder of their award based on the Corporatecorporate component.
Based upon 20162017 results that did not reach threshold levels for the three performance measures of the corporate component of the STIP, and in support of our pay for performance philosophy, the Committee determined there would be noapproved payouts made on the 20162017 STIP corporate component.
2016-2018 LTI2017-2019LTI Design
Maintained LTI grant mix for Executive Officers that heavily emphasizesat-risk performance-based pay opportunities through the following equity vehicles:
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NOTE: The “Earnings Before Taxes plus Joint Venture (“JV”) Income” measure includes a “bottom-line” earnings measure to capture Joint Venture earnings and in support of our business strategy.
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Accepted management’s request to reduceapproximately the same value as the 2016 LTI grants, which were reduced in value (at date of Committee approval) from the prior year the2015 LTI grant to Senior Officers in support of the Company’s investment strategy and efforts to reduce costs.
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Compensation Discussion and Analysis
20162017 Base Salary DecisionsSalaryDecisions
With the exceptionMessrs. Corona and Quigley, and Ms. Carroll received base salary increases as a result of their promotions effective May 10, 2017. In addition, as a result of Mr. Thirot’s promotional increase that wasmove from Swiss payroll and benefits to U.S. payroll and benefits effective January 1, 2016, no other2017, a portion of his Swiss allowances were added to his U.S. salary. Senior Officers, including the Named Executive Officer received aOfficers, did not receive regular base salary increaseincreases in 2016.2017 as part of the total compensation review process. This was in light of management’s and the Board’s views that corporate financial results for 2016 were not at desired levels and management’s decision to move the timing of the Company’s annual total compensation review process for all employees, including the Executive Officers, from October to March, with 2016 being the year of transition to the new timing. Further explanation can be found in the “Base Salary” section of this proxy statement.
During the total compensation review process for Executive Officers in December 2016, and similar to 2015, the Committee accepted management’s recommendation that there again be no regular base salary increases for Executive Officers in 2017. This decision reflected a continued conservative approach that both management and the Committee believed was in support of the Company’s investment strategy and is the third year that our Executive Officers have foregone base salary increases, other than promotions or special adjustments.
The Committee believes these actions support the strategic direction of the Company and help position it for long-term success in achieving its goals. All of theseThese compensation decisions and actions are discussed in more detail below.
Executive Compensation Philosophy, Objectives, and Design
Our executive compensation philosophy is to provide market-based pay opportunities with incentive payouts aligned with the achievement of the Company’s overall short and long-term business strategies. The design of our executive compensation programs allocates total compensation to fixed and variable pay elements resulting in a mix of short-term and long-term pay elements. The Committee continually evaluates our executive compensation programs to ensure that the Company provides market-competitive opportunities that enable us to attract and retain highly qualified individuals to lead the organization and drive business success.success in the competitive and ever-changing business environment in which we operate. Our executive compensation programs are designed to achieve the following objectives:
Align a significant portion of compensation with the achievement of multiple performance goals that motivate and reward executives based on Company, business unit, and individual performance results;
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Attract and retain world-class talent with the leadership abilities and experience necessary to develop and execute business strategies, achieve outstanding results, and build long-term shareholderstockholder value;
Support the achievement of the Company’s vision and strategy;
Create an ownership mindset that closely aligns the interests of management with those of shareholders;stockholders; and
Provide an appropriate balance between the achievement of both short- and long-term performance objectives, with clear emphasis on managing the sustainability of the business and mitigation of risk.
The Committee believes that a majority of an Executive Officer’s compensation should be “at risk” and based upon the achievement of corporate and business unit results, as well as individual performance. As a result, Executive Officers participate in incentive programs that provide them with the opportunity to earn awards that are directly tied to the Company’s performance and that drive sustainable long-term shareholderstockholder value. The Company’s compensation programs provide an incentive for Executive Officers to meet and exceed performance goals. Executives are held accountable for results and rewarded with above target payout amounts for performance that exceeds target goals. When target goals are not met, award payouts are designed to deliver below target payouts or no payouts. We believe the combination of our annual short-term incentive awards and long-term equity incentive awards align the interests of our Executive Officers with the interests of our stockholders.
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Compensation Discussion and Analysis
CEO and Other Named Executive Officers Pay Mix
While we believe that a majority of an Executive Officer’s target compensation opportunity should be performance-based, we do not have a specified formula that defines the overall weighting of each element. We believe that the higher a role is positioned within the organizational structure, the greater the emphasis on performance-based compensation should be. As such, the CEO has a greater percentage of his compensation that is performance-based through higher target opportunities for STIP and LTI, as compared to the compensation of the other Named Executive Officers. At risk compensation consists of annual cash incentive awards and long-term equity awards (restricted shares and performance shares) that are contingent upon the achievement of pre-established performance goals. The following charts illustrate the 2016 target pay2017 Target Total Direct Compensation mix offor our President and CEO and the other Named Executive Officers combined and includes the pay elements of base salary, STIP (at target), restricted shares and performance shares:shares (at target):
The percentage of target total direct compensation (sum of salary, target STIP, and LTI award opportunities) that is performance-based and “at risk” for our CEO in 2016 is 65.9% (for STIP and Performance Shares). The percentage of target total direct compensation that is performance-based and “at risk” for our other Named Executive Officers on average in 2016 is 56.7%. Beginning in 2015, the Company’s historically conservative approach to granting equity to Executive Officers was modified to ensure that a significant portion of compensation for our CEO and other Executive Officers is performance-based “pay at risk”. This change in design directly supports the Company’s strategic transformation to a more efficient, profitable, growth-focused, and performance-driven organization.
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FY 2017 CEO |
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Compensation Mix | Compensation Mix | |
Elements of Compensation for Named Executive Officers
The following table lists the elements of compensation that we provide to our Executive Officers and the objectives for each:
Compensation Discussion and Analysis
Elements of Compensation for Named Executive Officers
The Committee determines the elements of total direct compensation that we provide to our Executive Officers. The elements of our fiscal 2017 executive compensation program and the objectives for each, are as follows:
COMPENSATION | TYPE | FORM | CONSIDERATIONS | OBJECTIVES | ||||
Base Salary | Fixed Compensation | |||||||
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Short Term Incentive Plan (STIP) | VariableAt-RiskPerformance-Based Compensation | |||||||
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Long Term Incentives (LTI) | Variable At-Risk Performance-Based Compensation | Stock- Settled |
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Compensation Discussion and Analysis
20172018 Executive Incentive Plans – Overview of Changes
For the 20172018 incentive plan designs, the Company continues to focus onpay-for-performance alignment by using multiple financial measures and Relative TSR to strongly drive our key business objectives and shareholderstockholder value. In support of this strategy, the Committee has approved the following:
A combination of gross profit and earnings from operations measures, as well as relativeRelative TSR, for the 2017-20192018-2020 incentive plan performance measures;
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The additionContinuation of a performance hurdle tofor the 20172018 grant of RSUs for Executive Officers that must be achieved before shares become earned. Dividends on these shares will only be paid upon achievement of the performance hurdle and time vesting requirements; and
Several key changes toVoluntarily maintain many of the EIP, subject to shareholder approval in May 2017,practices previously required for performance-based compensation under the former requirements of Section 162(m) of the Internal Revenue Code (the “Code”) as noted in the Executive Summary.
Details regarding the 20172018 incentive plan designs will be presented in our 20182019 proxy filing.
Process for Determining Executive Compensation
Role of the Compensation Committee
The Committee designs and administers the Company’s executive compensation programs and policies, and regularly reviews these programs and policies relative to its objectives, applicable new legal and regulatory practices, evolving best practices, and corporate governance trends. The Committee and members of the Board of Directors determine the compensation of the CEO. The CEO’s total compensation is comprised of base salary, STIP, and LTI award opportunities, and is the same design as the other Named Executive Officers. The CEO does not participate in recommendations or discussions related to his own compensation. As part of its responsibility for executive compensation, the Committee annually reviews and determines the compensation of each of our Senior Officers, including the Named Executive Officers listed in the Summary Compensation Table of this Proxy Statement, based on each individual’s performance including consideration of ethical behavior, relevant market comparisons, and the recommendations of the CEO. The Committee is responsible for reviewing and fully understandingreviews the costs and short- and long-term benefits of the compensation arrangements it considers and approves for Senior Officers.
The Committee and members of the Board of Directors determine the compensation of the CEO. The CEO’s total compensation is comprised of salary, STIP, and LTI award opportunities, and is the same design as the other Named Executive Officers. The CEO does not participate in recommendations or discussions related to his own compensation.
All of the Committee responsibilities are defined in its charter, which can be found on the Company’s website atkellyservices.com. kellyservices.com.
Role of the Independent Compensation Consultant
Since October 2014, the Committee has engaged Pay Governance LLC as its independent compensation consultant (the “Consultant”). The Committee considers analysis and guidance from the Consultant when making compensation decisions on plan design; the merits of various incentive plan performance measures; Executive Officer pay levels, including that of the CEO, relative to peer group and other market data; composition of peer group companies; stock ownership requirements; and other pay practices. In addition, the Consultant updates the Committee on market trends and best practices in executive compensation and, as requested, provides data and guidance on other items such asnon-employee director Director compensation. The Committee uses its own independent judgment to make all final decisions related to the compensation of the Company’s Executive Officers.
TheDuring 2017, the Consultant attendsregularly attended Committee meetings and regularly communicatescommunicated with the Executive Chairman and Chairman of the Board, the Committee Chairmen,Chairman, and the Committee Vice Committee ChairmenChairman outside of Committee meetings. On occasion, asAs directed by the Compensation Committee, the Consultant will also meetmet with the SVPCorporate Secretary and Chief Human ResourceInvestor Relations, Executive Compensation and Communications Officer (“CHRO”Corporate Secretary”) and members of the compensation, finance,Executive Compensation, Finance, and corporate governanceCorporate Governance teams of the Company. The Consultant reportsmaintains a direct reporting relationship to the Committee on all compensation matters.
AnThe Committee conducts an annual assessment of the Consultant’s independence, using factors established by Nasdaq Global Market and approved by the SEC is conducted to ensure independence has been maintained.Market. The Consultant provided no services to the Company in 20162017 other than services to the Compensation Committee. The Committee reviewed and affirmed the independence of the Consultant as the Compensation Consultant to the Committee and concluded the work performed by the Consultant did not raise a conflict of interest.
The Committee consults with the CEO and Corporate Secretary to obtain feedback with respect to the strategic direction of our executive compensation programs.
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Compensation Discussion and Analysis
The CEO and Executive Vice President (“EVP”) and Chief Operating Officer (“COO”) makemakes recommendations for each of their direct reports who arethe Executive Officers with regard to elements of their total compensation. They base theseHe bases his recommendations on theirthe assessment of each Executive Officer’s performance, as well as, the performance of their respective business or function. The Committee takes into consideration the recommendations of the CEO and COO when determining the compensation of the other Executive Officers.
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In addition, the CFO provides periodic financial updates and information to the Committee, to aid in establishing incentive plan goals and determining payout amounts.
The Committee understands the significance of its responsibilities and considers a substantial amount of information and input from both internal and external resources as a reference in support of its decision making. The Committee uses third-party survey data for comparably sized general industry companies and available data from a select group of peer companies, in determining the competitive positioning of our compensation programs, and the individual compensation of each of our Named Executive Officers.
Each Executive Officer’s performance is reviewed (see Executive Officer Performance Reviews and Succession Planning below) and compensation decisions are made on an annual basis (or as an Executive Officer’s duties and responsibilities change). Base salaries, target STIP, and target long-term incentive opportunities are benchmarked against a group of comparable executive positions in general industry companies of similar revenue size as reflected in multiple third-party surveys. The Committee generally strivesWe seek to setestablish target total direct compensation opportunities (defined as base salary, target STIP, and target long-term incentive opportunities)incentive) for itsour Named Executive Officers at levels, on average, that approximateare within a competitive range of the median of the competitive market data, while considering variousdata. Compensation ultimately earned from these opportunities can vary from the’ median based on the company, business unit and individual performance. Various other factors.factors are taken into consideration and in certain circumstances, we may target pay above or below the competitive median. Individual target total direct compensation may be above or below the median depending on Company performance, cost considerations, the role’s scope of responsibilities, individual experience and performance, and any succession, retention or internal equity considerations. Prior to 2015, the Company had taken a conservative approach to target long-term incentive opportunities for Senior Officers that were generally well below market median. The 2015 LTI design brought target total direct compensation opportunities, on average, closer to market median levels for our Senior Officers. In support of the Company’s investment strategy and also being mindful of our efforts to reduce cost,costs in connection with its investment strategy, management voluntarily requested and the Committee agreed, that the 2016 and 2017 LTI levels for Senior Officers would be reduced from the prior year2015 levels, as explained further in the Long-Term Incentive section of this proxy statement,Proxy Statement.
In 2016,2017, a competitive executive compensation analysis was performed which included both an analysis of third-party survey data prepared internally by the Company’s Human ResourcesExecutive Compensation group, and a peer group review of CEO pay prepared by the Consultant. Third-party general industry survey data from Aon Hewitt, Equilar, Mercer, and Towers Watson was used to prepare the survey analysis. Specific companies that participated in the third-party surveys were unknown and not a factor in the Committee’s deliberations. The survey analysis was reviewed by the Consultant for the Committee.
The Company considers the officer pay practices of a comparator peer group prepared by the Consultant, which was selected using the following criteria: industry, annual revenues, and non-staffing companies considered by shareholder advisory groups as peers,peers. The majority are multi-national/global companies headquartered in U.S., multi-national/global companies, and market capitalization. The resulting group of fifteen comparator companies includes direct peers supplemented by other people-intensive businesses with similar margins. This group of companies includes nine companies used by Institutional Shareholder Services (“ISS”) in their 20162017 report, which means 60% of companies in our peer group are shared with ISS. OurThe Company’s 2016 revenue of $5.28 billion was on par with the median peer group also includes one additional company that was used by ISS in their 2014 reportrevenue of $5.25 billion for the Company.same period. The following comparator group of fifteen companies was unchanged from last year and used by the Committee as another reference point when reviewing 20162017 officer pay practices and CEO pay levels:
2017 Peer Group
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(1) United Stationers Inc. changed their name to Essendant effective June 1, 2015.
The Committee considers peer group and general industry survey data as a point of reference, not the sole factor in determining executive officers’ compensation. The third-party survey data and peer group analysis represent “Market Data” when referenced throughout this Compensation Discussion and Analysis. In addition to Market Data and for use as background information, the Human Resources group provides the Committee with comprehensive tally sheets for each Executive Officer, covering up to four years of historical total compensation data and long term incentive grant detail that includes grant date fair value as well as the intrinsic value of outstanding shares. The Committee considers all of the resources provided as part of a holistic process that also includes officer performance and the recommendations of the Company’s CEO and COO regarding total compensation for those executives reporting directly to each of them.Senior Officers.
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Compensation Discussion and Analysis
In addition to Market Data and for use as background information, the Executive Compensation group provides the Committee with comprehensive tally sheets for each Executive Officer, summarizing up to four years of historical target and actual total compensation data and long-term incentive grant detail that includes grant date fair value as well as the intrinsic value of outstanding shares. The Committee reviews tally sheets for all of the Executive Officers and believes they are a useful reference tool when considering whether compensation decisions reflect the Company’s executive compensation philosophy and performance. Tally sheets are not a determining factor for the Committee when making compensation decisions.
Executive Officer Performance Reviews and Succession Planning
Annually, the Committee conducts a comprehensive Executive Officer performance review that includes identification of succession planning and identification of officer developmentdevelopmental opportunities. Detailed executive performance review information for each of the Senior Officers, including the Named Executive Officers, is prepared by the CHRO.Chief Human Resources Officer (“CHRO”). The performance review information for each of the Executive Officers includes key annual initiatives, performance results, strengths, and development opportunities. The CEO reviews the performance of the other Executive Officers who report to him and presents their individual performance assessments, development plans, and succession strategies to the Committee. Similarly, the COO presents to the Committee the individual performance assessments for his direct reports. During the individual performance assessments, the Committee asks questions, renders advice, and makes recommendations on matters that include individual development needs, succession planning, and retention. The Company’s Executive Chairman and Chairman of the Board and the Committee Chair present the performance review for the CEO to the other Committee members. None of the Executive Officers are present when their performance is being discussed by the Committee. Each Executive’s individual performance assessment is used by the Committee, together with the compensation analysis discussed in the previous section and the recommendations of the CEO, and COO, to determine compensation for the Executive Officers.
The Company’s succession plan is updated annually in connection with the performance assessments and is approved by the Board. The plan documentation includes all executives at the SVPSenior Officer level, and above, as well as their potential successors from within the Company in case of an unexpected disability or departure of a Senior Officer. Documentation includes detailed executive performance review information as discussed above, readiness assessments, and at least one potential successor for each role. Any changes to the plan during the year also require the approval of the Board. The CHRO is leading the implementation of a new succession planning approach and process for 2018, details of which will be disclosed in the Company’s 2019 Proxy Statement.
Compensation Programs: Decisions and Actions in 20162017
George S. Corona - Promotion
Following notification by Mr. Camden in April 2017 of his intent to retire as an Executive Officer and Director of the Company effective with the annual meeting in May, the Company’s Board of Directors, at a meeting held on April 13, 2017, appointed Mr. Corona to the role of President and Chief Executive Officer, effective May 10, 2017. As a result of this promotion, Mr. Corona received an increase to his base salary, and prorated STIP target and LTI opportunity for 2017, pursuant to the terms of the STIP and EIP as they pertain to Named Executive Officers. These changes were in recognition of his appointment and took into account market competitive compensation opportunities for the role as summarized below:
Teresa S. Carroll and Peter W. Quigley - Promotions
On May 10, 2017, and upon the recommendation of the Committee, the Company’s Board of Directors elected Teresa Carroll to the role of Executive Vice President and President, Global Talent Solutions and General Manager, Sales, Marketing and Human Resources, and Peter Quigley to the role of Executive Vice President and President, Global Staffing
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Compensation Discussion and Analysis
and General Manager, Global Information Technology, Global Business Services and Global Services. As a result of their promotions, Ms. Carroll and Mr. Quigley each received base salary increases, and prorated STIP targets and LTI opportunities for 2017 pursuant to the terms of the STIP and EIP as they pertain to Named Executive Officers. These changes were in recognition of their appointments and to more closely reflect market competitive compensation opportunities for their new roles as summarized below:
Base salaries for the Named Executive Officers are intended to be competitive with Market Data to ensure that the Company can attract and retain the executives necessary to successfully lead and manage the organization. Base salaries generally fall within a range (+/- 15%) around the median of salaries in the Market Data, as individual base salaries will vary based upon the factors described below. Based on Market Data available in December 2016, we determined that the base salaries of our Named Executive Officers were within this competitive range of the 20162017 market medians for comparable roles. Base salary is only one component of target total direct compensation and may be affected by other components to ensure that target total direct compensation meets compensation objectives.
The Committee reviews the base salaries of Executive Officers, including the Named Executive Officers, on an annual basis (or as an Executive Officer’s duties and responsibilities change). Base salaries are determined by the Committee for each of the Executive Officers based on various factors, including the scope and responsibilities of the role, an individual’s experience and performance in the role, their current level of pay compared to Market Data, internal pay equity, the recommendationrecommendations of the CEO, and COO, and consideration of the Company’s salary adjustment budget.
Olivier G. Thirot – Promotion
On December 2, 2015, the Committee appointed Mr. Thirot to Senior Vice President and Chief Financial Officer, effective January 1, 2016. As a result of this promotion, Mr. Thirot received an increase to his base salary, STIP target and LTI opportunity for 2016. He received a salary increase of 5.1%, resulting in a new base salary of $515,000. His STIP target was increased from 65% to 75% of base salary and his LTI target opportunity was increased in recognition of his appointment and to more closely reflect market competitive compensation opportunities for the role.
Mr. Thirot moved from Swiss payroll and benefits to U.S. payroll and benefits effective January 1, 2017. With this in mind and following a review of Mr. Thirot’s total compensation and benefits situation, the Committee approved a special increase to his base salary effective January 1, 2017, which represented the partial offset of several allowances he had previously received as a Swiss employee. At the same time, the Committee approved an increase in LTI grant value for Mr. Thirot, beginning with his 2017 grant, in order for his target total direct compensation opportunity to move closer to market competitive levels. Mr. Thirot did not benefit from these changes during 2016 and as such, details are not reported here, but will be included in the Compensation Discussion and Analysis of our 2018 Proxy disclosure.
39
Management elected to move the timing of the Company’s annual total compensation review process for all employees, including the Executive Officers, from October 2016 to March 2017 in order to coincide with the timing of any potential incentive award payouts. The timing alignment of compensation elements was intended to reinforce the Company’s pay for performance philosophy and provide each employee with their “total compensation” overview. With 2016 being a year of transition for the timing change, a total compensation review was not conducted and no associated salary increases were provided. In December 2016, the Committee conducted its annual review of base salaries of the Senior Officers, including Named Executive Officers, and considered the recommendation of management that the Senior Officers not receive regular base salary increases in March 2017. The Committee supported this recommendation and did not provide the Senior Officers with salary increases during the annual total compensation review process in early 2017. This decision reflected a conservative approach that both management and the Committee believed was in support of the Company’s investment strategy.
In consideration of the factors noted above, the following base salaries for the Named Executive Officers were approved by the Committee in 2016:2017:
Named Executive Officer |
2015 Base | 2016 Base Salary | Adjustment % | 2016 Base Salary | 2017 Base Salary | Adjustment % | ||||||||||||||||
Carl T. Camden | $ | 1,000,000 | $ | 1,000,000 | 0.0% | |||||||||||||||||
George S. Corona | $ | 655,000 | $ | 655,000 | 0.0% | $ | 655,000 | $ | 1,000,000 | 52.7 | % | |||||||||||
Olivier G. Thirot | $ | 490,192 | $ | 515,000 | 5.1% | $ | 515,000 | $ | 533,500 | 3.6 | % | |||||||||||
Teresa S. Carroll | $ | 500,000 | $ | 500,000 | 0.0% | $ | 500,000 | $ | 575,000 | 15.0 | % | |||||||||||
Peter W. Quigley | $ | 500,000 | $ | 500,000 | 0.0% | $ | 500,000 | $ | 575,000 | 15.0 | % | |||||||||||
Steven S. Armstrong | $ | 332,000 | $ | 332,000 | 0.0 | % |
Notes:
Effective January 1, 2017 Mr. Thirot’s compensation has been convertedThirot moved from Swiss Francs (CHF)payroll and benefits to U.S. Dollars (USD) usingpayroll and benefits. The allowances he had been receiving in Switzerland were discontinued at that time and a portion of the Company’s budgeted currency exchange rate of 1.0369 in effect for 2016.
The Committee believes that the Named Executive Officers should have a meaningful percentage of their total compensation earned through annual “at risk” performance-based incentives. The percentage of target total compensation at risk under the terms of the STIP increases significantly as the individual executive’s responsibilities and influence on overall corporate performance results increase. The STIP is designed to encourage executives to meet and exceed the Company’s short-term goals that align with overall corporate strategy and improve shareholderstockholder value.
40 |
Compensation Discussion and Analysis
The STIP target opportunity is established as a percentage of each individual’s actual base salary earnings and is targeted near the median Market Data, but may vary based upon individual factors, internal equity and other considerations. STIP payments for all participants are capped at 200% of the target incentive award opportunity. In December 2016, the Committee reviewed the target incentive opportunity for each of the Named Executive Officers and found that all were appropriately positioned relative to the Market Data.
The following table shows the 20152016 and 20162017 STIP target opportunities, as a percent of base salary, for our Named Executive Officers:
2016 STIP | 2017 STIP | |||||||||||
Named Executive Officer | 2015 STIP Target % | 2016 STIP Target % | Target % | Target % | ||||||||
Carl T. Camden | 130% | 130% | ||||||||||
George S. Corona | 90% | 90% | 90 | % | 130 | % | ||||||
Olivier G. Thirot | 65% | 75% | 75 | % | 75 | % | ||||||
Teresa S. Carroll | 70% | 70% | 70 | % | 85 | % | ||||||
Peter W. Quigley | 70% | 70% | 70 | % | 85 | % | ||||||
Steven S. Armstrong | 60 | % | 60 | % |
Note:
Mr. Thirot’sMessrs. Corona and Quigley and Ms. Carroll’s incentive target wastargets were increased effective January 1, 2016 due to his appointment to CFO.
40
In the months leading up to year end, the Committee reviews and determines the objectives, performance measures, and other terms and conditions of the STIP for the following plan year. For 2016,2017, similar to the prior year’s incentive plan redesign, the Committee approved the use of multiple performance measures to comprise the corporate component of the STIP. The Committee selected multiple financial measures in the STIP that aligned to the business objectives and value creation, provided balance, ensured a strongpay-performance linkage, and improved line of sight for Senior Officers, including the Named Executive Officers. Measures selected for 2017 STIP were: earnings
Payout for threshold performance under the corporate component of STIP is 50%25% of an Executive Officer’s target payout, with zero payout earned for performance below threshold. An intermediate performance level that is halfway between threshold and target performance levels was added in 2017. Achievement of intermediate level of performance results in payouts that are 75% of target. Achievement of target performance results in target payouts for the Executive Officers. Each additional performance incrementPerformance above target earns prorated incentive payouts above target and up to the maximum of 200% of target. The 2016As in prior years, the 2017 STIP design includes a ‘gatekeeper’ goal which must be achieved in order to earn a payout under any measure. The gatekeeper goal is earnings from operations with a required level of achievement of at least 60% of target.
Performance measures used for purposes of STIP are the same as defined in the Company’s GAAP financial statements, excluding special items such as: changes in accounting principles, gains or losses on acquisitions or divestitures, changes in budget due to acquisitions or divestitures, restructuring expenses, and other unusual items, which are defined as such and quantified in the financial statements and/or footnotes to the Company’s Annual Report on Form10-K. Adjustments would apply only to unbudgeted items. For the business unittotal gross profit measure, constant currency (using the Company’s 20162017 budgeted currency exchange rate) was used to determine values in establishing achievement of the incentive plan goals for 2016.2017.
In February 2016,2017, the Committee determined and approved threshold, intermediate, target, and maximum performance goal levels for the 20162017 STIP. The threshold goals were set at stretch levels for which the Committee believed it was appropriate to start earning incentives; intermediate goals were set halfway between threshold and target amounts; target goals were set at the budgeted levels, which the Committee considered were “challenging but achievable”; maximum goals were set at significant stretch levels for which the Committee believed the earning of two times target payouts was warranted. For the Corporate measures, straight line interpolation occurs for achievement of performance between threshold and intermediate, intermediate and target, and between target and maximum. For the business unit measures, there is no straight line interpolation between payout levels of the payout schedule. The goals at threshold, target, intermediate and maximum for the 20162017 STIP, as well as resulting performance for each measure of the corporate component were as follows:
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Compensation Discussion and Analysis
2017 Performance Goals | Weighted | |||||||||||||||||||||||||||
Corporate Component Performance Measures | Weighting | Threshold | Intermediate | Target | Maximum | 2017 Actual Results | 2017 Payout (% of Target) | |||||||||||||||||||||
Earnings from Operations | 50.0 | % | $ | 68.800 | $ | 77.400 | $ | 86.000 | $ | 111.800 | $ | 85.529 | 49.32 | % | ||||||||||||||
Return on Gross Profit | 25.0 | % | 7.100 | % | 8.107 | % | 9.114 | % | 10.614 | % | 8.994 | % | 24.25 | % | ||||||||||||||
Total Gross Profit | 25.0 | % | $ | 876.000 | $ | 909.800 | $ | 943.600 | $ | 1,037.960 | $ | 948.945 | 26.42 | % | ||||||||||||||
100 | % | 99.98 | % |
$ in millions
2016 Performance Goals(1) | Weighted | |||||||||||
Corporate Component Performance Measures | Weighting | Threshold | Target | Maximum | 2016 Actual Results | 2016 Payout (% of Target) | ||||||
Earnings from Operations | 50.0% | $79.232 | $88.035 | $132.053 | $66.655 | 0.0% | ||||||
Return on Gross Profit | 25.0% | 8.975% | 9.325% | 11.075% | 7.356% | 0.0% | ||||||
Gross Profit - Global OCG + Global Professional & Technical (PT) | 25.0% | $391.136 | $411.722 | $514.653 | $382.712 | 0.0% | ||||||
100% | 0.0% |
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Messrs. Camden, Corona Quigley, and Thirot’s STIP opportunity wasopportunities were based 100% upon the performance measures of the corporate component, as shown above.
Ms. Carroll’s STIP opportunity was based 30% on the corporate component measures and 70% on the business unit measures for which she is accountable.accountable for the first four months of the year prior to her promotion in May 2017. At that time, the Committee determined to increase the weighting of the corporate measure to 50% to better reflect her new responsibilities for several functional areas of the organization: Sales, Marketing and Human Resources. Her STIP business unit measures were changed to be weighted 50%. Payout results for the business unit measures for Ms. Carroll were positively impacted positively by increased gross profit ratesrevenue and Gross Profit growth in the Recruitment ProcessContingent Workforce Outsourcing (“RPO”CWO”), KellyConnect and Business Process Outsourcing (“BPO”), and Contingent Workforce Outsourcing (“CWO”) businesses, and were negatively impacted by shifting customer demands in the centrally delivered staffing and payroll business, as well as increased SG&A expense as a result of costs related to additional sales resources and alsoexpenses due to bad debt expense. the costs associated with the headcount added for new and expanding programs. The measure, “Contribution” that appears below for Ms. Carroll and Messrs. Quigley and Armstrong is defined as income from operations.
Performance results for each of Ms. Carroll’s business unit measures are as follows:
Teresa Carroll: In effect January 1, 2017 - April 30, 2017
2017 Performance Goals | ||||||||||||||||||||||||
Corporate Component and Business Unit Performance Measures | Weighting | Threshold | Target | Maximum | 2017 Actual Results | Weighted 2017 Payout (% of Target) | ||||||||||||||||||
Corporate Component Performance Measures | 30.0 | % | see details above | 29.99 | % | |||||||||||||||||||
Americas SAO Gross Profit | 17.5 | % | $ | 144.419 | $ | 160.465 | $ | 200.581 | $ | 163.702 | 17.50 | % | ||||||||||||
Global OCG Gross Profit | 17.5 | % | $ | 197.628 | $ | 219.587 | $ | 263.504 | $ | 210.055 | 13.13 | % | ||||||||||||
Global Talent Solutions (GTS) Contribution | 35.0 | % | $ | 58.463 | $ | 73.079 | $ | 109.619 | $ | 79.910 | 38.50 | % | ||||||||||||
100 | % | 99.12 | % |
$ in millions
2016 Performance Goals | Weighted | |||||||||||
Corporate Component and Business Unit Performance Measures | Weighting | Threshold | Target | Maximum | 2016 Actual Results | 2016 Payout (% of Target) | ||||||
Corporate Component Performance Measures | 30.0% | see details above | 0.0% | |||||||||
Americas SAO + Global OCG Gross Profit $ | 35.0% | $326.335 | $362.595 | $453.244 | $346.209 | 17.5% | ||||||
Americas SAO + Global OCG Contribution | 35.0% | $53.600 | $66.999 | $100.499 | $58.786 | 12.25% | ||||||
100% | 29.75% |
Teresa Carroll: In effect May 1, 2017 - December 31, 2017
2017 Performance Goals | ||||||||||||||||||||||||
Corporate Component and Business Unit Performance Measures | Weighting | Threshold | Target | Maximum | 2017 Actual Results | Weighted 2017 Payout (% of Target) | ||||||||||||||||||
Corporate Component Performance Measures | 50.0 | % | see details above | 49.99 | % | |||||||||||||||||||
Americas SAO Gross Profit | 12.5 | % | $ | 144.419 | $ | 160.465 | $ | 200.581 | $ | 163.702 | 12.50 | % | ||||||||||||
Global OCG Gross Profit | 12.5 | % | $ | 197.628 | $ | 219.587 | $ | 263.504 | $ | 210.055 | 9.38 | % | ||||||||||||
Global Talent Solutions (GTS) Contribution | 25.0 | % | $ | 58.463 | $ | 73.079 | $ | 109.619 | $ | 79.910 | 27.50 | % | ||||||||||||
100 | % | 99.37 | % |
41$ in millions
Performance results for each of Mr. Quigley’s business unit measures are as follows:
Compensation Discussion and Analysis
Peter Quigley: In effect May 1, 2017 - December 31, 2017
2017 Performance Goals | ||||||||||||||||||||||||
Corporate Component and Business Unit Performance Measures | Weighting | Threshold | Target | Maximum | 2017 Actual Results | Weighted 2017 Payout (% of Target) | ||||||||||||||||||
Corporate Component Performance Measures | 50.0 | % | see details above | 49.99 | % | |||||||||||||||||||
Americas Staffing Gross Profit | 20.0 | % | $ | 377.782 | $ | 419.758 | $ | 524.697 | $ | 425.985 | 20.00 | % | ||||||||||||
Americas Staffing Contribution | 20.0 | % | $ | 69.518 | $ | 86.897 | $ | 130.346 | $ | 81.706 | 10.00 | % | ||||||||||||
EMEA Staffing Gross Profit | 5.0 | % | $ | 132.712 | $ | 147.458 | $ | 184.322 | $ | 151.379 | 5.50 | % | ||||||||||||
EMEA Staffiing Contribution | 5.0 | % | $ | 14.324 | $ | 17.906 | $ | 26.858 | $ | 21.538 | 7.00 | % | ||||||||||||
100 | % | 92.49 | % |
$ in millions
Mr. Armstrong’s STIP opportunity was based 30% on the corporate component measures and 70% on the business unit measures for which he is accountable. Although the result for U.S. Operations PT Gross Profit measure was above threshold, the design requires achievement of threshold level of performance for the U.S. Operations PT Contribution measure before payout can be earned on the corresponding Gross Profit measure. Threshold performance was not achieved for the U.S. Operations PT Contribution measure, so no payout was earned for the U.S. Operations PT Gross Profit measure. Payout results for the business unit measures for Mr. Armstrong were positively impacted by the reduction of worker’s compensation expenses in 2017 and were negatively impacted by the increased SG&A expenses linked to higher performance based compensation and additional sales and recruiting resources added to capture growing demand in the last half of the year.
Performance results for each of Mr. Armstrong’s business unit measures are as follows:
Steven Armstrong: In effect January 1, 2017 - December 31, 2017
2017 Performance Goals | ||||||||||||||||||||||||
Corporate Component and Business Unit Performance Measures | Weighting | Threshold | Target | Maximum | 2017 Actual Results | Weighted 2017 Payout (% of Target) | ||||||||||||||||||
Corporate Component Performance Measures | 30.0 | % | see details above | 29.99 | % | |||||||||||||||||||
US Operations Gross Profit | 17.5 | % | $ | 282.205 | $ | 313.561 | $ | 391.951 | $ | 320.225 | 17.50 | % | ||||||||||||
US Operations PT Gross Profit | 17.5 | % | $ | 64.855 | $ | 72.061 | $ | 86.473 | $ | 70.068 | 0.00 | % | ||||||||||||
US Operations Contribution | 35.0 | % | $ | 65.429 | $ | 81.786 | $ | 122.679 | $ | 75.546 | 17.50 | % | ||||||||||||
100 | % | 64.99 | % |
$ in millions
Under the terms of the STIP, the Committee retains the right in its discretion to reduce a STIP award based on Company, business unit, or individual performance. The Committee has no discretion to increase a STIP award for Named Executive Officers (though the Committee may approve a special bonus for Named Executives Officers on a discretionary basis to recognize exceptional performance or actions not related to objectives set forth in the STIP; in 2016,2017, no discretionary bonus awards were made to Named Executive Officers). AnySTIP awards made in 2017 were designed to comply with the requirements of Section 162(m) of the Code and any awards made under the STIP are subject to the Company’s Incentive Compensation Recovery (“Clawback”)Clawback Policy.
Based on these performance results, at its February 15, 201714, 2018 meeting, the Committee reviewed and approved payments to the Named Executive Officers in accordance with the STIP provisions as follows:
Named Executive Officer | 2016 Base Salary Earnings |
2016 | 2016 Payout as a Percentage of Target | 2016 STIP Payout | ||||
Carl T. Camden | $1,000,000 | 130% | 0.0% | $0 | ||||
George S. Corona | $655,000 | 90% | 0.0% | $0 | ||||
Olivier G. Thirot | $515,000 | 75% | 0.0% | $0 | ||||
Teresa S. Carroll | $500,000 | 70% | 29.75% | $104,125 | ||||
Peter W. Quigley | $500,000 | 70% | 0.0% | $0 |
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Notes:
Compensation Discussion and Analysis
Mr. Thirot’s compensation has been converted from Swiss Francs (CHF) to U.S. Dollars (USD) using the Company’s budgeted currency exchange rate of 1.0369 in effect for 2016.
2017 | 2017 STIP | 2017 Payout | ||||||||||||||||||
Base | Target as | 2017 STIP | as a | |||||||||||||||||
Salary | % of | Payout at | Percentage | 2017 STIP | ||||||||||||||||
Named Executive Officer | Earnings | Salary | Target | of Target | Payout | |||||||||||||||
George S. Corona(1/1 - 04/30) | $ | 218,333 | 90 | % | $ | 196,500 | 99.98 | % | $ | 196,461 | ||||||||||
George S. Corona(5/1 - 12/31) | $ | 657,519 | 130 | % | $ | 854,775 | 99.98 | % | $ | 854,604 | ||||||||||
|
|
|
| |||||||||||||||||
$ | 1,051,275 | $ | 1,051,064 | |||||||||||||||||
Olivier G. Thirot | $ | 533,500 | 75 | % | $ | 400,125 | 99.98 | % | $ | 400,045 | ||||||||||
Teresa S. Carroll(1/1 - 04/30) | $ | 166,667 | 70 | % | $ | 116,667 | 99.12 | % | $ | 115,639 | ||||||||||
Teresa S. Carroll(5/1 - 12/31) | $ | 381,345 | 85 | % | $ | 324,143 | 99.37 | % | $ | 322,085 | ||||||||||
|
|
|
| |||||||||||||||||
$ | 440,810 | $ | 437,723 | |||||||||||||||||
Peter W. Quigley(1/1 - 04/30) | $ | 166,667 | 70 | % | $ | 116,667 | 99.98 | % | $ | 116,643 | ||||||||||
Peter W. Quigley(5/1 - 12/31) | $ | 381,345 | 85 | % | $ | 324,143 | 92.49 | % | $ | 299,800 | ||||||||||
|
|
|
| |||||||||||||||||
$ | 440,810 | $ | 416,443 | |||||||||||||||||
Steven S. Armstrong | $ | 332,000 | 60 | % | $ | 199,200 | 64.99 | % | $ | 129,468 |
The EIP provides for long-term incentives that reward executives for achieving the Company’s long-term growth and profitability goals. SuchLong-term incentive compensation is also intended to help the Company retain key employees, and it givesprovide those employees shared financial interests with the Company’s shareholders that are believed tostockholders and positively influence their job performance and longer-term strategic focus. The EIP allows for grants of equity andnon-equity awards to key employees. The Committee approved a redesign of the Company’s long-term incentives in 2015 that included updated performance measures, a greater portion of variable at-risk performance-based compensation, and target opportunities for the Named Executive Officers that were set, on average, to be near market competitive levels.
The Committee believes that compensation programs for the Company’s Senior Officers should include strong alignment between pay and performance, with a significant portion of “at risk” pay. As a result, the design of the 20162017 long-term incentives for Senior Officers, including the Named Executive Officers, mirrored the 20152016 grants, with grant levels based 75% on performance shares (at target) and 25% on restricted stock in order to create award opportunities that heavily emphasize performance. As noted previously, this was a significant design change from the Company’spre-2015 long-term incentive awards that were weighted primarily on grants of restricted stock and had a minority weighting on a cash-settled performance-based plan. The updatedcurrent incentive mix emphasizes performance-contingent awards that are delivered through performance shares and places a reduced weighting on restricted shares.
42
In 2015 we implemented a significant design change from the Company’s pre-2015 long-term incentive awards. Prior to 2015, target long-term incentive opportunities for Senior Officers were generally below market median.median and provided primarily in time vesting restricted stock. The overall target number of shares granted to Senior Officers under the 2015 long-term incentive awards brought target total direct compensation opportunities, on average, to be near market median levels. The target number of shares granted to each Senior Officer in 2015, including the Named Executive Officers, were based on an established value for each officer level. Target LTI grant levels, in terms of the number of shares, for nearly all Senior Officers were reduced for the 2016 grant by approximately 15% from the 2015 target share grant levels. (Mr. Thirot’s grant level is not comparable to 2015, since he was in a different role at the time of the 2015 grants.) This change was made at the request of management and with the approval of the Committee, as both believed it was an approach that supported the Company’s investment strategy and efforts to reduce cost. This reduced grant value was maintained for the 2017 LTI grants, with grant values approximately the same in 2017 as they were in 2016 (for those executives in the same position each year). The number of target shares granted to each Named Executive Officer can be found in the “Grants of
Plan-Based Awards” table, later in this document. The actual value realized for the grant will be based upon achievement of the performance measures of the performance share awards and the price of the Company’s stock.
44 |
Compensation Discussion and Analysis
Under the terms of the EIP, the Committee retains the right in its discretion to reduce an LTI award based on individual performance. The Committee has no discretion to increase an LTI award for Named Executive Officers. LTI grants aremade in 2017 and prior years were designed to comply with the requirements of Section 162(m) of the Internal Revenue Code (the “Code”) and any performance-based awards made under the EIP are subject to the Company’s Clawback Policy.
Performance shares provide Senior Officers with the opportunity to earn shares, from zero to 200% of their target opportunity, based on achievement ofpre-established measures and goals. For 2016,2017, the Committee selected the following equally weighted performance measures for the performance shares: return on sales, in order to maximize margins from revenues; gross profit for the combined Outsourcing and Consulting Group (OCG) and PT businesses as a percentage of total Company gross profit,earnings before taxes plus joint venture (JV) Income, to grow high margin businesses; gross profit for the Global Commercial business, to maintain focus on the core business;include an operating earnings measure that also captures JV earnings; and TSR relative to the S&P Small CapSmallCap 600 Index, to reward relative TSR performance. The Committee believed that these performance measures were aligned with the business strategy and shareholderstockholder interests, and also provided balance with STIP measures across the strategic business objectives of the Company.
For the 20162017 grant of performance shares, the threetwo financial measures:measures, return on sales gross profit for the combined OCG and PT businesses as a percentage of total Company gross profit, and gross profit for the Global Commercial business,earnings before taxes plus JV Income, were established to have three-year goals, which would be developed by aggregatingone-year performance goals for each of the years in the performance period 20162017 - 2018.2019. This design was selected due to the desire to have multi-year accountability tofor performance results, butwhile recognizing the challenges, at this time, of establishing traditional three-year goals in an uncertain environment. In February 2016,2017, the Committee approved goals at threshold, intermediate, target, and maximum levels of performance for each of the measures for 2016.2017. Goals for the measures in subsequent years of the performance period will be established within the first ninety days of each of the years, 20172018 and 2018.2019. At the end of the performance period 2016-20182017-2019 (i.e., in early 2019)2020), goals and results will be aggregated andand/or averaged (or added) as appropriate, for each of the threetwo financial measures, to determine achievement and earning, if any, of shares. The relativeRelative TSR measure of the performance shares is a three-year goal with vesting at the end of the 2016-20182017-2019 performance period, provided that a threshold level of performance for this measure is achieved. The following table illustrates performance periods for each of the measures for the 20162017-2019 performance shares:
Measures | 2016 | 2017 | 2018 | |||
• Return on Sales • OCG + PT Gross Profit as a % of Total Gross Profit • Gross Profit $: Global Commercial | Three-year performance is assessed based on the average (for % measures) or sum (for $ measures) of the annual goals set at the start of each year, relative to three years’ of results | |||||
• Relative TSR | Three-calendar year Performance Period |
43
Measures | 2017 | 2018 | 2019 | |||
• Return on Sales (ROS) | Three-year performance is assessed based on the | |||||
• Earnings Before Taxes plus Joint Venture (JV) | average (for the ROS measure) or sum (for the | |||||
earnings measure) of the annual goals set at the | ||||||
start of each year, relative to three years’ of results | ||||||
• Relative TSR | Three-calendar year Performance Period |
The following target number of performance shares were awarded for each performance measure to the Named Executive Officers in 2016:2017:
Target Number of 2017-2019 Performance Shares Awarded
Target Number of Performance Shares Awarded | ||||||||||||||||||||||||||
Financial Measures | Total Number | |||||||||||||||||||||||||
Earnings | of | |||||||||||||||||||||||||
Before Taxes | Relative | Performance | ||||||||||||||||||||||||
Financial Measures | Return on | plus JV | TSR | Shares @ | ||||||||||||||||||||||
Name | Return on Sales | Gross Profit: OCG + PT as % of Total GP | Gross Profit $: Global Commercial | Relative TSR | Total Number of Performance Shares @ Target | Sales | Income | Measure | Target | |||||||||||||||||
Carl T. Camden | 25,500 | 25,500 | 25,500 | 25,500 | 102,000 | |||||||||||||||||||||
George S. Corona | 11,156 | 11,156 | 11,156 | 11,156 | 44,625 | 23,297 | 23,297 | 23,297 | 69,891 | |||||||||||||||||
Olivier G. Thirot | 6,375 | 6,375 | 6,375 | 6,375 | 25,500 | 8,325 | 8,325 | 8,325 | 24,975 | |||||||||||||||||
Teresa S. Carroll | 6,375 | 6,375 | 6,375 | 6,375 | 25,500 | 9,317 | 9,317 | 9,316 | 27,950 | |||||||||||||||||
Peter W. Quigley | 6,375 | 6,375 | 6,375 | 6,375 | 25,500 | 9,317 | 9,317 | 9,316 | 27,950 | |||||||||||||||||
Steven S. Armstrong | 3,100 | 3,100 | 3,100 | 9,300 |
For achievement of threshold performance, 50%25% of target performance shares would be earned,earned; for achievement of intermediate performance, 75% of target performance shares would be earned; for achievement of target performance, 100% of target performance shares would be earnedearned; and for achievement of maximum performance or higher, 200% of target performance shares would be earned under the 2016 long term2017 long-term incentive design. The threshold goals were set at levels for which the Committee believed it was appropriate to start earning incentives; Intermediate goals were set halfway between threshold and target levels of performance; target goals were set at budgeted levels, which the Committee considered were “challenging but achievable”; maximum goals were set at significant stretch levels for which the Committee believed the earning of two times target payout was warranted. Straight line interpolation occurs for achievement of performance between threshold and intermediate, intermediate and target, and between target and maximum.
45 |
Compensation Discussion and Analysis
Shares that are subject to the relativeRelative TSR measure have a three-year performance period, 2016–2018.2017–2019. TSR combines share price appreciation plus the value of reinvestedex-date dividends and is expressed as a percentage. For the 20162017 performance shares, TSR will be calculated based on the average adjusted closing stock price for the twenty consecutive trading days immediately prior to the beginning and end of the three-year measurement period, January 1, 20162017 to December 31, 2018.2019. Shares are earned based on the Company’s TSR at the end of the three-year performance period relative to that of the S&P Small CapSmallCap 600 Index. In order to encourage appreciation of the Company’s share price, the calculated award will be reduced by 50% if at the end of the performance period the Company’s TSR is negative, indicating it has declined over the three-year period.
Performance awards are granted in the form of Performance Share Units (“PSUs”).Units. Performance shares are not eligible for dividends or dividend equivalents. Any performance shares earned under any measure will vest in early 2020, following approval by the Committee.
In the event of a Senior Officer’s termination of employment due to death, disability, normal retirement, or termination not for cause, they will receive a prorated award of performance shares based on actual results achieved, if any. Normal retirement is defined as age 62 with at least five years of service. In order to be eligible for a prorated award due to termination by the Company not for cause, a Senior Officer must have been employed for at least one year after the date the grants were approved by the Committee. The prorated amount is based on the number of whole months in the performance period that were worked by the Senior Officer prior to termination divided by 36. AnyIn the case of termination not for cause in connection with a change in control, performance shares earned under any measure will vest in early 2019, following approval by the Committee.immediately at target amounts.
Restricted stock is considered by the Committee to be an effective vehicle to support the Company’s long-term compensation objectives:
Alignment with shareholderstockholder interests;
Facilitate retention through an extendedpro-rata pro rata vesting structure; and
Support meaningful stock ownership.
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At its February 17, 201615, 2017 meeting, the Committee approved restricted stock grants for Senior Officers, including the Named Executive Officers, which vest ratably over four years, as detailed in the Summary Compensation Table and the Grants of Plan Based Awards Table. This grant of restricted shares represents 25% of each Senior Officer’s target long-term incentive grant. For 2017 grants of restricted stock to our Executive Officers, a performance hurdle of “Positive Net Income” was added to qualify awards for tax deductibility. Dividend equivalents are not paid to Executive Officers until the performance hurdle is achieved and shares vest. The Company believes that restricted stock awards areis an important component of total compensation for our Named Executive Officers and the four-year,pro-rata pro rata vesting feature supports the Company’s retention objective. Restricted stock awards are forfeited upon voluntary termination, normal retirement, and involuntary termination withfor cause or withoutnot for cause, and vestingunless termination not for cause is not accelerated in the case ofconnection with a change in control. In the case of termination not for cause in connection with a change in control, all restricted stock shares or units vest immediately. Restricted stock awards areis prorated in the event of termination due to death or disability.
No special grants, outsideAll of the Senior Officers’ 2017 long-term incentive awards were granted to all Senior Officers,in a mix of 75% performance shares and 25% restricted stock and there were made to any of the Named Executive Officers during 2016.no other special grants.
Long-Term Incentive for 2014-20162015-2017 Performance Results
The first grant of performance shares under the redesigned long-term incentiveincentives was awarded in 2015. As outlined in the Company’s 2016 Proxy Statement, performance shares become earned based on two financial measures and a Relative TSR measure. As part of the transition to the new plan design, that was used to grant awards in 2012, 2013, and 2014 was a performance-based long-term cash incentive planthe two financial performance measures for Senior Officers, including the Named Executive Officers, except for Mr. Thirot who was not a Senior Officer at the time these grants were made. This LTI design was replaced with the equity-based design explained above, beginning with the 2015 grant. The prior design providedaward, return on gross profit and gross profit for grants of cash-based performance awards that vested based upon achievement of specific Company performance measures over a three-year period. Specificthe OCG and PT businesses, were established with one-year performance goals for each grant were established by the Committee for each three-year performance period. During 2016, there was only one outstanding grant remaining under this LTI design, the final performance period covering fiscal years 2014 through 2016. The measures for the performance period included2015. Upon achievement of at least a balance of performance as measured by CumulativeAfter-Tax Earnings and Return on Sales (ROS) in the final year of the performance period, each weighted equally at 50%. A threshold level of performance mustfor either measure, shares would be attainedcontingently earned but would require an additional two years of continued employment before vesting in early 2018. Performance results achieved for the awards that were based on at least one2015 financial measures were 169.27% of target for the return on gross profit measure in orderand 61.04% of target for the gross profit for the OCG and PT businesses. The additional two years of vesting for the performance awards that were earned based on the two 2015 financial measures have now been satisfied. For performance awards based on the Relative TSR performance measure for the period 2015-2017, results were based on the Company’s stock price appreciation and dividend reinvestment over the three-year period as compared to earnthe performance of the S&P SmallCap 600 Index for the same period. The beginning stock price was the average dividend-adjusted closing stock price for the twenty consecutive trading days ending December 31, 2014. The ending stock price was the average dividend-adjusted closing stock price for the twenty consecutive trading days ending December 29, 2017. The Company’s
46 |
Compensation Discussion and Analysis
2015-2017 TSR of 79% is 36.4% higher than the 2015-2017 TSR for the S&P SmallCap 600 Index, which was 42.6%, resulting in a payout under the plan.of 200% of target. Award amounts earned are based on the level of achievement for each of the performance measures. These levels and final performance results for the 2014-20162015-2017 performance period are provided in the following chart:
Performance Goals | ||||||||||||||||||||
Financial Performance Measures | Threshold 50% | Target 100% | Maximum 200% | Actual Results | Payout as % of Target | |||||||||||||||
Return on Gross Profit | 6.033 | % | 6.733 | % | 8.133 | % | 7.703 | % | 169.27 | % | ||||||||||
Gross Profit $: OCG + PT | $ | 363.799 | $ | 404.221 | $ | 485.066 | $ | 372.728 | 61.04 | % | ||||||||||
Relative TSR | -15 | % | 0 | % | +30 | % | +36.4 | % | 200.00 | % |
$ in millions
Opportunity Per Participant by Performance Level (Cash Value) | Performance Levels and Goals | Performance Results and Funding Level | ||||||||||||||||||||||
CEO | COO | EVP | SVP | Performance Levels |
Cumulative | Return on Sales (weighted 50%) | Payout as Target | Cumulative After-Tax Earnings Result | Funding (as % of Target) | Return on Sales | Funding Level (as % of Target) | |||||||||||||
$112,500 | $87,500 | $62,500 | $37,500 | Threshold | $150,000 | 1.5% | 50% | |||||||||||||||||
$225,000 | $175,000 | $125,000 | $75,000 | Target | $250,000 | 2.5% | 100% | $144.467 | 0.00% | 1.263% | 0.00% | |||||||||||||
$337,500 | $262,500 | $187,500 | $112,500 | Maximum | $300,000 | 3.0% | 150% |
After consideration of Company performance for 2016, the final fiscal yearAs a result of the three-year 2014 - 2016above level of achievement for each of the performance measures of the 2015-2017 LTI, performance period, and consistent with our pay for performance philosophy, the Committee determined that there would be no payoutapproved the vesting of the following number of earned performance shares for thiseach Named Executive Officer:
Financial Measure: | Financial Measure: | |||||||||||||||||||||||||||
Return on Gross Profit | Gross Profit $: OCG + PT | Relative TSR | ||||||||||||||||||||||||||
Payout as | 169.27% | Payout as | 61.04% | Payout as | 200.00% | |||||||||||||||||||||||
% of Target: |
| % of Target: |
| % of Target: |
| Total # of | ||||||||||||||||||||||
Target # of | # of Shares | Target # of | # of Shares | Target # of | # of Shares | Shares | ||||||||||||||||||||||
Name | Shares | Earned | Shares | Earned | Shares | Earned | Earned | |||||||||||||||||||||
George Corona | 17,500 | 29,622 | 17,500 | 10,683 | 17,500 | 35,000 | 75,305 | |||||||||||||||||||||
Olivier Thirot | 5,000 | 8,464 | 5,000 | 3,052 | 5,000 | 10,000 | 21,516 | |||||||||||||||||||||
Teresa Carroll | 10,000 | 16,927 | 10,000 | 6,105 | 10,000 | 20,000 | 43,032 | |||||||||||||||||||||
Peter Quigley | 10,000 | 16,927 | 10,000 | 6,105 | 10,000 | 20,000 | 43,032 | |||||||||||||||||||||
Steven Armstrong | 5,000 | 8,464 | 5,000 | 3,052 | 5,000 | 10,000 | 21,516 | |||||||||||||||||||||
Carl Camden | 32,222 | 54,543 | 32,222 | 19,670 | 32,222 | 64,444 | 138,657 |
Note:
Highly compensated employees in the U.S. are not eligible to participate in the Company’s qualified 401(k) plan. In order to provide a competitive total compensation package, the Company has established the Management Retirement Plan (the “MRP”). The MRP is a U.S. nonqualified defined contribution/deferred compensation plan available to all highly compensated employees, including the Named Executive Officers, as outlined by Section 414(q)(1)(B)(i) of the Code. Employees who are working in the U.S. while on an international assignment are not eligible to participate in the MRP. All participants in the MRP can elect to defer from 2% to 25% of their annual base earnings and 2% to 50% of their annual cash incentive earnings. Matching contributions by the Company equal 50% of the first 10% of base salary and annual cash incentives deferred by a participant. Other than the MRP, there are no other retirement income plans available to the Company’s highly compensated employees in the U.S. The MRP provides all participants, including the Named Executive
45
Officers, with a taxgross-up of Medicare taxes incurred on contributions to the plan. The Medicare taxgross-up provides for parity with other employees who are eligible to participate in the Company’stax-qualified 401(k) plan and therefore do not pay Medicare tax on Company contributions.
Mr. Thirot’s Retirement Benefits
As a residentresult of Switzerland,his move from Swiss payroll and benefits to U.S. payroll and benefits effective January 1, 2017, Mr. Thirot participatesis now a participant in the MRP. He retains a Swiss Social Insurance System (“Swiss System”) that provides retirement, disability, and death benefits. His retirement benefit from his employment in Switzerland that includes contributions that he makesmade to the fund, as well as company contributions that arewere made to the fund on his behalf. Company contributions to Mr. Thirot did not participateThirot’s Swiss retirement account stopped at the end of 2016 and no company contributions were made to his Swiss retirement account in any U.S.-based retirement plans during 2016.2017.
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Compensation Discussion and Analysis
The health and welfare plans, including Company-provided life insurance, provided to the U.S. Named Executive Officers are the same plans available to all regular staff employees.
Mr. Thirot’s Health and Welfare Benefits
During 2016, Mr. Thirot received a health care allowance as part of his Swiss compensation that was intended to help defray the cost of obtaining health care coverage for himself and his family in Switzerland. Residents in Switzerland are required to carry health care coverage, however, it is not common for Swiss companies to provide this benefit to their employees. The Company’s Swiss entity does not provide health care coverage to its employees. While on assignment in the U.S., Mr. Thirot pays employee premiums for health care coverage for himself and his dependents under an international plan established for employees who are on or have recently been on international assignments. Under theMr. Thirot and his dependents are no longer eligible for Swiss System, Mr. Thirot’s spouse is eligible to receive benefits in the event of his death from sickness or accident.health and welfare benefits. He was notbecame a participant in the U.S. life insurance program during 2016.for 2017.
A modest level of perquisites is available to Named Executive Officers:
Perquisite | Benefit | Usage in 2017 | ||
Company Aircraft | To facilitate conducting the Company’s business and provide a competitive advantage, a private aircraft service is available. Senior Officers may utilize the aircraft service for business purposes. On rare occasions, an executive may use the aircraft service for personalnon-business purposes. | No personal use of private aircraft by Named Executive Officers in | ||
Executive Physical | To ensure Senior Officers monitor their health and general well-being, an annual physical examination is provided at the Company’s expense. Senior Officers also have the ability to use their own physician to perform the required tests and evaluations, in lieu of using the selected facilities. For those Senior Officers, expenses were processed through their employee health care coverage and not through the executive physical program. | |||
Vacation Facility | Two Company-owned condominiums are available on a limited basis to employees at the Vice President level and above. |
The aggregate amount of perquisites provided in 20162017 for each of the Named Executive Officers, with the exception of Mr. Thirot, was less than $10,000 and therefore only Mr. Thirot’s usage is reported in the Summary Compensation Table.
Mr. Thirot’s International Assignment
Mr. Thirot is provided with certain benefits as a result of his international assignment. In light of his promotion to CFO and transition to being a U.S.-based employee, the initial international assignment benefits provided to Mr. Thirot were reduced for 2016.2016, and then were eliminated when he moved to U.S. payroll and benefits at the beginning of 2017. The housing and utilities allowances, as well as his home leave benefits, were discontinued effective January 1, 2016. The
46
Company continues to provide tax support to Mr. Thirot as it relates to carryover costs related to his assignment and these amounts are included in the “All Other Compensation” column of the Summary Compensation Table of this Proxy Statement and are explained in detail in the footnotes of that table.
Senior Executive Severance Plan
In order to provide a mechanism to ensureTo encourage the retention of the Named Executive Officers, the Board of Directors, upon the recommendationcertain key executives of the Committee, adopted anCompany and thereby promote the stability and continuity of management, the Senior Executive Severance Plan (the “Severance(“Severance Plan”) was established by the Company and approved by the Committee effective March 31, 2017. Participation in April 2006 for athe plan is limited number of Executive Officers. Of this original group ofto certain Executive Officers, only Mr. Camdennamely Messrs. Corona, Thirot and Mr. Corona remain as participants in the Severance Plan.Quigley, and Ms. Carroll. The Severance Plan provides severance benefits in the event a participant’s employment is terminated under certain circumstances as explained and illustrated in the section Potential Payments Upon Termination. The Company does not provide other special benefitsCompany’s EIP provides for the immediate vesting of restricted stock and performance awards upon a qualified termination in connection with a change in control or upon termination following a changeand is also explained in control.Potential Payments Upon Termination.
Under the terms of the Severance Plan covering the two eligible Named Executive Officers, each would be entitled to severance payments and benefits in the event that he or she experiences a “qualifying termination” (i.e., any termination without causeof the participant by the Company other than for cause, disability or death: or for good reason by a participant in connection with a change in control as is defined in the Severance Plan). TerminationA change in control will not automatically entitle an eligible Named Executive Officer to severance benefits or equity acceleration; instead, the executive must also lose his or her job, or suffer a significant adverse change to employment terms or conditions in order to be eligible for “good reason” as defined inbenefits under the Severance Plan is a qualifying termination only applicable to Mr. Camden.Plan. In the event of a termination for any reason, eligible Named Executive Officers would be entitled to any earned compensation owed but not yet paid as of the date of termination. Eligible Named Executive Officers would also be entitled to payment of vested benefits, if any. Details of the Severance Plan are provided in the Potential Payments Upon Termination section of this Proxy Statement.
Effective
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Compensation Discussion and Analysis
The General Severance Plan was amended and restated effective March 31,27, 2017 to include the Committee gave notice to terminate the Plan pursuant to the Plan’s termination provision, which requires written notice to participants of its intentSenior Officers not to renew. At the same time, the Committee approvedcovered by the Senior Executive Severance Plan. The General Severance Plan for the Company’s Named Executive Officers. The new plan provides financial protectionis designed to this limited group of participants,provide severance benefits in the event of a qualifyingan involuntary termination of employment. Further detailsemployment as a result of general separation of employment or general reduction in force, as provided for under the plan. Mr. Armstrong is covered by the General Severance Plan and benefits under this plan will be providedare explained and illustrated in the Company’s 2018 proxy statement.
Mr. Thirot’s Severance Benefit
Under the terms of Mr. Thirot’s Swiss employment agreement, if he had been terminated by the Company, other than for willful misconduct, on or prior to December 31, 2016, he would have been provided with either three months’ notice or three months of salary in lieu of notice, at the Company’s discretion. In December 2016, Mr. Thirot and the Company mutually agreed that effective January 1, 2017, his employment relationship with the Company’s Swiss entity, including his Swiss employment agreement, would be terminated. Beginning in 2017, Mr. Thirot is paid from the Company’s U.S, payroll and he participates in U.S. benefit programs. As such, he does not currently participate in a severance program. Severance benefits, if any, would be determined at the discretion of the Compensation Committee as explained in the section, Potential Payments Upon TerminationTermination.
Executive Compensation GovernancePrograms
The frequency of the Company’s Say on Pay vote is annuallyannual and, as such, the Committee considers the shareholder advisory vote on executive compensation as disclosed in the Company’s proxy statement each year and determines whether the voting results warrant consideration of changes in the pay programs for named executive officers. Based on the results of the 2016 vote, with 98.9%year. In 2017, 98.7% of the shares represented at the meeting approvingapproved the proposal,Say on Pay proposal. The Committee considered this result as a factor in its decision to maintain the Committee concluded that its executive compensation decisions were supported by shareholders and thatgeneral design of the Company’s compensation programs did not require material changes in response to the vote.programs.
Executive Stock Ownership and Retention Requirements
The Committee seeks to encourage meaningful stock ownership by the Company’s executives so as to align their interests more closely with shareholders’stockholders’ interests. The Committee periodically reviews the Executive Stock Ownership Plan requirementsRequirements to ensure the design is consistent with market practice. In consideration of the Company’s new LTI design that provides Senior Officers with the opportunity to earn a greater number of shares through the addition of performance share awards and to ensure guidelines are in line with current market practice and those of our peers, the Committee approved newthe current executive stock ownership and retention requirements at its February 17, 2016 meeting.requirements. The new requirements are expressed as a multiple of base salary for each level of Senior Officer and more closely reflect current market practices, as determined by research performed by the Consultant.
47
2017 Minimum Stock Ownership Requirements | ||||
Multiple of Base Salary | ||||
CEO | ||||
6x | 3x | 1.5x |
Under the 2016 ownership requirements, Senior Officers are required to hold all (100%) of theafter-tax shares acquired upon equity award vesting until compliance with the requirements is achieved. Shares counted toward achievement of ownership requirements include: directly owned shares (including those held in retirement plans), shares held by family or trusts, and 60% of unvested restricted stock awards, restricted stock units, and earned unvested performance shares. Although there is not a fixed compliance period, it is anticipatedexpected that new Senior Officers will likely reach the guidelines within five years from their start date. The Committee reviews each executive’s progress towards and compliance with the share ownership requirements on an annual basis. If the required level of ownership is not achieved within a reasonable period of time or an executive fallfalls out of compliance with the requirements, the Committee can eliminate or adjust the amount of any future equity awards. Stock ownership levels must be maintained as long as the executive is employed by the Company as a Senior Officer and is a participant insubject to the terms of the Executive Stock Ownership Plan.Requirements.
As of January 1, 2017,March 19, 2018, all Named Executive Officers metwere in compliance with their stock ownership requirement, under the current requirements. Effective commencingother than two who had been in February 2017, the CFO’s stock ownership requirement wascompliance until their requirements substantially increased to three times base salary (up from 1.5 times base salary).as a result of being promoted during 2017.
Incentive Compensation Recovery (“Clawback”) Policy
To support theThe Company’s focus on compensation program governance, the Committee approved implementation of a Clawback Policy at its February 17, 2011 meeting. This policy applies to awards granted under STIP and EIP on or after January 1, 2011 to officers of the Company who are subject to Section 16(b)16 of the Securities Exchange Act of 1934. These officers are required to repay or forfeit, to the fullest extent permitted by law and as directed by the Committee, any performance-based annual or long-term incentive compensation, based on the achievement of financial results that were subsequently restated due to the Company’s materialnon-compliance with the financial disclosure requirements of the federal securities laws, provided the amount of incentive compensation that would have been received or earned would have been lower had the financial results been properly reported. If necessary, we plan to modify our policy to comply with the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, (“Dodd-Frank”), when the SEC or Nasdaq implements rules and regulations. The Clawback policy was included as part of the Company’s updated Insider Trading Policy and Section 16 Compliance Procedures in 2016.2017.
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Compensation Discussion and Analysis
Hedging and Pledging of Shares
The Company’s Insider Trading Policy and Section 16 Compliance Procedures as updated in August 2016, strictly prohibitsprohibit the Company’s Directors and all employees, including the Executive Officers, from engaging in hedging, monetization, or other derivatives or speculative transactions in securities of the Company. This includes short sales, failing to deliver Company securities sold, put or call options, equity swaps, collars, forward sale contracts, exchange funds, holding Company securities in a margin account, or pledging Company securities as collateral for a loan. The EIP does not allow the pledging, sale, assignment or transfer of shares in any manner, except if the Committee determines that a transfer will not violate any requirements of the SEC or IRS. The Committee may permit an inter vivos transfer by gift to, or for the benefit of, a family member of the grantee.
Tax and Accounting ImplicationsConsiderations
Deductibility of Executive Compensation
Prior to 2018, Section 162(m) of the Code placesplaced a limit of $1 million on the amount of nonperformance-based compensation that cancould be deducted for tax purposes for the CEO and the other three highest paid executives (excluding the CFO) listed in the Summary Compensation Table. However,The Company’s compensation programs were generally designed to qualify for the performance-based exception to this limit. Beginning in 2018, effective with the Tax Cuts and Jobs Act (‘the Act”) that was enacted in December 2017, the corporate tax deductibilitydeduction previously available for performance-based compensation above $1 million for Named Executive Officers has been eliminated. This means that pay to each Named Executive Officer in excess of $1 million will no longer be tax deductible. Transitional relief is only one factor consideredavailable under the new tax rules where a written, binding contract was in any decision regarding executive compensation. In ordereffect on November 2, 2017 and is not materially modified after that date. We will continue to best servecomply with the requirements of Section 162(m) to the extent to which our outstanding LTI awards are determined to be tax deductible under the transitional relief. Now that the performance-based exception is no longer available, the Company will no longer include reference to Section 162(m) related limitations or provisions or stockholder approval for this purpose. However, management and the interestsCommittee have decided to retain as good governance, certain practices that had been in place previously for Section 162(m) purposes. These practices include: specification of its shareholders,guidelines for the Company may determine that paymentadjustment ofnon-deductible compensation is necessary special items, establishing performance goals within the first ninety days of a performance period, and appropriaterequiring the Committee’s certification of results prior to provide rewards consistent with the overall philosophy and objectivespayout of the compensation program.any award.
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Prior to and at itsthe Board of Directors meeting held on March 21, 2017,20, 2018, the Compensation Committee members reviewed and discussed the Compensation Discussion and Analysis presented in this Proxy Statement. Based on its review and subsequent discussions with management, the Committee and Board approved the Compensation Discussion and Analysis and directed management to include it in this Proxy Statement.
This report is submitted by the Compensation Committee of the Board of Directors.
ROBERT S. CUBBIN, CHAIR |
JANE E. DUTTON |
TERRENCE B. LARKIN |
LESLIE A. MURPHY, VICE CHAIR |
DONALD R. PARFET |
50 |
2017 Executive Compensation Tables
Summary Compensation Table 2017
Name and Principal Position | Year | Salary(1) ($) | Bonus ($) | Stock Awards (2)(3)(4) ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation(5) ($) | Total ($) | |||||||||||||||||||||||||||
George S. Corona | | 2017 2016 2015 |
| | 875,852 655,000 655,000 |
| | — — — |
| | 1,893,664 995,138 1,159,900 |
| | — — — |
| | 1,051,064 — 697,968 |
| | — — — |
| | 38,438 58,260 55,697 |
| | 3,859,019 1,708,397 2,568,565 |
| |||||||||
Olivier G. Thirot | | 2017 2016 2015 |
| | 533,500 515,000 481,032 |
| | — — | | | 701,381 568,650 331,400 |
| | — — |
| | 400,045 — 342,722 |
| | — — |
| | 45,867 729,947 291,355 |
| | 1,680,793 1,813,597 1,446,509 |
| |||||||||
Teresa S. Carroll | | 2017 2016 2015 |
| | 548,011 500,000 482,227 |
| | — — |
| | 784,666 568,650 662,800 |
| | — — |
| | 437,723 104,125 228,220 |
| | — — |
| | 35,542 39,439 35,174 |
| | 1,805,942 1,212,214 1,408,421 — |
| |||||||||
Peter W. Quigley | | 2017 2016 2015 | | | 548,011 500,000 482,227 | | | — — | | | 784,666 568,650 662,800 | | | — — | | | 416,443 — 392,921 | | | — — | | | 30,077 48,032 41,672 | | | 1,779,197 1,116,682 1,579,621 | | |||||||||
Steven S. Armstrong | 2017 | 332,000 | — | 261,175 | 129,468 | — | 18,309 | 740,952 | ||||||||||||||||||||||||||||
Carl T. Camden | | 2017 2016 2015 | | | 398,252 1,000,000 1,000,000 | | | — — — | | | 2,093,613 2,274,600 2,651,200 | | | — — — | | | — — | | | — — — | | | 22,949 102,614 98,112 | | | 2,514,813 3,377,214 5,288,512 | |
(1) | Represents 2015, 2016, and 2017 actual base salary earnings. 2017 amount for Mr. Camden also includes a lump sum payout for all unused vacation upon his termination from the company. |
(2) | Grant date fair value is determined by multiplying the number of shares granted by the Market Value (MV) on the grant date. MV is determined by the closing price on the date of grant. The MV for the Restricted Stock Units granted to all named officers on February 15, 2017 is $21.95, on February 17, 2016 is $16.44, and on February 11, 2015 is $17.65. The target Performance Share awards that are based on financial measures are valued using the closing stock price on the date of grant, discounted because these shares are not eligible for dividends. The resulting value for the 2017 grant on February 15, 2017 is $21.07, the 2016 grant on February 17, 2016 is $15.85, and the 2015 grant on May 6, 2015 is $16.31. The target Performance Share awards that are based on the Relative TSR measure are valued using a Monte Carlo valuation method, based on the MV at the date of grant. The value for the 2017 grant on February 15, 2017 is $20.16, the 2016 grant on February 17, 2016 is $19.73, and the 2015 grant on May 6, 2015 is $16.01. The MV for the May 10, 2017 grants of Restricted Stock Units to Messrs. Corona and Quigley, as well as Ms. Carroll, is $21.93. The MV for the Performance Shares granted on May 10, 2017 to Messrs. Corona and Quigley, as well as Ms. Carroll, is $21.05 for shares based on financial measures, and $20.14 for the shares based on the Relative TSR measure. Please reference the Company’s 2017 10-K filing for details of the assumptions used in the Monte Carlo valuation. |
(3) | The maximum number of shares and award value for Performance Share awards for the 2017-2019 performance period is 200% of target shares granted. The table below shows the maximum number of shares and value for Performance Share awards based on achievement of financial measures using the values of $21.07 for shares granted February 15, 2017 and $21.05 for shares granted May 10, 2017, and for Performance Share awards based on achievement of the Relative TSR measure using the values of $20.16 for shares granted February 15, 2017 and $20.14 for shares granted May 10, 2017, as explained in the previous footnote. |
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2017 Executive Compensation Tables
Name | Maximum Number of Performance Shares | Maximum Value of Performance Shares | ||||||
George S. Corona | 139,782 | $ | 2,901,316 | |||||
Olivier G. Thirot | 49,950 | $ | 1,037,295 | |||||
Teresa S. Carroll | 55,900 | $ | 1,160,484 | |||||
Peter W. Quigley | 55,900 | $ | 1,160,484 | |||||
Steven S. Armstrong | 18,600 | $ | 386,260 | |||||
Carl T. Camden | 149,100 | $ | 3,096,310 |
(4) | Stock Awards granted to Mr. Camden include the market values of both restricted shares and performance shares. Mr. Camden forfeited all unvested restricted shares upon his retirement, however, he is eligible to receive prorated performance shares, if they become earned, as he was “Normal Retirement eligible” under the terms of the EIP for the outstanding 2015, 2016 and 2017 grants. |
Name | Group Term Life Premiums | Company Matching MRP Contributions | MRP Medicare Gross-ups | Use of Vacation Property | International Assignment Carryover Cost | Total All Other Compensation | ||||||||||||||||||
George S. Corona | $ | 1,808 | $ | 35,034 | $ | 1,596 | — | — | $ | 38,438 | ||||||||||||||
Olivier G. Thirot | $ | 1,472 | $ | 26,675 | $ | 1,259 | $ | 506 | $ | 15,955 | $ | 45,867 | ||||||||||||
Teresa S. Carroll | $ | 1,380 | $ | 32,607 | $ | 1,555 | — | — | $ | 35,542 | ||||||||||||||
Peter W. Quigley | $ | 1,380 | $ | 27,401 | $ | 1,296 | — | — | $ | 30,077 | ||||||||||||||
Steven S. Armstrong | $ | 916 | $ | 16,600 | $ | 793 | — | — | $ | 18,309 | ||||||||||||||
Carl T. Camden | $ | 2,070 | $ | 19,913 | $ | 966 | — | — | $ | 22,949 |
(5) | Amounts for named executive officers include premiums paid for life insurance, company matching contributions to the Management Retirement Plan (MRP), and Medicare tax gross-ups on those MRP contributions. (See table above.) The MRP is a non-qualified defined contribution deferred compensation plan available to all highly compensated employees, including the named executive officers. No highly compensated employees as outlined by Section 414(q)(1)(B)(i) of the Internal Revenue Code, including the Named Executive Officers, are eligible to participate in the Company’s tax-qualified retirement plan. Company contributions to the MRP include the Company match on participant deferrals as explained in the Retirement Plan section of this document. The amount reported for Mr. Thirot includes the following 2017 carryover costs associated with his international assignment from Switzerland to the U.S. during 2014 to 2016: tax preparation fee of $14,501, professional services of $15,042, visa support expense of $6,216, tax recoveries (for 2016) of U.S. federal and Michigan state taxes made by the Company on Mr. Thirot’s behalf under the Company’s tax equalization policy totaling $19,804. The total value of perquisites provided to each Named Executive Officer (other than Mr. Thirot) in 2017 was less than $10,000 and, in accordance with reporting regulations, were not required to be included in this table. Amounts reported in this column for 2016 and 2015 have been restated to remove dividends and dividend equivalents earned on outstanding RSA and RSU awards, as dividends are included in the grant date fair value of the award. |
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2017 Executive Compensation Tables
Grants of Plan-Based Awards 2017(1)
Estimated Future Payouts Under Non-Equity Incentive Plan Awards(3) | Estimated Future Payouts Under Equity Incentive Plan Awards(4) | All Other Stock Awards: Number of Shares of Stock | Grant Date Fair and Option | |||||||||||||||||||||||||||||||
Name | Grant Date(2) | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | or Units (5) (#) | Awards(6) ($) | |||||||||||||||||||||||||
George S. Corona | STIP | 262,819 |
| 1,051,275 |
| 2,102,549 | ||||||||||||||||||||||||||||
2/15/2017 | 8,156 | 32,625 | 65,250 | 677,513 | ||||||||||||||||||||||||||||||
2/15/2017 | 10,875 | 238,706 | ||||||||||||||||||||||||||||||||
5/10/2017 | 9,317 | 37,266 | 74,532 | 773,145 | ||||||||||||||||||||||||||||||
5/10/2017 | 9,316 | 204,300 | ||||||||||||||||||||||||||||||||
Olivier G. Thirot | STIP | 100,031 | 400,125 | 800,250 | ||||||||||||||||||||||||||||||
2/15/2017 | 6,244 | 24,975 | 49,950 | 518,648 | ||||||||||||||||||||||||||||||
2/15/2017 | 8,325 | 182,734 | ||||||||||||||||||||||||||||||||
Teresa S. Carroll | STIP | 116,296 | 440,810 | 881,619 | ||||||||||||||||||||||||||||||
2/15/2017 | 4,650 | 18,600 | 37,200 | 386,260 | ||||||||||||||||||||||||||||||
2/15/2017 | 6,200 | 136,090 | ||||||||||||||||||||||||||||||||
5/10/2017 | 2,338 | 9,350 | 18,700 | 193,982 | ||||||||||||||||||||||||||||||
5/10/2017 | 3,116 | 68,334 | ||||||||||||||||||||||||||||||||
Peter W. Quigley | STIP | 102,099 | 440,810 | 881,619 | ||||||||||||||||||||||||||||||
2/15/2017 | 4,650 | 18,600 | 37,200 | 386,260 | ||||||||||||||||||||||||||||||
2/15/2017 | 6,200 | 136,090 | ||||||||||||||||||||||||||||||||
5/10/2017 | 2,338 | 9,350 | 18,700 | 193,982 | ||||||||||||||||||||||||||||||
5/10/2017 | 3,116 | 68,334 | ||||||||||||||||||||||||||||||||
Steven S. Armstrong | STIP | 42,828 | 199,200 | 398,400 | ||||||||||||||||||||||||||||||
2/15/2017 | 2,325 | 9,300 | 18,600 | 193,130 | ||||||||||||||||||||||||||||||
2/15/2017 | 3,100 | 68,045 | ||||||||||||||||||||||||||||||||
Carl T. Camden | STIP | 325,000 | 1,300,000 | 2,600,000 | ||||||||||||||||||||||||||||||
2/15/2017 | 18,638 | 74,550 | 149,100 | 1,548,155 | ||||||||||||||||||||||||||||||
2/15/2017 | 24,850 | 545,458 |
(1) | The Company has not granted stock options since 2004, including 2017. Accordingly, this column has been eliminated from the table. |
(2) | Long-term incentive grants to named executive officers, consisting of Restricted Share Units and Performance Shares, were approved by the Committee at its February 15, 2017 meeting. Additional grants were provided to Messrs. Corona and Quigley and Ms. Carroll effective with their promotions on May 10, 2017. |
(3) | Payout for threshold performance under the STIP for Messrs. Corona and Thirot was 25% of each named executive officer’s target payout amount, as payouts were based 100% on corporate measures and goals. In addition to corporate measures, business unit measures are included in the STIP goals for Ms. Carroll and Messrs. Quigley and Armstrong, which have payouts for threshold performance ranging from 20% to 50% of each named executive officer’s target payout amount. The weighted average payout for all performance measures at a threshold level of performance is equal to approximately 26.4% of the target payout amount for Ms. Carroll, 23.2% of the target payout amount for Mr. Quigley, and 21.5% of the target payout amount for Mr. Armstrong. For the corporate measures, achievement between threshold and intermediate, intermediate and target, and target and maximum levels is interpolated on a straight-line basis. For Ms. Carroll’s and Messrs. Quigley and Armstrong’s business unit measures, there is no straight-line interpolation between payout levels of the payout schedule. The required level of performance for each payout level must be achieved in order to earn the corresponding payout amount. STIP maximum payout is 200% of target with an individual maximum payout of no more than $3,000,000 as required under the terms of the amended and restated STIP, effective February 12, 2015. |
(4) | Performance Shares granted in 2017 are earned based upon achievement of two financial measures and a Relative TSR measure. These three measures are equally weighted. Achievement of a threshold level of performance on any measure results in 25% of the target shares being earned. Achievement of an intermediate level of performance (halfway between threshold and target) results in 75% of the target shares being earned. Achievement of the maximum level of performance on any measure results in 200% of the target shares being earned by the named executive officer. Achievement between these levels is interpolated on a straight-line basis. Restricted Share Units, with a one-year performance hurdle, were granted to each of the Named Executive Officers in 2017. Achievement of the one-year performance hurdle will trigger the awards to vest ratably on each of the first four anniversaries of the date of grant (25% per year). If the one-year performance hurdle is not achieved, all shares will be forfeited. The performance hurdle was achieved for 2017. |
(5) | There were no Restricted Share awards granted to the Named Executive Officers during the 2017 plan year. |
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2017 Executive Compensation Tables
(6) | Grant date fair value is determined by multiplying the target number of shares granted by the MV on the grant date. MV is determined by the closing price on the date of grant. The MV for the Restricted Share Units granted to all named officers on February 15, 2017 is $21.95. The target Performance Share awards that are based on financial measures are valued using the closing stock price on the date of grant, discounted because these shares are not eligible for dividends. The resulting value for the 2017 grant on February 15, 2017 is $21.07. The target Performance Share awards that are based on the Relative TSR measure are valued using a Monte Carlo valuation method, effective the date of grant. The value for the 2017 grant of Performance Shares based on the Relative TSR measure on February 15, 2017 is $20.16. The MV for the Restricted Share Units granted on May 10, 2017 to Messrs. Corona and Quigley, as well as Ms. Carroll, is $21.93. The MV for the Performance Shares granted on May 10, 2017 to Messrs. Corona and Quigley, as well as Ms. Carroll, is $21.05 for shares based on financial measures, and $20.14 for the shares based on the Relative TSR measure. |
Outstanding Equity Awards at Fiscal Year End 2017(1)
Stock Awards | ||||||||||||||||||||
| Grant Year | Number of Shares or Units of Stock That Have Not Vested(2)(3) (#) | Market Value of Shares or Units of Stock That Have Not Vested(4) ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested(5) (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(4) ($) | |||||||||||||||
| 2017 2016 2015 2014 | 20,191 11,157 84,055 12,500 | 550,609 304,251 2,292,180 340,875 | 116,485 61,360 |
| 3,176,546
|
| |||||||||||||
| 2017 2016 2015 2014 | 8,325 6,375 24,016 4,250 | 227,023 173,846 654,916 115,898 | 41,625 35,063 | 1,135,114 956,168 | |||||||||||||||
Teresa S. Carroll | 2017 2016 2015 2014 | 9,316 6,375 48,032 3,750 | 254,047 173,846 1,309,833 102,263 | 46,583 35,063 | 1,270,318 956,168 | |||||||||||||||
Peter W. Quigley | 2017 2016 2015 2014 | 9,316 6,375 48,032 3,750 | 254,047 173,846 1,309,833 102,263 | 46,583 35,063 | 1,270,318 956,168 | |||||||||||||||
Steven S. Armtrong | 2017 2016 2015 2014 | 3,100 3,188 24,016 3,000 | 84,537 86,937 654,916 81,810 | 15,500 17,532 | 422,685 478,098 | |||||||||||||||
Carl T. Camden | 2017 2016 2015 2014 | — — | — — | 17,255 66,226 | 470,544 1,805,983 |
(1) | The Company did not grant stock options during the 2017 fiscal year. All previously outstanding granted stock options for the Named Executive Officers expired during the 2014 fiscal year. As a result, there are no outstanding options to report and, accordingly, these columns have been eliminated from the table. |
(2) | All outstanding restricted stock awards/unit grants vest ratably over 4 years. The number of outstanding shares has been determined as of December 31, 2017. |
54 |
2017 Executive Compensation Tables
49
Summary Compensation Table 2016
As discussed previously, the “Stock Awards” amounts for 2016 and 2015 reflect primarily performance-contingent award opportunities that are only earned if specific financial and relative TSR goals are achieved, whereas, the 2014, “Stock Awards” were only subject to continued employment.
Name and Principal Position | Year | Salary(1) ($) | Bonus ($) | Stock ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in ($) | All Other ($) | Total ($) | |||||||||||||||||||||||||||
Carl T. Camden | 2016 | 1,000,000 | - | 2,274,600 | - | - | - | 147,058 | 3,421,658 | |||||||||||||||||||||||||||
President and Chief | 2015 | 1,000,000 | - | 2,651,200 | - | 1,539,200 | - | 139,237 | 5,329,637 | |||||||||||||||||||||||||||
Executive Officer | 2014 | 1,000,000 | - | 1,229,600 | - | 1,404,000 | - | 120,732 | 3,754,332 | |||||||||||||||||||||||||||
George S. Corona | 2016 | 655,000 | - | 995,138 | - | - | - | 82,835 | 1,732,972 | |||||||||||||||||||||||||||
Executive Vice President | 2015 | 655,000 | - | 1,159,900 | - | 697,968 | - | 80,072 | 2,592,940 | |||||||||||||||||||||||||||
and Chief Operating Officer | 2014 | 655,000 | - | 768,500 | - | 636,700 | - | 75,782 | 2,135,982 | |||||||||||||||||||||||||||
Olivier G. Thirot(6) | 2016 | 515,000 | - | 568,650 | - | - | - | 736,270 | 1,819,920 | |||||||||||||||||||||||||||
Senior Vice President and Chief Financial Officer | 2015 | 481,032 | - | 331,400 | - | 342,722 | - | 295,811 | 1,450,965 | |||||||||||||||||||||||||||
Teresa S. Carroll | 2016 | 500,000 | - | 568,650 | - | 104,125 | - | 48,902 | 1,221,677 | |||||||||||||||||||||||||||
Senior Vice President and General Manager, Global Talent Solutions | 2015 | 482,227 | - | 662,800 | - | 228,220 | - | 43,799 | 1,417,046 | |||||||||||||||||||||||||||
Peter W. Quigley | 2016 | 500,000 | - | 568,650 | - | - | - | 57,838 | 1,126,488 | |||||||||||||||||||||||||||
Senior Vice President, General | 2015 | 482,227 | - | 662,800 | - | 392,921 | - | 51,297 | 1,589,246 | |||||||||||||||||||||||||||
Counsel, and Chief Administrative Officer | 2014 | 419,250 | - | 308,700 | - | 294,300 | - | 38,006 | 1,060,256 | |||||||||||||||||||||||||||
(1) Represents 2014, 2015, and 2016 actual base salary earnings.
(2) Grant date fair value is determined by multiplying the number of shares granted by the Market Value (“MV”) on the grant date. MV is determined by the closing price on the date of grant. The MV for the Restricted Stock awards granted to all Named Executive Officers on February 17, 2016 is $16.44, on February 11, 2015 is $17.65, and on October 1, 2014 is $15.37. The target Performance Share awards that are based on financial measures were valued using the closing stock price on the date of grant, discounted because these shares are not eligible for dividends. The resulting value for the 2016 grant on February 17, 2016 is $15.85, and for the 2015 grant on May 6, 2015 is $16.31. The target Performance Share awards that are based on the relative TSR measure are valued using a Monte Carlo valuation method, effective the date of grant. The value for the 2016 grant on February 17, 2016 is $19.73, and for the 2015 grant on May 6, 2015 is $16.01. Please reference the Company’s 201610-K filing for details of the assumptions used in the Monte Carlo valuation. The MV for the September 15, 2014 grant to Mr. Thirot is $17.03 and the grant to Mr. Quigley on November 10, 2014 is $15.63.
50
(3) | ||
(3) The maximum number of shares and award value for Performance Share awards for the 2016-2018 performance period is 200% of target shares granted. The table below shows the maximum number of shares and value based on the values of $15.85 for Performance Share awards based on financial measures, and $19.73 for Performance Share awards based on the relative TSR measure, as explained in the previous footnote.
Name | Maximum Number of Performance Shares | Maximum Value of Performance Shares | ||
Carl T. Camden | 204,000 | $3,431,280 | ||
George S. Corona | 89,250 | $1,501,185 | ||
Olivier G. Thirot | 51,000 | $857,820 | ||
Teresa S. Carroll | 51,000 | $857,820 | ||
Peter W. Quigley | 51,000 | $857,820 |
(4) Amounts for Named Executive Officers (other than Mr. Thirot) include premiums paid for life insurance, dividends on unvested restricted shares, company matching contributions to the MRP, and Medicare taxgross-ups on those MRP contributions. (See table below.) No highly compensated employees as outlined by Section 414(q)(1)(B)(i) of the Internal Revenue Code, including the Named Executive Officers, are eligible to participate in the Company’stax-qualified retirement plan. Company contributions to the MRP include the Company match on participant deferrals as explained in the Retirement Benefits section of this document. The total value of perquisites provided to each Named Executive Officer (other than Mr. Thirot) in 2016 was less than $10,000 and, in accordance with reporting regulations, were not required to be included here.
Name | Group Term Life Premiums | Dividends on Restricted Shares | Company Matching Contributions | MRP Medicare Gross-ups | Total All Other | |||||
Carl T. Camden | $1,980 | $44,444 | $96,176 | $4,458 | $147,058 | |||||
George S. Corona | $1,729 | $24,575 | $54,119 | $2,412 | $82,835 | |||||
Teresa S. Carroll | $1,320 | $9,463 | $36,411 | $1,708 | $48,902 | |||||
Peter W. Quigley | $1,320 | $9,806 | $44,646 | $2,066 | $57,838 |
(5) The amount reported for Mr. Thirot includes his representation allowance, supplemental health care allowance, and a supplemental contribution to the government-mandated occupational pension benefit program paid through Swiss payroll; dividend equivalents paid to Mr. Thirot during 2016; the value of unused Swiss vacation time paid to Mr. Thirot in December 2016 as a result of his moving from Swiss payroll and benefits to U.S. payroll and benefits effective January 1, 2017; the incremental cost of his personal use of the Company-owned vacation property in 2016; the cost of his executive physical; and the following costs associated with his international assignment from Switzerland to the U.S.: tax preparation fee of $13,183, visa support expense: $3,999, credit for repayment of home leave in the amount of $2,634, and taxgross-ups/payments, net of tax recoveries (from prior years received in 2016) of US federal and Michigan state taxes made by the Company on Mr. Thirot’s behalf under the Company’s tax equalization policy totaling $648,386. Final tax recoveries related to the 2016 reporting year will be reflected in the future reporting year in which the 2016 tax obligation is finalized.
Name | Represen- tation | Supplemental Health Care | Supplemental Pension Contributions | Dividend Equivalents on Restricted Share Units | Vacation Payout | Use of Vacation Property | Executive Physical | International Assignment Costs | Total All Other | |||||||||
Olivier G. Thirot | $18,664 | $7,466 | $10,505 | $6,323 | $28,611 | $467 | $1,300 | 662,934 | $736,270 |
(6) Amounts reported for Mr. Thirot are converted from Swiss francs to U.S. dollars at an exchange rate of 1 CHF = 1.0369 USD. This is the rate used by the Company for budgeting purposes in 2016.
51
(4) | ||
Grants of Plan-Based Awards 2016(1)
Estimated Future Payouts UnderNon-Equity Incentive Plan Awards(3) | Estimated Future Payouts Under Equity Incentive Plan | All Other Stock Awards: Number of Shares of Stock or Units (5) (#) | Grant Date Fair Value of Stock and Option Awards (6) ($) | |||||||||||||||
Name | Grant Date (2) | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | |||||||||||
Carl T. Camden | STIP | 650,000 | 1,300,000 | 2,600,000 | ||||||||||||||
2/17/2016 | 51,000 | 102,000 | 204,000 | 1,715,640 | ||||||||||||||
2/17/2016 | 34,000 | 558,960 | ||||||||||||||||
George S. Corona | STIP | 294,750 | 589,500 | 1,179,000 | ||||||||||||||
2/17/2016 | 22,313 | 44,625 | 89,250 | 750,593 | ||||||||||||||
2/17/2016 | 14,875 | 244,545 | ||||||||||||||||
Olivier G. Thirot | STIP | 193,125 | 386,250 | 772,500 | ||||||||||||||
2/17/2016 | 12,750 | 25,500 | 51,000 | 428,910 | ||||||||||||||
2/17/2016 | 8,500 | 139,740 | ||||||||||||||||
Teresa S. Carroll | STIP | 101,500 | 350,000 | 700,000 | ||||||||||||||
2/17/2016 | 12,750 | 25,500 | 51,000 | 428,910 | ||||||||||||||
2/17/2016 | 8,500 | 139,740 | ||||||||||||||||
Peter W. Quigley | STIP | 175,000 | 350,000 | 700,000 | ||||||||||||||
2/17/2016 | 12,750 | 25,500 | 51,000 | 428,910 | ||||||||||||||
2/17/2016 | 8,500 | 139,740 |
(1) The Company did not grant stock options during the 2016 fiscal year. Accordingly, this column has been eliminated from the table.
(2) Long-Term incentive grants to Named Executive Officers, consisting of Restricted Shares and Performance Shares, were approved by the Committee at its February 17, 2016 meeting.
(3) Payout for threshold performance under the STIP is 50% of target opportunity for Messrs. Camden, Corona, Quigley, and Thirot. 2016 STIP payouts for each of these Named Executive Officers were based 100% on corporate measures and goals. Additional business unit measures are included in the 2016 STIP goals for Ms. Carroll, that have payouts for threshold performance equal to 20% of her target opportunity. Therefore, the weighted average payout for all measures at a threshold level of performance is equal to 29% of her target opportunity. For the corporate measures, each additional increment above the threshold earns prorated incentive payments up to the maximum as discussed in the Compensation Discussion and Analysis in the Annual Cash Incentive section. For Ms. Carroll’s business unit measures, there is no prorating between payout levels of the payout schedule. STIP maximum payout for all Named Executive Officers is 200% of target opportunity with an individual maximum payout of no more than $3,000,000 as required under the terms of the amended and restated STIP, effective February 12, 2015.
(4) Performance Shares granted in 2016 are earned based upon achievement of three financial measures and a relative TSR measure. These four measures are equally weighted. Achievement of a threshold level of performance on any measure results in 50% of the target shares being earned. Achievement of the maximum level of performance on any measure results in 200% of the target shares being earned by the Named Executive Officer.
(5) Restricted Stock Awards granted February 17, 2016 vest ratably on each of the first four anniversaries of the date of grant (25% per year).
(6) Grant date fair value is determined by multiplying the number of shares granted by the MV on the grant date. MV is determined by the closing price on the date of grant. The MV for the Restricted Stock awards granted on February 17, 2016 is $16.44. The target Performance Share awards that are based on financial measures were valued using the closing stock price on the date of grant, February 17, 2016, discounted because these shares are not eligible for dividends, resulting in a value of $15.85. The target Performance Share awards that are based on the relative TSR measure were valued at $19.73 using a Monte Carlo valuation method, effective the date of grant, February 17, 2016.
52
(5) | ||
Outstanding Equity Awards at Fiscal Year End 2016(1)
Stock Awards | ||||||||||
Name | Grant Year | Number of Shares or Units of Stock That Have Not Vested(2)(3) (#) | Market Value ($) | Equity Incentive Plan (#) | Equity Incentive Plan ($) | |||||
Carl T. Camden | 2016 | 34,000 | 779,280 | 51,000 | 1,168,920 | |||||
2015 | 122,127 | 2,799,151 | 20,000 | 458,400 | ||||||
2014 | 40,000 | 916,800 | ||||||||
2013 | 20,000 | 458,400 | ||||||||
George S. Corona | 2016 | 14,875 | 340,935 | 22,312 | 511,391 | |||||
2015 | 53,430 | 1,224,616 | 8,750 | 200,550 | ||||||
2014 | 25,000 | 573,000 | ||||||||
2013 | 12,500 | 286,500 | ||||||||
Olivier G. Thirot | 2016 | 8,500 | 194,820 | 12,750 | 292,230 | |||||
2015 | 15,266 | 349,897 | 2,500 | 57,300 | ||||||
2014 | 8,500 | 194,820 | ||||||||
2013 | 325 | 7,449 | ||||||||
Teresa S. Carroll | 2016 | 8,500 | 194,820 | 12,750 | 292,230 | |||||
2015 | 30,532 | 699,793 | 5,000 | 114,600 | ||||||
2014 | 7,500 | 171,900 | ||||||||
2013 | 3,750 | 85,950 | ||||||||
Peter W. Quigley | 2016 | 8,500 | 194,820 | 12,750 | 292,230 | |||||
2015 | 30,532 | 699,793 | 5,000 | 114,600 | ||||||
2014 | 7,500 | 171,900 | ||||||||
2013 | 5,000 | 114,600 | ||||||||
(1) The Company did not grant stock options during the 2016 fiscal year. All previously outstanding granted stock options for the Named Executive Officers expired during the 2014 fiscal year. As a result, there are no outstanding options to report and, accordingly, these columns have been eliminated from the table.
(2) All outstanding restricted stock grants vest ratably over 4 years. The number of outstanding shares has been determined as of December 31, 2016.
(3) 2015 total includes performance shares earned based upon the level of achievement for both financial measures for 2015. These shares will vest in early 2018.
(4) The market value is determined based on the closing market price of our common shares on the last trading day of the 2016 fiscal year, December 30, 2016 ($22.92).
(5) 2015 performance shares that are based upon achievement of the relative TSR measure, whose performance will not be known until early 2018 at the end of the three year performance period 2015-2017. 2016 performance shares that are based upon achievement of financial measures and the relative TSR measures based on the performance period 2016-2018, as explained in the Long-Term Incentives section of this Proxy Statement. Threshold levels are shown here.
53
Option Exercises and Stock Vested 20162017
Option Awards | Stock Awards | Option Awards | Stock Awards | |||||||||||||||||||||
Name | Number of (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting(1) ($) | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting (1) ($) | ||||||||||||||||
Carl T. Camden | - | - | 68,750 | 1,284,463 | ||||||||||||||||||||
George S. Corona | - | - | 41,875 | 787,356 | — | — | 33,093 | 804,034 | ||||||||||||||||
Olivier G. Thirot | - | - | 6,625 | 120,405 | — | — | 7,950 | 185,166 | ||||||||||||||||
Teresa S. Carroll | - | - | 15,000 | 275,525 | — | — | 12,125 | 289,204 | ||||||||||||||||
Peter W. Quigley | - | - | 15,000 | 274,888 | — | — | 13,375 | 318,454 | ||||||||||||||||
Steven S. Armstrong | — | — | 8,312 | 201,043 | ||||||||||||||||||||
Carl T. Camden | — | — | 18,500 | 404,115 |
(1) Value Realized on Vesting is calculated by multiplying the shares vested times the stock closing price on the day of vesting.
(1) | Value Realized on Vesting is calculated by multiplying the shares vested times the stock closing price on the day of vesting. |
Nonqualified Deferred Compensation 20162017
Name | Executive ($) | Registrant ($) | Aggregate ($) | Aggregate Withdrawals/ Distributions(4) ($) | Aggregate Balance at Last Fiscal Year End(5) ($) | |||||
Carl T. Camden | 192,352 | 96,176 | 292,834 | 0 | 4,711,319 | |||||
George S. Corona | 108,237 | 54,119 | 27,915 | 0 | 1,774,664 | |||||
Teresa S. Carroll | 72,822 | 36,411 | 110,670 | 17,837 | 1,382,646 | |||||
Peter W. Quigley | 89,292 | 44,646 | 69,668 | 0 | 1,038,478 |
(1) Executives may defer a percentage of their base salary (up to 25%) and annual incentive earnings (up to 50%) for retirement. These amounts, as applicable, are reported as a part of the salary or incentive earnings found in the Summary Compensation Table.
(2) Registrant Contributions in Last Fiscal Year above represent Company matching contributions (50% of the first 10% of salary and annual incentive deferrals), and they are also reported as All Other Compensation in the Summary Compensation Table.
(3) Represents actual earnings from the investment of the prior year aggregate balance plus the earnings on current year executive and Company contributions. The aggregate earnings are based on investment options that are also offered to employees who participate in the Company’stax-qualified 401(k) plan and are not “above market”; therefore, they are not included in the Summary Compensation Table.
(4) Participants may elect to receive distributions after separation from service, the later of a specified age and separation of service or a scheduledin-service distribution. Amounts may be paid as a lump sum, monthly installments for up to 20 years, or a combination of the two as elected by the participant. Ms. Carroll received a scheduledin-service distribution from her account in 2016.
(5) Amounts reported in this column include the following amounts that have been reported in the Summary Compensation Table for fiscal years 2006-2016: Carl T. Camden ($2,429,395), George S. Corona ($1,091,837); named in the proxies for fiscal years 2013 - 2016: Peter W. Quigley ($432,218); named in the proxies for fiscal years 2015 - 2016: Teresa S. Carroll ($372,711).
Name | Executive Contributions in Last Fiscal Year(1) ($) | Registrant Contributions in Last Fiscal Year(2) ($) | Aggregate Earnings in Last Fiscal Year(3) ($) | Aggregate Withdrawals/ Distributions(4) ($) | Aggregate Balance at Last Fiscal Year End(5) ($) | |||||||||||||||
George S. Corona | 70,068 | 35,034 | 31,266 | — | 1,910,972 | |||||||||||||||
Olivier G. Thirot | 53,350 | 26,675 | 5,124 | — | 85,089 | |||||||||||||||
Teresa S. Carroll | 65,213 | 32,607 | 225,678 | (20,673 | ) | 1,685,411 | ||||||||||||||
Peter W. Quigley | 54,801 | 27,401 | 167,487 | — | 1,288,107 | |||||||||||||||
Steven S. Armstrong | 36,520 | 16,600 | 367,349 | — | 2,306,242 | |||||||||||||||
Carl T. Camden | 39,825 | 19,913 | 387,233 | (5,158,289 | ) | — |
54
(1) | Executives may defer a percentage of their base salary (up to 25%) and annual incentive earnings (up to 50%) for retirement. These amounts, as applicable, are reported as a part of the salary or incentive earnings found in the Summary Compensation Table. |
(2) | Registrant Contributions in Last Fiscal Year above represent Company matching contributions (50% of the first 10% of salary and annual incentive deferrals), and they are also reported as All Other Compensation in the Summary Compensation Table. All Named Executive Officers have met the three-year vesting requirement for the Company match. |
(3) | Represents actual earnings from the investment of the prior year aggregate balance plus the earnings on current year executive and Company contributions. The aggregate earnings are based on investment options that are also offered to employees who participate in the Company’s tax-qualified 401(k) plan. As these earnings are not “above market” interest payments or preferential earnings, they are not included in the Summary Compensation Table. |
2017 Executive Compensation Tables
(4) | Participants may elect to receive distributions after separation from service, the later of a specified age and separation of service or a scheduled in-service distribution. Amounts may be paid as a lump sum, monthly installments for up to 20 years, or a combination of the two as elected by the participant. Ms. Carroll received a scheduled in-service distribution from her account in 2017. Mr. Camden received a lump sum distribution of his account balance following his separation from employment. |
(5) | Amounts reported in this column include the following amounts that have been reported in the Summary Compensation Table for fiscal years 2006-2017: George S. Corona ($1,196,939); Named in the proxies for fiscal years 2013—2017: Peter W. Quigley ($514,419); Named in the proxies for fiscal years 2015-2017: Olivier G. Thirot ($80,025) and Teresa S. Carroll ($470,531); Named in the proxy for fiscal year 2017: Steven S. Armstrong ($53,120). |
Potential Payments Upon Termination 20162017
This section describes the potential additional payments and benefits under our compensation and benefit plans and arrangements to which the Named Executive Officers would be entitled upon termination of employment under certain circumstances. Named Executive Officers would also be entitled to vested benefits and generally available benefits under our various plans and arrangements, as discussed after the Potential Payments Upon Termination table. The Company does not maintain employment agreements with our Named Executive Officers. The Company did not provide special protections or benefits under any of our compensation or benefits plans upon a change in control or upon a termination following a change in control during 2016. Messrs. Camden and Corona participate in the Executive Severance Plan as described in detail below. The table following the narrative discussion summarizes the amounts payable upon termination under certain circumstances to our current Named Executive Officers, assuming that the executive’s employment terminated on January 1,December 31, 2017, the last day of our fiscal year.
Senior Executive Severance Plan
The Company maintains animplemented the Senior Executive Severance planPlan (“Severance Plan”) for a limited number of Executive Officers.Officers in March 2017. Messrs. CamdenCorona, Thirot and CoronaQuigley, and Ms. Carroll are the only remaining participants in the plan. TheDescribed below and illustrated in the table, below reflectsPotential Payouts Upon Termination, are the different elements payable under the Severance Plan if a Named Executive Officer who is a party to the Severance Plan would experience a qualifying termination. All continuation amounts would be paid over the salary continuation period in compliance with Section 409A. Messrs. Quigley and Thirot, and Ms. Carroll are not participants409A of the Code. Mr. Armstrong participates in the ExecutiveGeneral Severance Plan. Severance benefits for Mr. Quigley and Ms. Carroll, if any, would have been determined at the discretion of the Compensation Committee based upon the individual facts and circumstances at the time of their separation from the Company. Separation benefits for Mr. Thirot during 2016 were definedPlan as outlined in the termsnext section.
If one of his Swiss employment agreement.
If the eligible Named Executive OfficerOfficers were to have experienced a qualifying termination under the Severance Plan in 2016,2017, the Named Executive Officer would have been entitled to a payment that isseverance benefits based on the target incentive amount established undertype of qualified termination and whether they were a Tier 1 or a Tier 2 participant. Mr. Corona is the Company’sonly Tier 1 participant in the Severance Plan. Messrs. Thirot and Quigley, and Ms. Carroll are Tier 2 participants in the Severance Plan. A “qualified termination” is any termination of a participant’s employment: by the Company other than for cause, disability or death; or for “good reason” by a participant in connection with a change in control.
For a qualified termination that occurs not in connection with a change in control, a Tier 1 participant would receive severance payments in the form of base salary continuation for a period of twenty-four months, and a Tier 2 participant would receive severance payments in the form of base salary continuation for a period of eighteen months. In addition, Tier 1 and Tier 2 participants would receive a prorated portion of their annual incentive plancompensation for the fiscal year in which the Named Executive Officer’s termination occurs. This payment wouldoccurred, based on the actual performance results for the year. The pro rata annual incentive payout will be adjusteddetermined based on apro-rata basis according to the number of calendar days the eligible Named Executive Officer was actually employed during such plan year. In February 2017,Prorated annual incentive awards are paid at the same time that incentive compensation for the same year are paid to the other Senior Officers of the Company, following certification by the Committee approved an amendment to the plan that provides for a payment, if any, that is based on actualapplicable performance achieved under the Company’s annual incentive plan for the year in which the eligible Named Executive Officer’s termination occurs, and not the target incentive amount. The Named Executive Officer would not be eligible to receive a payment under the terms of the STIP for the year in which his/her termination occurs, or for a recently completed performance year if termination occurs before incentive payments are made, since a participant must be employed on the date the STIP award is paid following the completion of the performance period.
The eligible Named Executive Officer would receive salarygoals have been attained. Salary continuation payments in an amount equal to such multiple as may be identified in the Severance Plan times the Named Executive Officer’s base salary. Mr. Camden is eligible for a severance multiple of two and Mr. Corona is eligible for a severance multiple of one. Only Mr. Camden is eligible to receive incentive continuation payments, that are based on his target STIP amount and severance multiple of two. The combination of salary continuation (and incentive continuation if applicable) amounts would be paid by the Company in installments over the severance period and in accordance with the Company’s standard payroll practice, subject to the requirements of Section 409A. The
For a qualified termination that occurs in connection with a change in control, a Tier 1 participant would receive a single lump sum severance payment equal to two (2) times the sum of the participant’s annual base salary and target annual incentive compensation. A Tier 2 participant would receive a single lump sum severance payment equal to one and one-half (1.5) times the sum of the participant’s annual base salary and target annual incentive compensation. In addition, Tier 1 and Tier 2 participants would receive a prorated portion of their annual incentive compensation. If the qualifying termination occurred in the same year as the change in control, a prorated portion of the participant’s annual incentive compensation is paid based on achievement of a target level of performance. If the qualifying termination occurred in the two years following a change in control, a prorated portion of the participant’s annual incentive compensation is paid based on the actual performance results achieved for the year. Any pro rata annual incentive payout will be determined based on the number of calendar days the eligible Named Executive Officer was actually employed during such plan year. Prorated annual incentive awards are paid in a lump sum at the same time that incentive compensation for the same year are paid to the other Senior Officers of the Company, following certification by the Committee that applicable performance goals have been attained.
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2017 Executive Compensation Tables
Subject to the participant’s timely election of continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), the Company would provide comparable medical (including prescription drug), dental, vision, and hospitalization benefits to the eligible Named Executive Officer and his or her eligible dependents for the severance period, provided the Named Executive Officer continues to pay the applicable employee rate for such coverage and the Named Executive Officer remains eligible for COBRA coverage. The severance period for a Tier 1 participant is 24 months and for a Tier 2 participant is 18 months.
The eligible Named Executive Officer will be entitled to receive reimbursement for professional outplacement services actually incurred during the initial12-month period following termination, not to exceed $10,000.
The eligible Named Executive Officers, as a condition to receiving payments under the Severance Plan, are required to agree not to directly or indirectly, individually or in any capacity or relationship, engage in any business or employment, or aid or endeavor to assist any business or legal entity, that is in direct competition with the business of the Company for the 12 months following termination.
During this period,the 12 months following termination, the eligible Named Executive Officers must also agree to not induce any employee of the Company to terminate employment with the Company, nor knowingly offer employment to any person who is or who was employed by the Company unless such person has ceased to be employed by the Company for a period of at least six months.
55
Named Executive Officers covered under the Severance Plan may not disparage, slander, or injure the business reputation or goodwill of the Company.
Named Executive Officers must maintain as secret and confidential all protected information such as trade secrets, confidential and proprietary business information of the Company, and any other information of the Company, including but not limited to customer lists, sources of supply, processes, plans, materials, pricing information, internal memoranda, marketing plans, internal policies, and products and services which may be developed from time to time by the Company and its agents or employees, including the Named Executive Officer.
Noncompliance with any of the above may result in the loss of severance benefits.
Event and Amounts | Carl T. Camden ($) | George S. Corona ($) | Olivier G. ($) | Teresa S. Carroll ($) | Peter W. Quigley ($) | |||||||||||||||
Involuntary Termination (For Cause) | ||||||||||||||||||||
No other payments due
| ||||||||||||||||||||
Voluntary Termination | ||||||||||||||||||||
No other payments due
| ||||||||||||||||||||
Normal Retirement (Age 62 and 5 Years of Service) | ||||||||||||||||||||
Performance Shares (Equity-Based)(1) | 2,798,176 | |||||||||||||||||||
Total | 2,798,176 | |||||||||||||||||||
Involuntary Termination (Not For Cause) | ||||||||||||||||||||
Cash Severance(2) | 4,600,000 | 655,000 | 128,750 | |||||||||||||||||
STIP Payout in Year of Termination (3) | 1,300,000 | 589,500 | ||||||||||||||||||
Performance Awards (Cash-Based) (4) | 0 | 0 | 0 | 0 | ||||||||||||||||
Performance Shares (Equity-Based)(1) | 2,798,176 | 1,224,202 | 447,182 | 699,544 | 699,544 | |||||||||||||||
Benefits Continuation (5) | 22,075 | 10,512 | ||||||||||||||||||
Outplacement Services (6) | 10,000 | 10,000 | ||||||||||||||||||
Total | 8,730,252 | 2,489,214 | 575,932 | 699,544 | 699,544 | |||||||||||||||
Termination For Good Reason | ||||||||||||||||||||
Cash Severance (2) | 4,600,000 | |||||||||||||||||||
STIP Payout in Year of Termination (3) | 1,300,000 | |||||||||||||||||||
Benefits Continuation(5) | 22,075 | |||||||||||||||||||
Outplacement Services(6) | 10,000 | |||||||||||||||||||
Total | 5,932,076 | |||||||||||||||||||
Death or Disability | ||||||||||||||||||||
Performance Awards (Cash-Based)(4) | 0 | 0 | 0 | 0 | ||||||||||||||||
Performance Shares (Equity-Based)(1) | 2,798,176 | 1,224,202 | 447,182 | 699,544 | 699,544 | |||||||||||||||
Restricted Shares(7) | 598,464 | 304,355 | 94,797 | 135,434 | 163,695 | |||||||||||||||
Total | 3,396,640 | 1,528,557 | 541,979 | �� | 834,978 | 863,239 | ||||||||||||||
Termination Following a Change-in-Control | ||||||||||||||||||||
No other payments due |
(1) InThe General Severance Plan was amended and restated effective March 27, 2017 to include the eventSenior Officers who are not covered by the Senior Executive Severance Plan. Mr. Armstrong is the only Named Executive Officer in 2017 who participates in this plan. Described below and illustrated in the table, Potential Payouts Upon Termination, are the different elements payable under the General Severance Plan if Mr. Armstrong would experience an involuntary termination of employment. All continuation amounts would be paid over the salary continuation period in compliance with Section 409A.
If Mr. Armstrong were to have experienced an “involuntary termination of employment” under the General Severance Plan in 2017, he would have been entitled to severance benefits. “Involuntary termination of employment” is defined in the General Severance Plan as the termination of employment of an eligible employee by the employer, other than: for cause; as a result of his or her failure to accept such additional or revised responsibilities as communicated by the employer; by reason of the sale of his employer or any portion of the employer’s assets (whether by asset or stock sale), provided he or she continues employment with the purchaser thereof; or a voluntary termination of employment of any kind.
For an involuntary termination, an eligible employee would receive severance payments in the form of base salary continuation for a period of weeks that is determined based on his or her job title/level and years of service. Mr. Armstrong would have been eligible for 48 weeks of severance as of December 31, 2017. Salary continuation amounts would be paid by the Company in installments and in accordance with the Company’s standard payroll practice, subject to the requirements of Section 409A.
Subject to the eligible employee’s timely election of continued coverage under COBRA and the Company’s receipt of the signed severance agreement, the Company would provide comparable medical (including prescription drug), dental, vision, and hospitalization benefits to the eligible Named Executive Officer and his or her eligible dependents for a period of time that is determined based on the number of weeks of severance that the employee is eligible for. The Company pays the full cost of COBRA during the severance period. Following completion of the severance period, the employee is responsible for the full cost of maintaining COBRA benefits. Based on the number of weeks of severance that Mr. Armstrong would have been eligible for, he would have received 12 months of company-paid COBRA premiums.
The eligible Named Executive Officer will be entitled to receive reimbursement for professional outplacement services actually incurred during the initial 6-month period following termination, not to exceed $7,500.
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2017 Executive Compensation Tables
Severance benefits under the General Severance Plan are conditioned upon the terms of the severance agreement that include: non-competition; non-solicitation of employees or customers; maintaining confidentiality of information and trade secrets of the Company and all affiliates; and non-disparagement of the Company and all officers and employees.
Treatment of Long-Term Incentive Awards
Each equity-based award is conditioned upon the grantee’s acceptance of the terms of the EIP and the grant agreement, which includes restrictive covenants such as post-employment conditions not to solicit the Company’s employees or customers and not to compete against the Company for twelve months following any termination of employment, and indefinite covenants covering non-disparagement and confidentiality terms. Each of our Named Executive Officer’s termination of employment dueperformance-based equity awards is subject to disability, death, normal retirement (defined as age 62 with five years of service), or termination by the Company without Cause, at the end of the performance period and following approval by the Compensation Committee, the Named Executive Officer (or the Named Executive Officer’s beneficiary) would receive a pro rata portion of the equity-based Performance Award that would have otherwise vested if employment had continued until the end of the performance period, based on the portion of the performance period that the officerCompany’s Clawback Policy, which was employed and based on the performance level achieved. Amounts shown below are prorated for 2015 performance shares based on financial measures that were earned but not yet vested and a target level of performance shares that are based on the relative TSR measure with performance to be determineddescribed earlier in early 2018, andthis document. Provisions for the 2016 performance shares a prorated target leveltreatment of performance for all measures as performance is not yet known and will be determined atlong-term incentive awards upon various termination scenarios are outlined in the end of the performance period in early 2019 (assuming the December 30, 2016 stock value of $22.92).table below.
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Termination | Restricted Stock/Units (Time Vesting) | Performance Shares (Performance and Time Vesting) | ||
Termination not for Cause in connection with a Change-in-Control | Immediate Vesting | Immediate Vesting at Target | ||
Other Termination not for Cause | Prorated based on actual results (as determined at the end of the cycle), subject to employment for at least one year after the date grant was approved | |||
Termination for Good Reason in connection with a Change-in-Control | Forfeit | Forfeit | ||
Termination for Cause | Forfeit | Forfeit | ||
Voluntarily Quit | Forfeit | Forfeit | ||
Retirement | Forfeit | Prorated based on actual results (as determined at the end of the cycle) for “Normal Retirement” defined as age 62 with 5 years of service | ||
Death or Disability | Prorated | Prorated based on actual results |
(2) The value of cash severance includes base salary continuation for Messrs. Camden and Corona, and incentive continuation for Mr. Camden. Base Salary continuation is calculated by taking the annual salary times the relevant severance plan multiple according to the Severance Plan. Incentive continuation is calculated by taking the annual target incentive times the relevant severance plan multiple as provided in the Severance Plan. UnderBased on the terms of Mr. Thirot’s Swiss employment agreement, if he is terminated by the Company, other than for willful misconduct, he will be provided with either three months’ notice or three months of salary in lieu of notice, at the Company’s discretion. The table shows the severance benefit if the Company elects to provide three monthsplans and treatment of salary in lieu of notice.
(3) The value ofpro-rata target incentive with respect to year of termination represents the calculated target incentiveLTI awards for the Named Executive Officers if they had terminated on January 1, 2017. If the termination date is other than the last day of the Company’s fiscal year, incentive earned would equal the target incentive prorated for the number of days worked in the year.
(4) In the event of a Named Executive Officer’seach upon termination of employment due to disability, death or termination byas outlined above, the Company without Cause, attable below illustrates the end of the performance period theamounts that each Named Executive Officer (or the Named Executive Officer’s beneficiary) would receive a pro rata portionin each of the cash-based Performance Award that would have otherwise vested if employment had continued until the end of the performance period, based on the portion of the performance period that the officer was employed and based on the performance level achieved. Based on Company performance for the three-year 2014-2016 performance period, a threshold level of performance was not achieved for either measure, resulting in no payout.potential termination scenarios.
(5) The value of the healthcare benefit provided is calculated as the Company-paid portion of the medical plan cost, times the number of months eligible according to the Severance Plan. Costs include medical, dental, and vision (assumes no change in Health Plan or coverage type) and assumes a 10% health care coverage cost increase in second year (as applicable).
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2017 Executive continues to make normal employee contributions during the severance period.Compensation Tables
(6) Represents the maximum allowed benefit for reimbursement of outplacement services for participants in the Severance Plan.
Event and Amounts | George S. Corona ($) | Olivier G. Thirot ($) | Teresa S. Carroll ($) | Peter W. Quigley ($) | Steven S. Armstrong ($) | |||||||||||||||
Involuntary Termination (For Cause) | ||||||||||||||||||||
No other payments due | ||||||||||||||||||||
Voluntary Termination | ||||||||||||||||||||
No other payments due | ||||||||||||||||||||
Death or Disability | ||||||||||||||||||||
Performance Shares (Equity-Based)(1) | 3,500,171 | 1,277,350 | 1,891,129 | 1,891,129 | 903,069 | |||||||||||||||
Restricted Shares(2) | 380,880 | 159,148 | 185,326 | 185,326 | 93,400 | |||||||||||||||
Total | 3,881,051 | 1,436,498 | 2,076,455 | 2,076,455 | 996,469 | |||||||||||||||
Normal Retirement (Age 62 and 5 Years of Service)(3) | ||||||||||||||||||||
No other payments due | n/a | n/a | n/a | n/a | n/a | |||||||||||||||
Involuntary Termination (Not For Cause) | ||||||||||||||||||||
Cash Severance(4) | 2,000,000 | 800,250 | 862,500 | 862,500 | 306,462 | |||||||||||||||
Pro-Rated Annual Incentive(5) | 1,051,064 | 400,045 | 437,723 | 416,443 | — | |||||||||||||||
Performance Shares (Equity-Based)(1) | 2,864,862 | 1,050,327 | 1,637,064 | 1,637,064 | 818,532 | |||||||||||||||
Restricted Shares(2) | — | — | — | — | — | |||||||||||||||
Benefits Continuation(6) | 24,772 | 21,743 | 21,539 | 18,284 | 23,244 | |||||||||||||||
Outplacement Services(7) | 10,000 | 10,000 | 10,000 | 10,000 | 7,500 | |||||||||||||||
Total | 5,950,698 | 2,282,365 | 2,968,826 | 2,944,291 | 1,155,737 | |||||||||||||||
Termination in Connection with a Change-in-Control - For Good Reason | ||||||||||||||||||||
Cash Severance(4) | 4,600,000 | 1,400,438 | 1,595,625 | 1,595,625 | — | |||||||||||||||
Pro-Rated Annual Incentive(5) | 1,300,000 | 400,125 | 488,750 | 488,750 | — | |||||||||||||||
Performance Shares (Equity-Based)(1) | — | — | — | — | — | |||||||||||||||
Restricted Shares(2) | — | — | — | — | — | |||||||||||||||
Benefits Continuation(6) | 24,772 | 21,743 | 21,539 | 18,284 | — | |||||||||||||||
Outplacement Services(7) | 10,000 | 10,000 | 10,000 | 10,000 | — | |||||||||||||||
Total | 5,934,772 | 1,832,306 | 2,115,914 | 2,112,659 | — | |||||||||||||||
Termination in Connection with a Change-in-Control - Not For Cause | ||||||||||||||||||||
Cash Severance(4) | 4,600,000 | 1,400,438 | 1,595,625 | 1,595,625 | 306,462 | |||||||||||||||
Pro-Rated Annual Incentive(5) | 1,300,000 | 400,125 | 488,750 | 488,750 | — | |||||||||||||||
Performance Shares (Equity-Based)(1) | 5,176,430 | 1,963,190 | 2,631,055 | 2,631,055 | 1,188,040 | |||||||||||||||
Restricted Shares(2) | 1,434,347 | 584,942 | 666,506 | 666,506 | 321,459 | |||||||||||||||
Benefits Continuation(6) | 24,772 | 21,743 | 21,539 | 18,284 | 23,244 | |||||||||||||||
Outplacement Services(7) | 10,000 | 10,000 | 10,000 | 10,000 | 7,500 | |||||||||||||||
Total | 12,545,549 | 4,380,438 | 5,413,475 | 5,410,220 | 1,846,705 |
(1) | In the event of a Named Executive Officer’s termination of employment due to disability, death, normal retirement (defined as age 62 with five years of service), or termination by the Company without Cause, at the end of the performance period and following approval by the Compensation Committee, the Named Executive Officer (or the Named Executive Officer’s beneficiary) would receive a pro rata portion of the equity-based Performance Award that would have otherwise vested if employment had continued until the end of the performance period, based on the portion of the performance period that the officer was employed and based on the performance level achieved. For termination by the Company without Cause, the Named Executive Officer must have been employed for at least one year following the date of each grant in order to be eligible to receive prorated |
59 |
2017 Executive Compensation Tables
(7) In the event of a Named Executive Officer’s termination of employment due to disability or death, the Named Executive Officer (or the Named Executive Officer’s beneficiary) would receive apro-rata settlement of unvested restricted stock outstanding at the time of termination. For each grant of restricted stock, the number of restricted shares settled would equal the total number of restricted shares originally granted times the ratio of days employed since the grant date divided by total number of days in the vesting period less the number of restricted shares already settled on the anniversary dates of the grant. The value of thispro-rata settlement (assuming the December 30, 2016 stock value of $22.92) is shown in the table.
performance shares. As such, the values of the 2017 performance shares are not included in the totals for this termination event. Amounts shown in the table above include 2015 performance shares based on financial measures and the Relative TSR measure that were earned but not yet vested with certification by the Committee to occur in early 2018, and for the 2016 and 2017 performance shares a prorated target level of performance for all measures as performance is not yet known and will be determined at the end of the performance period in early 2019 and early 2020 respectively. Upon the event of a Change in Control, if awards are not assumed, converted, or replaced by the resulting entity, all vesting restrictions on outstanding Performance Awards shall lapse, with any applicable performance goals deemed to be satisfied as if “target” performance had been achieved and all such Awards become fully vested and exercisable, effective as of the date of such Change in Control. The value under the pro rata settlement, or Change in Control settlement (assuming the December 29, 2017 stock value of $27.27) is shown in the table. |
(2) | In the event of a Named Executive Officer’s termination of employment due to disability or death, the Named Executive Officer (or the Named Executive Officer’s beneficiary) would receive a pro rata settlement of unvested restricted shares outstanding at the time of termination. For each grant of restricted stock awards/units, the number of shares settled would equal the total number of restricted shares originally granted times the ratio of days employed since the grant date divided by total number of days in the vesting period less the number of restricted shares already settled on the anniversary dates of the grant. Upon the event of a Change in Control, if awards are not assumed, converted, or replaced by the resulting entity, all vesting restrictions on outstanding Restricted Share awards/units shall lapse, and all such Awards become fully vested and exercisable, effective as of the date of such Change in Control. The value under the prorated settlement, or Change in Control settlement (assuming the December 29, 2017 stock value of $27.27) is shown in the table. |
(3) | Mr. Camden retired from the Company in May 2017. Compensation received by Mr. Camden included amounts in the “Salary” and “All Other Compensation” columns of the Summary Compensation Table. He is also eligible for prorated performance shares as shown in the Outstanding Equity Awards at Fiscal Year End Table because he was Normal Retirement eligible under the terms of the EIP. Mr. Camden forfeited all unvested restricted stock at the time of his termination. Company-provided medical and dental benefits for Mr. Camden terminated at the end of the month in which he retired pursuant to the terms of the Summary Plan Description as applied to all employees. |
(4) | Per the Kelly Services Inc. Senior Executive Severance Plan, for involuntary termination without cause and for termination for good reason, the value of cash severance includes base salary continuation for Mr. Corona for 24 months, and Messrs. Quigley, Thirot and Ms. Carroll for 18 months. For payments under Change in Control, with qualifying termination, Mr. Corona would receive a lump sum payment equal to 2 times the sum of his annual base salary and target annual incentive; and Messrs. Quigley, Thirot and Ms. Carroll would receive a lump sum payment equal to 1.5 times the sum of base salary and target annual incentive. Mr. Armstrong is covered under the Kelly Services Inc. General Severance plan and is eligible to receive base salary continuation for 48 weeks, only for involuntary termination by the company without cause, with or without a change in control. |
(5) | In the event of an involuntary termination by the Company without cause, or termination by the Named Executive Officer for good reason in connection with a change in control, Messrs. Corona, Quigley, Thirot and Ms. Carroll are eligible to receive a pro rata portion of their annual Incentive Compensation for such fiscal year that would otherwise be paid if his or her employment or service had continued until the end of such performance period based on the actual results for such year. The value of pro rata target incentive with respect to year of termination represents the calculated target incentive for the Named Executive Officers if they had terminated on December 31, 2017. The severance plan covering Mr. Armstrong does not provide payment for annual Incentive compensation, regardless of termination reason. |
(6) | The value of the health care benefit provided is calculated as the Company-paid portion of the medical plan cost, times the number of months eligible according to the applicable severance plan. Coverage can include medical, dental, and vision (assumes no change in Health Plan or coverage type) and assumes a 10% health care coverage cost increase in second year (as applicable). Named Executive Officers participating in the Senior Executive Severance Plan continue to pay the employee rate for COBRA coverage during the severance period. Named Executive Officers participating in the General Severance Plan are not required to pay the employee portion of COBRA during the severance period as the Company covers the full COBRA cost. |
(7) | Represents the maximum allowed benefit for reimbursement of outplacement services for participants in the applicable Severance Plan. The severance plan that covers Mr. Armstrong does not provide outplacement benefits in any termination scenario outside of involuntary termination by the Company without cause. |
The Named Executive Officers would also be entitled to the vested benefits included in the Outstanding Equity Awards at FiscalYear-End table and the Nonqualified Deferred Compensation table. In addition, the amounts shown in the table above do not include payments and benefits to the extent they are provided on anon-discriminatory basis to salaried employees generally upon termination of employment or certain types of termination of employment. These include accrued salary and vacation pay, and life insurance benefits.
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CEO Pay Ratio
As required by Section 953(b) of Dodd-Frank and Item 402(u) of Regulation S-K, we are providing the required information about the relationship of the annual total compensation of our employees and the annual total compensation of Mr. Corona, our President and Chief Executive Officer (the “CEO”), as follows:
For fiscal 2017, our last completed fiscal year:
The pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described below. The SEC rules for determining the employee population and identifying the median employee provide companies with flexibility surrounding the elements of compensation to be included and various methodologies for gathering the employee population for inclusion in the analysis. The pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices, and may utilize different methodologies, exclusions, estimates, samplings and assumptions in calculating their own pay ratios.
To identify the median of the annual total compensation of all our employees, as well as to determine the annual total compensation of our median employee, the methodology that we used and the material assumptions and adjustments that we used to identify the median and determine annual total compensation are outlined below:
Category | U.S. | Non U.S. | Total | |||||||||
Regular | 4,722 | 3,006 | 7,728 | |||||||||
Temporary | 74,294 | 59,459 | 133,753 | |||||||||
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79,016 | 62,465 | 141,481 | ||||||||||
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CEO Pay Ratio
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Proposal 3: Amendment and Restatement of the Company’s Certificate of Incorporation
PROPOSAL 3 - ADVISORY VOTE TO APPROVE THE FREQUENCYAMENDMENT AND RESTATEMENT OF THE COMPANY’S EXECUTIVE COMPENSATIONCERTIFICATE OF INCORPORATION TO ELIMINATE CERTAIN OBSOLETE PROVISIONS, TO ELIMINATE A “STAKEHOLDER PROVISION” THAT COULD CONFLICT WITH DELAWARE LAW, AND TO MAKE ADDITIONAL REVISIONS IN THE INTERESTS OF MODERNIZATION
The Dodd-Frank Act enables our stockholdersAs described in the “Corporate Governance” section of this Proxy Statement, the Board recently formed a special committee consisting of the independent Directors to indicate how frequently we should seek an advisory vote on the compensation of our named executive officers, as disclosed pursuantreview and make recommendations to the SEC’s compensation disclosure rules. By voting on this Proposal, stockholders may indicate whether they would prefer an advisory vote on named executive officer compensation onBoard about governance matters. Upon recommendation of the special committee, the Board approved and adopted, and recommends for stockholder approval, amendments to the Company’s Restated Certificate of Incorporation. These amendments eliminate certain obsolete provisions, eliminate a one year, two year, or three year basis.“stakeholder provision” that could conflict with Delaware law, and make additional revisions in the interests of modernization. The amendments are as follows:
After careful consideration of this Proposal, our Board of Directors has determined
In formulating its recommendation, our Board of Directors considered that an annual advisory vote on executive compensation will allow our stockholders to provide us with their direct input on our compensation philosophy, policies and practices as disclosed in the proxy statement every year. We understand that our stockholders may have different views as to what is the best approach for the Company, and we look forward to hearing from our stockholders on this Proposal.
You may cast your vote on your preferred voting frequency by choosing the option of one year, two years, three years, or abstain from voting when you vote in response to the resolution set forth below.
“RESOLVED, that the option of once every year, two years, or three years that receives the highest number of votes cast for this resolution will be determined to be the preferred frequency with which the Company is to hold a stockholder vote to approvecarried out in 2010;
The optionCertificate of one year, two years, or three years that receives the highest number of votes cast by stockholders will be the frequency for the advisory vote on executive compensation thatIncorporation;
Article TENTH currently requires that the Board, when evaluating any offer of another party to make a tender or exchange offer for any equity security of the Company, to merge or consolidate the Company with another corporation or to acquire all or substantially all of the properties and assets of the Company, give “due consideration to such factors as the Board of Directors ordetermines to be relevant, including without limitation, the Company in any way, the Board of Directors may decide that it is in the best interests of our stockholderssocial, legal and the Company to hold an advisory vote on executive compensation more or less frequently than the option approved by our stockholders.
The Board of Directors recommends a vote “FOR” the option of once every year as the frequency with which stockholders are provided an advisory vote on executive compensation as disclosed pursuant to the compensation disclosure ruleseconomic effects of the Securities and Exchange Commission.
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PROPOSAL 4 - APPROVE THE AMENDED AND RESTATED EQUITY INCENTIVE PLAN
The Company adopted the Kelly Services, Inc. Equity Incentive Plan (the “Plan” or the “Equity Incentive Plan”) in 2005. The Equity Incentive Plan has been amended by action of the Company’s Board of Directors on several occasions since its adoption. The most recent amendment was adopted by the Board of Directors on February 16, 2017, subject to the approval of our stockholders at the 2017 Annual Meeting. The Plan provides for the grant to keyproposed transaction upon employees, andnon-employee directors of the Company of options to purchase shares of Class A stockcustomers, suppliers, and other equity-based awards,affected persons, firms and corporations and on the communities in which may include incentive stock options,non-qualified stock options, stock appreciation rights (“SARs”), restricted shares, restricted share units, performance awards denominated in cash amounts, performance shares, performance share units, or other stock-based awards (collectively, “Awards”).
The amended and restated Plan sets forth the following changes and requirements:
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Increases the maximum amount of a cash-denominated award to an individual employee from $1,000,000 to $2,500,000 multiplied by the number of years in any applicable performance period(s);
Eliminates all provisions for restoration options;
Prohibits the recycling of stock options and SARs;
Prohibits the buyout of stock options and SARs;
Require a minimum of twelve-month performance period for performance awards (Note: Our regular Performance Share Awards have a three-year performance period);
Requires a minimum twelve-month vesting period for stock options and SARs; and
Extends the expiration date of the Plan with respect to Nasdaq requirements, for a new ten year period ending February 15, 2027.
The above changes were made in order to be consistent with current market practices and reflect the Company’s objectives for maintaining a strong alignment between pay and performance. A summary of the principal features of the Equity Incentive Plan is set forth below. This summary is qualified in its entirety by reference to the full text of the Plan, which is attached as Exhibit A to this proxy statement.
The Board of Directors is asking the Company’s stockholders to approve the Equity Incentive Plan, as amended and restated. The Plan is intended to allow the Committee to pay compensation that may be exempt under the qualified performance-based compensation exception under Section 162(m) of the Code, if shareholders approve the Plan. Treasury Regulations require stockholder approval of the Plan at least every five years for this purpose. Nasdaq regulations require that shareholders approve the entire plan at least every ten years. It is our intent that approval of the amended and restated Plan satisfy the requirements of both provisions.
The Board of Directors unanimously recommends a vote “FOR” the approval of the Company’s Amended and Restated Equity Incentive Plan in substantially the form set forth in Exhibit A.
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Description of the Equity Incentive Plan
The following summary outlines the principal features of the Equity Incentive Plan.
Purpose. The purpose of the Plan is to provide for long-term incentive or other performance related compensation to selected key employees and directors of the Company or an affiliated entity of the Company for their contributions to the Company’s growth and profitability. Such compensation is intended to help the Company attract and retain superior individuals, and to give those individuals shared financial interests with the Company’s stockholders that are believed to positively affect their job performance.
Eligibility. The persons who are eligible to receive Awards pursuant to the Plan are key employees and directors of the Company or any affiliated entity of the Company who are designated by the Committee (as defined below) from time to time. The Company estimates that approximately 100 officers would currently be eligible for Awards under the Plan. The Plan also provides for modest discretionary stock awards on an exception basis for employees below the officer level.
Administration. The Equity Incentive Plan is administered by the Compensation Committee of the Board or any other committee designated by the Board to establish the necessary performance goals and administer the Plan (the “Committee”). The Committee must be comprised of two or more“non-employee” directors within the meaning of Rule16b-3 of the SEC. In addition, to the extent that the Company determines it desirable to qualify Awards granted under the Plan as “performance-based compensation” under Code Section 162(m), the Committee must be comprised solely of two or more “outside directors” within the meaning of Code Section 162(m).
The Committee may delegate to the chief executive officer of the Company, if also a director, authority to grant Awards under the Plan to employees who are not required to report transactions in Company stock (“Section 16 Reporting Persons”) or who are not senior vice presidents or officers of higher rank.
Award Types. The Equity Incentive Plan permits the Committee to grant, in its discretion, incentive stock options,non-qualified stock options, SARs, restricted shares, restricted share units, performance awards denominated in cash amounts, performance shares, performance share units, additional shares, or other stock-based awards, each of which is described hereafter.
Maximum Number of Shares Awardable Under the Plan. The Equity Incentive Plan was designed as aso-called “evergreen” plan in that it did not specify a maximum number of shares of Class A stock that may be issued and made subject to issuance over the life of the Plan. Instead, it provided that, at any given time, the maximum number of shares that may be issued and made subject to future issuance shall equal 15% of the number of shares of Class A stock that were outstanding (exclusive of treasury shares) as of the end of the immediately preceding Company fiscal year (rounded downward if necessary to eliminate fractional shares), reduced to take into account various Awards made during the period consisting of the immediately preceding four complete fiscal years of the Companycorporation and its then-current fiscal year to date (the “Adjustment Period”), and increased by the number of shares as to which stock options granted during the Adjustment Period have since expired or terminated for any reason other than exercise of such options or related SARs or by any shares transferred to the Company to satisfy the exercise price of any options. Stock options, SARs and other equity-based Awards assumed by the Company in a merger or acquisition of another company would not count against the shares available for Award under the Plan.
Commencing with the Company’s 2017 shareholders meeting, the maximum number of shares of Company stock that may be issued or delivered pursuant to awards under the Equity Incentive Plan will be 4,700,000. Shares issued or delivered pursuant to an award may be authorized but unissued shares, treasury shares, including shares purchased in the open market, or a combination of the foregoing. With respect to awards granted on or after the Company’s 2017 shareholders meeting, the following shares shall also be available for an award under the Plan: shares covered by an award that expires or is forfeited, canceled, surrendered or otherwise terminated without issuance of such shares and the release of the “substantial risk of forfeiture” under section 83 of the Code, if applicable; shares covered by an award that is settled only in cash; shares granted through the assumption of, or in substitution for, outstanding awards granted by a company to individuals who become employees or directors as the result of a merger, consolidation, acquisition or other corporate transaction involving such company and the Company or any of its affiliates (except as may be required by reason of Section 422 of the Code or the rules and regulations of any stock exchange or other trading market on which the shares are listed); and any shares from awards exercised for or settled in vested andnon-forfeitable shares that are later returned to the Company pursuant to any compensation recoupment policy, provision or agreement. The following shares issued or delivered under this Plan shall not again be available for grant as described above: shares tendered in payment of the exercise price of an option; shares withheld by the Company or any affiliated entity to satisfy a tax withholding obligation; and shares repurchased by the Company with option proceeds.
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In addition, the number of shares covered by outstanding incentive stock options, plus the number of shares issued in settlement of exercised incentive stock options under the Plan, may not exceed 4,000,000 shares.
Cash Denominated Award Limits. The maximum amount payable with respect to a cash-denominated performance award to any single employee during any performance period is $2,500,000 multiplied by the number of years included in such performance period. The maximum amount of cash compensation that may be paid, taking any deferrals into account for the year of deferral, to any single director with respect to each twelve-month period beginning with each annual shareholder meeting is $500,000.
Equity Awards to Directors.The maximum fair market value, as determined on the date of grant, of Company stock that may be granted to any single director with respect to each twelve-month period beginning with each annual shareholder meeting is $500,000.
Incentive Stock Options. Incentive stock options entitle the holder to purchase a certain number of shares of Class A stock at an exercise price specified at the time the option is granted. The exercise price per share of Class A stock that may be purchased under an incentive stock option may not be less than 100% of the fair market value of a share of Class A stock on the date the option is granted (110% in the case of certain stockholders). The aggregate fair market value of all shares of Class A stock subject to incentive stock options that become exercisable for the first time during any year may not exceed $100,000.
Non-Qualified Stock Options.Non-qualified stock options, which are stock options that are not incentive stock options, entitle the holder to purchase a certain number of shares of Class A stock at an exercise price which is at least equal to 100% of the fair market value of a share of Class A stock on the date the option is granted.
Number of Shares Underlying Options. The maximum number of shares that may be granted as options (whether or not in tandem with SARs) during any consecutive five calendar years to any single employee is 750,000.
Exercisability of Options. At the time of grant, the Committee will specify the time at which any portion of an option first becomes exercisable and the latest date on which the option may be exercised, provided that no option shall be exercisable prior to twelve (12) months of continued service by a grantee following the date of grant, except as otherwise provided in the option award or this Plan for termination of service due to death or disability. The expiration date for any incentive stock option granted to a 10% owner will not be longer than five years after the date of grant, and the expiration date for any other option will not be longer than ten years after the date of grant. The Committee shall determine the disposition of the grant of each option in the event of the death, disability or other termination of employment of an employee or termination of service as a director. The Committee may, in its discretion, accelerate the exercisability of any portion of an option or provide for automatic acceleration of exercisability upon the occurrence of such events as it may specify, such as upon the death or disability of a grantee.
Option Price. The Committee will determine the exercise price per share of options but in no event will the exercise price be less than the fair market value of a share of Class A stock on the date the option is granted. Except as otherwise limited by the Committee at the time of grant, payment for shares of Class A stock purchased upon exercise of an option shall be made on the effective date of such exercise by one or a combination of the following means: (1) entirely in cash; (2) by delivery of whole shares of Class A stock owned by the option holder for more than six months on the date of surrender; or (3) pursuant to a cashless exercise program implemented by the Company in connection with the Plan.
Restriction on Repricing. Absent stockholder approval, neither the Committee nor the Board of Directors has the authority to reprice any Option or SAR after the date of the initial grant with a lower exercise price in substitution for the original exercise price.
SARs. SARs are rights that, when exercised, entitle the holder to the appreciation in value of the number of shares of Class A stock specified in the grant from the date granted to the date exercised. An exercised SAR may be settled in cash or stock, or any combination of cash and stock, as specified by the holder. SARs may be either stand-alone SARs, which are not granted in conjunction with an option, or tandem SARs, which may be granted at the same time as or subsequent to the time that its related option is granted. The exercise price of a tandem SAR will be the exercise price per share under the related option (but not less than the fair market value of a share of Class A stock on the date of the grant of the SAR), and the exercise price per share subject to a stand-alone SAR will not be less than the fair market value of a share of Class A
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stock on the effective date of grant of the SAR. No stand-alone SAR shall be exercisable after the expiration of ten (10) years after the effective date of grant of such SAR and no SAR shall be exercisable prior to twelve (12) months of continued service by a grantee following the date of grant, except as otherwise provided in the option award or this Plan for termination of service due to death or disability. A SAR will be exercisable after a grantee’s termination of employment or service to the extent and during such period as determined in the Committee’s discretion, and as set forth in the Award agreement evidencing such SAR. Tandem SARs related to an incentive stock option are exercisable only when the fair market value of a share of Class A stock exceeds the exercise price of the incentive stock option. The maximum number of shares that may be granted in connection with stand-alone SARs during any consecutive five year period to a single employee is 750,000.
Restricted Shares. Restricted shares consist of shares of Class A stock issued under the Plan that are subject to certain restrictions established by the Committee, which may include the achievement of performance goals specified by the Committee from a list stated under “Performance Awards to Named Executive Officers” below, which are designated as subject to the requirements of Section 162(m) of the Code. Restricted stock awards may not be disposed of by the recipient until the restrictions imposed by the Committee have lapsed. If a grantee remains an employee or director throughout the restriction period (which may not be less than 12 months), and upon satisfaction of any other restrictions imposed by the Committee, the restricted stock award will become fully vested. If the grantee ceases to be an employee or director during the restriction period due to death or disability, the Award shall be vested in proportion to the then elapsed portion of the restriction period, and the remainder of the Award will be forfeited, unless the Committee determines to waive the forfeiture. If the grantee otherwise ceases to be an employee or director during the restriction period, the Committee shall determine the disposition of the Award. The grantee of restricted shares will receive any cash dividends paid with respect to such shares during the restriction period. Anynon-cash dividends will be retained by the Company and will be paid upon the vesting of the restricted shares.
Restricted Share Units. Restricted share units are awards that may consist of Class A stock, cash equivalents of Class A stock, or a combination of both. Payout of a restricted share unit award is subject to certain restrictions established by the Committee, which may include the achievement of performance goals specified by the Committee from a list stated under “Performance Awards to Named Executive Officers” below, which are designated as subject to the requirements of Section 162(m) of the Code. If a grantee remains an employee or director throughout the restriction period (which may not be less than 12 months), and upon satisfaction of any other restrictions imposed by the Committee, the Award shall be settled in cash, whole shares of Class A stock, or a combination of cash and stock, as the Committee shall determine.
Number of Shares in connection with Restricted Shares and Restricted Share Units. The maximum number of shares subject to restricted shares and restricted share units that may be granted to any employee with respect to a single performance period during any consecutive five calendar years is 750,000.
Performance Awards Generally. The following terms apply to all “performance awards” granted under the Plan. Performance awards may be either cash-denominated performance awards or performance shares or performance share units, which are denominated in shares of Class A stock or share units. All performance awards are subject to forfeiture if performance goals are not attained. The value of any such stock awarded will be the fair market value of the stock on the date of settlement. At the time of grant, the Committee shall establish one or more performance periods of no less than twelve (12) months with respect to the performance award. If the performance award is granted during the first fiscal quarter of the Company’s fiscal year, the performance period will begin on the first day of the fiscal year, and can also be based on calendar years. For grants made after the first fiscal quarter of the Company’s fiscal year, the Committee can also use the performance period that starts on the first day of the fiscal year or calendar year, and the Committee can choose to prorate the grants. Otherwise, the performance period will begin on the date of grant or such other period selected by the Committee. At the time of grant, the Committee will also establish one or more business performance goals for the performance period, and the weight to be given each such goal. All performance goals established by the Committee must also be approved by the Board. The initial performance goals may be modified or adjusted during the performance period in light of previously unforeseen transactions, events or circumstances occurring after the initial performance goals are established.
Performance Awards to Directors or Employees Other than Named Executive Officers.The following terms apply only to performance awards granted to directors or employees who are not named executive officers and to performance awards that the Committee otherwise does not designate as subject to the requirements of Section 162(m) of the Code, as explained in more detail in the following section entitled “Performance Awards to Named Executive Officers.” As soon as practicable after the end of a performance period, the Committee will determine the extent to which the performance goals for the related performance award were attained. If the Committee determines that the performance goals were fully attained, and, subject to the terms of any applicable Award agreement, if the grantee of the performance award has remained an employee or director throughout the applicable performance period, and any other conditions imposed by the Committee
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are satisfied, the performance award will become fully vested according to its terms. However, if the grantee did not remain employed by or in service to the Company throughout the performance period due to the director or employee’s death, disability, termination by the Company without “cause” (as such term is defined later in this section), or following normal retirement as defined by the Committee, then as soon as practicable following termination of employment or service (but not earlier than after the applicable performance periods are completed and the date the Committee determines that the performance goals are attained), the grantee will be entitled to receive apro-rata portion of the part of his or her performance award that would have otherwise vested if the grantee’s employment or service had continued until the end of the performance period, provided that in the event of a termination by the Company without “cause”, the grantee must have been an employee or director for at least one year after the date the grants were approved by the Committee. If the grantee reaches normal retirement age as defined by the Committee, the grantee will become eligible for a prorated performance award under the terms of the award, provided that the performance goals are attained. The remainder of such grantee’s performance award will be forfeited unless the Committee decides to waive such forfeiture. If the grantee ceases to be an employee or director during the applicable performance period for any reason other than death, disability, termination by the Company without cause or normal retirement, the Committee shall determine the disposition of the performance award at the end of the performance period, which disposition may include forfeiture of all or a portion of the Award. Performance awards that vest will be settled during, or soon after, the year the vesting date occurs, and no later than two andone-half months after the end of the year in which vesting occurs. “Cause” means the occurrence of any one or more of the following: (i) the grantee’s willful and continued failure to substantially perform his duties after a written demand and opportunity to explain and defend and cure; (ii) the grantee’s gross negligence or willful engagement in conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise; (iii) the grantee’s conviction of, or plea of guilty or nolo contendere, to any felony or to any other crime which involves the personal enrichment of the grantee at the expense of the Company; and (iv) the grantee’s material breach of the Company’s Code of Business Conduct and Ethics.
At the end of the performance period, the Committee may recommend a grant of additional shares of Class A stock to the grantee of a performance award that is to be settled in shares if the grantee is then an employee and the Committee determines that satisfaction of the performance goals so warrants. Additional shares awarded to a grantee shall be immediately vested and shall be issued to the grantee as soon as practicable after the grant.
An Award of performance share units or any cash-denominated performance award that vests shall be settled in cash, whole shares of Class A stock or a combination of cash and stock, as the Committee shall determine, as soon as practicable after the vesting date.
Performance Awards to Named Executive Officers. In order to facilitate exemption of compensation paid in connection with performance awards to named executive officers of the Company (which includes the chief executive officer and the three other most highly compensated executive officers other than the chief executive officer or the chief financial officer) from the $1 million tax deduction limit imposed by Code Section 162(m), the Plan requires that such Awards be “performance-based” and that certain other requirements be met. In addition, if an Award of restricted shares, restricted share units, or other stock-based awards are intended to qualify as “performance-based,” then all requirements described under this subsection will apply to such Awards. The requirements included in this section also extend to any Award to an employee of the Company that the Committee reasonably believes may become a named executive officer if the Committee designates the Award to be subject to the Section 162(m)’s requirements.
Performance awards may be granted to Named Executive Officers only during the first 90 days of the Company’s applicable performance period, except in limited circumstances. Subject to the general limits on Award amounts, the maximum number of performance shares and/or performance share units that may be granted to any given executive officer with respect to a single performance period is 500,000.
At or prior to the grant of any performance award to a named executive officer, the Committee shall establish one or more objectively determinable performance goals for the Award relating to one or more of the following areas of Company performance over the relevant performance period: earnings (which includes net profits, operating earnings, and net income, and may be calculated before or after taxes, interest, depreciation, amortization or taxes) or earnings per share of Class A stock; revenues; gross profits; cash flow; return on revenues, gross profits, sales, assets or equity; customer or employee retention; customer satisfaction; expenses or expense levels; one or more operating ratios; stock price; market share; capital expenditures; net borrowing, debt leverage levels, credit quality or debt ratings; the accomplishment of mergers, acquisitions, dispositions, public offerings or similar extraordinary business transactions; the Company’s Quality Management System; shareholder return; organizational health/productivity; sales volume; and/or brand or product recognition/acceptance. The Committee may elect to determine such performance goals on an annual or cumulative basis, or based on some other portion of the performance period.
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At the same time, the Committee shall establish a “payout” schedule for each performance goal established for the performance award, which shall be a predetermined range from threshold performance amount or level of the target performance award, performance shares and/or performance share units constituting the Award (if actual Company results for the period do not at least equal a threshold performance amount or level specified by the Committee, then payout will be zero) to maximum performance amount or level of such target Award and shall be structured so as to permit objective determination of payouts over the full range of actual Company results.
In connection with the establishment of the performance goal(s), at the time a performance award is granted, the Committee shall specify which (if any) types or categories of extraordinary, unusual,non-recurring, or other items or events shall be excluded or otherwise not taken into account when actual Company results relating to such goal(s) are calculated. The only adjustments in actual Company results which thereafter shall be permissible for purposes of applying the payout schedule shall be objectively determinable adjustments for the items or events so specified.
The Committee may establish other preconditions to the payout of Awards, including preconditions the satisfaction of which may call for subjective determinations by the Committee to reduce an award. The payout on any performance award may also be reduced if, in the Committee’s judgment, the individual performance of the named executive officer during the performance period has not warranted the payout so calculated. Further, awards made to newly hired or promoted Named Executive Officers can be reduced at the discretion of the Committee. In no event shall the payout on any performance award exceed the payout permissible under the Award’s payout schedule nor shall any additional shares or additional cash amount be granted to any named executive officer under the Plan so long as Code Section 162(m) remains in effect and the award is intended to qualify as “qualified performance-based compensation” within the meaning of Code Section 162(m).
With respect to a named executive officer who is newly hired or is promoted by the Company during the performance period, the Committee will grant a Performance Award, or adjust a Performance Award previously granted, to the named executive officer for the performance period pursuant to the provisions of the Plan; provided, however, that no Performance Award will be granted or adjusted in a manner as to cause any award to fail as “qualified performance-based compensation” within the meaning of section 162(m)(4)(C) of the Code andSection 1.162-27 of the Treasury Regulations promulgated thereunder.
A named executive officer who is granted a Performance Award more than 90 days after the beginning of the performance period, either because the named executive officer is newly hired or is promoted into a named executive officer position, will be granted a Performance Award under the Plan for the performance period based on the threshold, target, and maximum levels established by the Committee during the first 90 days of the performance period for similar employees at the new or promoted named executive officer’s award level, with the number of threshold, target, and maximum shares that can be earned at each levelpro-rated based on the ratio of the number of full months remaining in the performance period on and after the date of hire or promotion (as applicable) to the total number of months in the performance period. For any award level created between the award levels for which the Committee has established the threshold, target, and maximum levels, straight-line interpolation will be used to determine thepro-rated number of threshold, target, and maximum shares.
If a named executive officer is promoted after the beginning of a performance period, the named executive officer’s outstanding Performance Award granted for the performance period will be adjusted, effective as of the date of the promotion, based on the threshold, target, and maximum levels established by the Committee during the first 90 days of the Performance Period for similar employees at the named executive officer’s new award level. The adjustments to each named executive officer’s Performance Award will bepro-rated on a monthly basis, with the number of threshold, target, and maximum shares for the named executive officer’s original position applicable for the number of full months preceding the effective date of the promotion and the number of threshold, target, and maximum shares for the named executive officer’s new position applicable for the remaining number of months in the performance period. For any award level created between the award levels for which the Committee has established the number of threshold, target, and maximum shares as described above, straight-line interpolation will be used to determine thepro-rated number of threshold, target, and maximum shares.
As soon as practicable following the completion of the performance period applicable to a performance award, the Committee will certify in writing the extent to which the applicable performance goals have been attained and the resulting final value of the performance award earned by the named executive officer.
If a performance award is granted to a named executive officer and the grantee ceases to be an employee before the end of the performance period due to the grantee’s death, disability, termination by the Company without “cause” (as defined previously) or following normal retirement as defined by the Committee, then as soon as practicable following termination
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of employment (but not earlier than after the applicable performance periods are completed and the date the Committee determines that the performance goals are attained), the grantee will be entitled to receive apro-rata portion of the part of his or her performance award that would have otherwise vested if the grantee’s employment had continued until the end of the performance period, provided that in the event of termination by the Company without cause, the grantee had been an employee for at least one year after the date the grants were approved by the Committee. If the grantee reaches normal retirement age as defined by the Committee, the grantee will become eligible for a prorated performance award under the terms of the award, provided that the performance goals are attained. The remainder of such grantee’s performance award will be forfeited. If the grantee ceases to be an employee during the performance period for any reason other than death, disability, termination by the Company without cause or normal retirement, the grantee will immediately forfeit his or her performance award in its entirety. Performance awards that vest will be settled during, or soon after, the year that the vesting date occurs, and no later than two andone-half months after the end of the year in which vesting occurs.
Foreign Awards. The Committee may modify the terms of an Award that is an option, SAR, restricted share, restricted share unit, or performance award, for grant to an employee or director who is subject to the tax or other laws of a country other than the United States, and may grant such modified Award, and structure and grant other types of Awards related to appreciation in value of Class A stock, to such an employee or director, as the Committee determines necessary or desirable in order to provide such grantee with benefits and incentives comparable to those that would be provided the grantee if the grantee were not subject to such foreign laws, but any such modification may not be made in a manner that would causenon-compliance with the Code provisions relating tonon-qualified deferred compensation plans.
Other Stock-Based Awards. The Committee may, in its sole discretion, grant Awards of Class A stock or Awards that are valued in whole or in part by reference to,subsidiaries operate or are otherwise based on, the fair market value of Class A stock. These other stock-based awards will be in such form, and dependent on such conditions, as the Committee shall determine, including the right to receive shares of Class A stock (or the equivalent cash value of such shares) upon the completion of a specified period of service, the occurrence of an event, the attainment of performance objectives and/or other criteria specified by the Committee. Any other stock-based award will be paid either no later than two andone-half months after the end of the yearlocated.” Article TENTH addresses circumstances in which the Award vests or in alump-sum payment at a specified time. The maximum number of other stock-based awards that may be grantedBoard’s obligation under Delaware law is to any named executive officer during any consecutive five calendar years is 750,000. At the time of the grant of other stock-based awards to employees, the Committee shall require a period of no less than twelve (12) months of continued service by an employee following the date of grant, except as otherwise providedact, in the award or the Plan for death, Disability, orchange-in-control, or with respect to 5 percent (5%)exercise of the maximum number of shares of Company Stock that may be issued or delivered pursuant to the Plan.
Director Awards.In addition to any other award that might be granted to a director, each director who is elected at the annual stockholders meeting, whose term continues thereafter, or who is elected between annual stockholders meetings shall receive a portion of his or her annual retainer (orpro-rated annual retainer for a director elected between annual stockholders meetings)its business judgment, in the form of Company stock in a percentage (up to a maximum of 100%) of the annual retainer as determined by the Board at the annual stockholders meeting (or at such other time as determined by the Board). Unless deferred pursuant to a deferral program adopted by the Company for directors, with respect to those directors elected at the annual meeting of stockholders, or whose term continues thereafter, the portion of the annual retainer to be paid in the form of Company stock shall be paid on the first business day next following the date of the annual meeting of stockholders and with respect to any director elected to the Board between annual meetings, the portion of the annual retainer to be paid in the form of Company stock will be paid on the first business day following his or her election to the Board. Unless otherwise determined by the Board, the number of shares of Company stock issued to a director shall be determined by multiplying (x) the annual retainer (orpro-rated annual retainer for a director elected between annual stockholders meetings) provided to such director for the year by (y) the percentage established by the Board for the year and dividing the product of (x) and (y) by the fair market value of a share of Company stock on the date of issue. Fractional shares resulting from this formula shall be rounded, up or down, to the nearest whole share at the sole discretion of the Board. The Board shall determine whether any Award to Directors shall be subject to any restrictions.
Nontransferability. No Award may be sold, assigned, pledged, hypothecated or otherwise transferred in any manner except that, if the Committee determines that a transfer will not violate any requirement of the SEC or IRS, the Committee may permit an inter vivos transfer by gift to or for the benefit of a family member of the grantee. Upon the death of a grantee, outstanding Awards granted to such grantee may be exercised only by the executor or administrator of the grantee’s estate or by a person who shall have acquired the right to such exercise by will or by the laws of descent and distribution.
Overriding Precondition; Potential Forfeiture. In order for any Award to become vested or exercisable, (1) the grantee of an Award must not engage in any activity that, in the opinion of the Committee, is in competition with any activity of the
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Company or any affiliated entity of the Company or that is otherwise inimical to the best interests of the Company and its stockholders. The Board is proposing the elimination of Article TENTH because, in mandating consideration of certain effects upon constituencies other than stockholders, Article TENTH purports to require the Board to consider interests that has not beenmay conflict with or detract from the best interests of the Company and its stockholders.
The full text of the Amended and Restated Certificate of Incorporation as proposed is set forth in Annex A, with additions indicated by underlining and deletions indicated by strikeout.
If this proposal is approved, the Company will file the Amended and Restated Certificate of Incorporation with the Delaware Secretary of State promptly after the Annual Meeting of Stockholders. The Amended and Restated Certificate of Incorporation will take effect upon filing.
This proposal must be approved by the Board of Directors or the Committee and (2) the grantee must furnish the Committee with all information confirming satisfaction of the foregoing condition that the Committee reasonably requests. If the Committee determines that a grantee has engaged in any of the foregoing prohibited activity, all of the grantee’s then outstanding Awards shall immediately be cancelled and forfeited. The above provision provides that for a period of twelve months following the termination of a grantee’s employment, the grantee agrees to abide by thenon-competition andnon-solicitation terms as specified in the Plan; and that the grantee agrees to abide indefinitely by the confidentiality andnon-disparagement terms as specified in the Plan. In the event of a violation of this provision, the Company retains all rights to seek monetary damages against a grantee or to seek other equitable remedies against the grantee.
Adjustments Upon Changes in Capitalization. In the event of a reorganization or recapitalization, merger, consolidation or similar transaction involving the Company, astock-on-stock dividend or split,spin-off, reverse split or combination of Class A stock, a rights offering, or any other change in the corporate or capital structure of the Company, the Board shall make such adjustments as it may deem appropriate in the number and kind of shares available for issuance in the aggregate and to any individual under and pursuant to the Plan (including in settlement of incentive stock options), the number and kind of shares covered by outstanding options and the per share exercise price of such options, the numbers of outstanding SARs and share units and the terms of foreign Awards. Any adjustment with respect to an incentive stock option in connection with a transaction to which Code Section 424(a) (or its successor) applies shall be made in accordance with such Code Section unless the Board specifically determines otherwise.
Change-in-Control Definition.“Change in Control” means, unless otherwise provided in the applicable award agreement, the occurrence of any of the following events,
(i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the meaning of Rule13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of either (A) the Class B Common Stock of the Company or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this paragraph (i), unless the Board adopts a resolution stating that such events constitute a Change in Control, the following acquisitions shall not constitute a Change in Control: (I) any acquisition directly from the Company, (II) any acquisition by the Company, (III) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (IV) transfers of shares of Company stock shown as beneficially owned by Terence E. Adderley, and any subsequent transfers of such shares, (V) an acquisition by an underwriter who temporarily holds securities pursuant to an offering of such securities, or (VI) any acquisition pursuant to a transaction which complies with clauses (A), (B), and (C) of paragraph (iii) below; or
(ii) Individuals who, at the beginning of any period of twenty-four (24) consecutive months, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date of this Plan whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
(iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another entity (a “Corporate Transaction”), in each case, unless, following such Corporate Transaction, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Class B Common Stock of the Company or the Outstanding Company Voting Securities immediately prior to such Corporate Transaction beneficially own, directly or indirectly, more than fifty percent (50%) of, respectively, the Class B Common Stock of the Company or the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction of the Class B Common Stock of the Company or the Outstanding Company Voting Securities, as the case may be; (B) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Corporate Transaction) beneficially
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owns, directly or indirectly, more than twenty percent (20%) of the combined voting power of the then outstanding voting securities of the corporation resulting from such Corporate Transaction, except with respect to any Person who had such ownership in the Company prior to the Corporate Transaction; and (C) at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction were members of the Incumbent Board at the time of the execution of the documentation or action of the Board resulting in a Corporate Transaction; or
(iv) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.
Application ofChange-in-Control The Committee may, in its sole discretion and without the consent of a grantee of an award, either by the terms of the award or by resolution adopted prior to the occurrence of achange-in-control, determine whether and to what extent outstanding awards under the Plan shall be assumed, converted or replaced by the resulting entity in connection with thechange-in-control (or, if the Company is the resulting entity, whether such Awards shall be continued by the Company), in each case subject to equitable adjustments in accordance with Section 14 of the Plan.
To the extent outstanding awards granted under the Plan are assumed, converted or replaced by the resulting entity in the event of achange-in-control (or, if the Company is the resulting entity, to the extent such awards are continued by the Company) as provided in Section 15(a) of the Plan, then, except as otherwise provided in the applicable award or in another written agreement with the grantee, or in a Company severance plan, if any: (i) Any such outstanding awards that are subject to performance goals shall be converted to service-based awards by the resulting entity based on the shares of Company stock payable as if the target level performance goal had been achieved, such converted awards will continue to vest and become exercisable or be paid (as applicable) based on continued service during the remaining vesting period; (ii) All other such outstanding awards shall continue to vest and become exercisable or be paid (as applicable) based on continued service during the remaining vesting period, if any; and (iii) Notwithstanding the foregoing, if the employee’s employment is involuntarily terminated without cause, as determined by the Committee, within two years after suchchange-in-control, all such outstanding awards shall become vested and exercisable or be paid (as applicable) in full, effective as of the date of such termination, and any such awards that are options or SARs shall be cancelled as of the date of termination of employment.
To the extent outstanding awards granted under the Plan are not assumed, converted or replaced by the resulting entity in connection with achange-in-control (or, if the Company is the resulting entity, to the extent such awards are not continued by the Company) in accordance with Section 15(a) of the Plan, then, except as otherwise provided in the applicable award or in another written agreement with the grantee, or in a Company severance plan, if any, then, effective immediately prior to thechange-in-control: (i) All service-based and performance-based vesting restrictions with respect to all such outstanding awards shall lapse, with any applicable performance goals deemed to be satisfied as if “target” performance had been achieved, and all such awards shall become fully vested and exercisable or be paid, as applicable, effective as of the date of suchchange-in-control; and (ii) All such outstanding awards that are options or SARs shall be cancelled in accordance with Section 15(d) effective on thechange-in-control.
The Committee may, in its sole discretion and without the consent of the grantee of an award, either by the terms of the award or by resolution adopted prior to the occurrence of thechange-in-control, provide that any outstanding award (or a portion thereof) shall, upon the occurrence of suchchange-in-control, be cancelled in exchange for a payment in cash or other property (including shares of the resulting entity in connection with achange-in-control) in an amount equal to the excess, if any, of the fair market value of the shares subject to the award, over any exercise price related to the award, which amount may be zero if the fair market value of a share on the date of thechange-in-control does not exceed the exercise price per share of the applicable awards.
Any action or determination to be taken by the Committee in connection with achange-in-control shall be taken prior to suchchange-in-control. For purposes of Section 15(b) of the Plan, the cancellation of an award and subjecting a cash equivalent amount to the remaining vesting schedule based on continued service will be treated as a conversion of an award that is assumed.
Notwithstanding any provision of this Plan to the contrary, and except as otherwise provided in the award, if (i) an award is considered a “deferral of compensation” (within the meaning of Section 409A of the Code), (ii) the award becomes vested or restrictions lapse, expire or terminate upon the occurrence of achange-in-control, and (iii) either suchchange-in-control is not treated as a “change in ownership” of the Company, a “change in the effective control” of the Company or a “change in the effective ownership of a substantial portion of the assets” of the Company (within the meaning of Section 409A of the Code) or payment of the award is not otherwise permitted upon thechange-in-control under Section 409A of
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the Code without the imposition of taxes and penalties, then even though such award may be deemed to be vested or restrictions lapse, expire or terminate upon the occurrence of thechange-in-control, payment of the vested award will be made, to the extent necessary to comply with the provisions of Section 409A of the Code, to the grantee on the earliest of: (A) the grantee’s “separation from service” with the Company (as defined for Section 409A of the Code), provided that if the grantee is a “specified employee” (determined pursuant to the Company’s policy for determining specified employees in accordance with Section 409A of the Code), the payment date shall be the first day of the seventh (7th) month after the date of the grantee’s separation from service; (B) the date payment otherwise would have been made in the absence of any provisions in this Plan to the contrary (provided such date is permissible under Section 409A of the Code); or (C) the grantee’s death.
Section 15 of the Plan shall not apply to any other stock-based awards or director awards granted pursuant to Section 11 of the Plan that are not subject to any vesting restriction and payment is deferred pursuant to the Company’s Management Retirement Plan or theNon-Employee Directors Deferred Compensation Plan.
Duration; Amendment or Termination of Plan. The Plan is effective upon approval of the Board of Directors (subject to approval of the Company’s stockholders) and will continue in effect for a term of 10 years unless terminated by the Board. Following approval of the Company’s stockholders, the expiration date of the Plan is February 15, 2027. The Board of Directors may amend, suspend or terminate the Plan at any time; provided, that no amendment shall adversely affect the rights of any grantee or holder of an Award then outstanding and unvested without the consent of the grantee or holder, unless the amendment or termination is necessary to comply with applicable law. Notwithstanding the foregoing, the Plan will not be amended without the approval of the Company’s stockholders to increase the maximum aggregate number of shares of Class A stock that may be issued under the Plan, to change the class of persons eligible to receive incentive stock options, or to make any other amendment that would require approval of the Company’s stockholders under applicable law.
Federal Income Tax Consequences of the Equity Incentive Plan
The following discussion is designed to provide a general summary of the material federal income tax consequences, as of the date of this proxy statement, with respect to Awards granted under the Equity Incentive Plan. In addition to the tax consequences described below, (i) officers and directors of the Company subject to Section 16 of the Exchange Act may be subject to special rules regarding the income tax consequences of their Awards and (ii) any entitlement to a tax deduction on the part of the Company is subject to the applicable federal tax rules, including those relating to the $1 million limitation on deductible compensation under Code Section 162(m).
Incentive Stock Options. If a stock option under the Plan is treated as an incentive stock option, the optionee generally recognizes no taxable income as a result of the grant or exercise of the option. However, an amount equal to the difference between the fair market value of the stock on the date of exercise and the exercise price is classified as an item of alternative minimum taxable income in the year of exercise for purposes of the alternative minimum tax.
The Company will not be allowed a deduction for federal income tax purposes in connection with the grant or exercise of an incentive stock option, regardless of the applicability of the alternative minimum tax to the optionee. The Company will be entitled to a deduction, however, to the extent that ordinary income is recognized by the optionee upon a disqualifying disposition (as described below).
Upon a sale or exchange of the shares at least two years after the grant of an incentive stock option and one year after exercise of the option, gain or loss will be recognized by the optionee equal to the difference between the sale price and the exercise price. Such gain or loss will be characterized for federal income tax purposes as a long-term capital gain or loss. The Company is not entitled to any deduction under these circumstances.
If an optionee disposes of shares acquired from the exercise of an incentive stock option prior to completion of either of the above holding periods, the optionee will have made a “disqualifying disposition” of the shares. In such event, the optionee will recognize ordinary income at the time of disposition equal to the difference between the exercise price and the lower of the fair market value of the stock at the date of the option exercise or the sale price of the stock. The Company generally will be entitled to a deduction in the same amount as the ordinary income recognized by the optionee on a disqualifying disposition.
The optionee also will recognize capital gain or loss (long or short-term, depending on the length of time the stock was held) on such disqualifying disposition in an amount equal to the difference between (i) the amount realized by the optionee upon such disqualifying disposition of the stock and (ii) the exercise price, increased by the total amount of ordinary income, if any, recognized by the optionee upon such disqualifying disposition (as described in the second sentence of the preceding paragraph).
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Non-Qualified Stock Options. An optionee generally recognizes no taxable income as the result of the grant of anon-qualified stock option. Upon exercise of anon-qualified stock option, an optionee generally will recognize ordinary income for federal income tax purposes equal to the excess, if any, of the then fair market value of the shares over the exercise price, subject to withholding of income and applicable employment taxes. The Company will generally be entitled to a tax deduction to the extent and in the year that ordinary income is recognized by the exercising optionee.
Upon a sale of shares acquired pursuant to the exercise of anon-qualified stock option, any difference between the sale price and the fair market value of the shares on the date of exercise will be treated as capital gain or loss (long- or short-term, depending on the length of time the stock was held). Long-term capital gain is subject to a lower federal income tax rate than is applied against short-term capital gain.
Restricted Shares; Additional Shares. The federal income tax treatment of individuals who receive property in connection with the performance of services is governed by Code Section 83. That section requires that the recipient of the property recognizes income from the transfer in an amount equal to the excess of the fair market value of the property received over the amount (if any) paid for the property. Income is recognized by the recipient in the first year in which the rights of the recipient to the property become “vested,” i.e., are transferable or are no longer subject to a substantial risk of forfeiture, whichever occurs first. The income is taxable at ordinary income rates and is subject to withholding of income and applicable employment taxes at the time of vesting.
Under the Equity Incentive Plan, employees will not pay any consideration for stock transferred to them as restricted shares or additional shares. If additional shares are granted to a recipient without restrictions, the recipient will recognize ordinary income (calculated as described in the preceding paragraph) in the recipient’s taxable year in which the additional shares are granted. If restricted shares are granted subject to a substantial risk of forfeiture, then unless an election is made under Code Section 83(b), as described in the next paragraph, recipients of restricted shares will recognize taxable income as of each date on which they become vested in restricted shares in the amount of the fair market value of the shares then vesting.
If stock is granted subject to restrictions, employees may elect under Code Section 83(b) to report as taxable income in the year of Award an amount of ordinary income equal to the stock’s fair market value at the time of the Award. If such an election is made, the employee is not required thereafter to report any further compensation income upon becoming vested in the stock covered by the election. Such an election must be made within 30 days of receipt of the stock. Such election may not be revoked except with the consent of the Internal Revenue Service. Employees making this election will be subject to withholding with respect to the taxable income they recognize at the time the stock is awarded to them and for applicable employment taxes.
The Company will generally be entitled to a tax deduction to the extent and in the year that ordinary income is recognized by the employee.
Employees will recognize gain upon the disposition of stock equal to the excess of (a) the amount realized on such disposition over (b) the ordinary income recognized with respect to the stock under the principles set forth above. That gain will be taxed as long or short-term capital gain, depending on the length of time the stock was held.
If an employee disposes of his or her stock for an amount less than the amount of ordinary income recognized with respect to the stock, he or she will generally recognize a capital loss (long or short-term, depending on the length of time the stock was held) equal to the difference between any ordinary income recognized with respect to the stock under the principles described previously and the amount realized upon disposition of the stock. An employee’s capital loss is subject to certain limitations on tax deductibility. If an employee forfeits unvested stock upon termination of employment for which a Code Section 83(b) election has been made, he or she will generally recognize a capital gain or loss equal to the difference between the amount, if any, paid by the employee for the stock and the amount received as a result of the forfeiture, but no loss or deduction is allowed with respect to the amount previously included in income as a result of the Code Section 83(b) election. As stated above, employees will not pay consideration for stock transferred to them as restricted shares and, accordingly, no deduction will be available if the restricted shares are forfeited.
SARs. Recipients of SARs generally should not recognize income until such rights are exercised. Upon exercise, the employee will normally recognize ordinary compensation income for federal income tax purposes equal to the amount of cash and the fair market value of stock, if any, received upon such exercise. Employees will be subject to withholding of income and applicable employment taxes with respect to income recognized upon exercise of a SAR.
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The Company will generally be entitled to a tax deduction to the extent and in the year that ordinary income is recognized by the employee.
Performance Awards and Restricted Share Unit Awards. An employee generally will recognize no income upon the grant of a performance award or restricted share unit award. Upon the settlement of such Awards, employees normally will recognize ordinary income in the year of receipt in an amount equal to the cash received and the fair market value of anynon-restricted shares received. Such ordinary income generally is subject to withholding of income and employment taxes. Upon the sale of any shares received, any gain or loss, based on the difference between the sale price and the fair market value on the settlement date, will be taxed as capital gain or loss, long or short-term, depending on the length of time the stock was held.
The Company generally will be entitled to a deduction equal to the amount of ordinary income recognized by the employee on the settlement date.
Additional Information Regarding Plan Benefits
Awards under the Equity Incentive Plan are based on the Company’s performance. Accordingly, future Awards under the Plan are not determinable at this time. Reference is made to the tables captioned “Summary Compensation Table 2016”, “Grants of Plan-Based Awards 2016”, “Outstanding Equity Awards at Fiscal Year End 2016”, “Option Exercises and Stock Vested Fiscal Year 2016” at pages 50 through 54 of this proxy statement for detailed information on Awards and exercises of Awards by certain executive officers under the Equity Incentive Plan during the three most recent fiscal years.
Market Price of the Common Stock
As of December 30, 2016, the market value of the Class A stock was $22.92 per share, based on the closing price of the Class A stock as reported by the Nasdaq Global Market.
Equity Compensation Plan Information
The following table shows the number of shares of our common stock that may be issued upon the exercise of outstanding options, warrants and rights, the weighted-average exercise price of outstanding options, warrants and rights, and the number of securities remaining available for future issuance under our equity compensation plans as of the 2016 fiscal year end.
Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Price of Outstanding |
Number of Securities | ||||||||||
Equity compensation plans approved by security holders(1) | – | – | 2,759,351 | |||||||||
Equity compensation plans not approved by security holders(3) | – | – | – | |||||||||
Total | – | – | 2,759,351 |
(1) The equity compensation plans approved by our stockholders include our Equity Incentive Plan,Non-Employee Director Stock Option Plan, andNon-Employee Director Stock Award Plan.
The number of shares to be issued upon exercise of outstanding options, warrants and rights excludes 653,243 shares of restricted stock, 287,896 shares of financial measure performance awards earned but not yet vested, as well as 497,250 shares of financial measure performance awards and 415,750 shares of total shareholder return performance awards at maximum level (200%) granted to employees and not yet earned or vested at January 1, 2017.
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(2) The Equity Incentive Plan provided that the maximum number of shares available for grants, including stock options and restricted stock, is 15 percent of the outstanding Class A common stock, adjusted for plan activity over the preceding five years.
TheNon-Employee Director Stock Option Plan provides that the maximum number of shares available for settlement of options is 250,000 shares of Class A common stock.
TheNon-Employee Director Stock Plan provides that the maximum number of shares available for Awards isone-quarter of one percent of the outstanding Class A common stock.
(3) We have no equity compensation plans that have not been approved by our stockholders.
Required Vote
This proposal will be approved if it receives the affirmative vote of the holders of a majority of the voting power of the Company’s outstanding Class B common stock present in person or by proxy and entitled to vote at the Annual Meeting.Common Stock. For purposes of this stockholder vote, any shares that are the subject of aso-called “brokernon-vote” will not be considered present, but any shares for which an abstention is registered will be considered present. Therefore, anyabstentions and brokernon-vote on the proposal will have no effect on the outcome of the vote, while any abstention registered with respect to the proposal non-votes will have the same effect as a vote “Against”of votes against the proposal.
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Proposal 4: Amendment to the Company’s Amended and Restated Bylaws
PROPOSAL 4 - AMENDMENT TO THE COMPANY’S AMENDED AND RESTATED BYLAWS TO DESIGNATE THE DELAWARE CHANCERY COURT AS THE EXCLUSIVE FORUM FOR CERTAIN LEGAL ACTIONS
As described in the “Corporate Governance” section of this Proxy Statement, the Board recently formed a special committee consisting of the independent Directors to review and make recommendations to the Board about governance matters. Upon recommendation of the special committee, the Board approved and adopted Amended and Restated Bylaws effective March 7, 2018 (as disclosed in the Company’s Current Report on Form 8-K filed with the SEC on March 9, 2018). Also upon recommendation of the special committee, the Board approved and adopted, and recommends for stockholder approval, an amendment to the Company’s Amended and Restated Bylaws (the “Bylaw Amendment”) that, if adopted, would result in the Delaware Court of Chancery serving as the exclusive forum for certain legal actions involving the Company. Specifically, if this proposal is approved by our stockholders, the Company’s Amended and Restated Bylaws will be amended to insert a new Article XI as follows:
Unless the corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for (1) any derivative action or proceeding brought on behalf of the corporation, (2) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, other employee or stockholder of the corporation to the corporation or the corporation’s stockholders, (3) any action asserting a claim arising pursuant to any provision of the General Corporation Law of the State of Delaware, the Company’s certificate of incorporation or the Bylaws or as to which the General Corporation Law of the State of Delaware confers jurisdiction on the Court of Chancery of the State of Delaware, or (4) any action asserting a claim governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring or holding any interest in shares of capital stock of the corporation shall be deemed to have notice of and consented to the provisions of this Article XI.
The Board believes that the Bylaw Amendment is in the best interests of the Company and its stockholders for the following reasons:
The Bylaw Amendment is not being proposed by our Board in anticipation of or in reaction to any specific litigation or transaction; rather, it is being proposed to prevent potential harm to the Company and its stockholders. Although some plaintiffs might prefer to litigate the intra-corporate disputes described above in a forum outside of Delaware because they perceive another court as more convenient or more favorable to their claims, the Board believes that the substantial benefits to the Company and to our stockholders as a whole from designating the Delaware Chancery Court as the exclusive forum for these specific matters outweighs such concerns. Furthermore, the Board retains the discretion to permit litigation to proceed in an alternative forum. In keeping with the views of certain proxy advisors, the Board is seeking the approval of stockholders prior to adopting the Bylaw Amendment. If the proposal is not approved, the Board will reconsider whether the Bylaw Amendment is in the best interests of the Company.
If this proposal is approved, the Bylaw Amendment will become effective immediately.
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This proposal must be approved by the affirmative vote of holders of a majority of the voting power the Company’s outstanding Class B Common Stock. For purposes of this stockholder vote, abstentions and broker non-votes will have the effect of votes against the proposal.
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Proposal 5: Ratification of the Appointment of PricewaterhouseCoopers LLP
PROPOSAL 5 - RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE 20172018 FISCAL YEAR
On an annual basis, the Audit Committee (the “Committee”) approves and appoints the independent registered public accounting firm. During its February 15, 201714, 2018 meeting, PricewaterhouseCoopers LLP (“PwC”) was appointed to audit the consolidated financial statements of the Company for the year ending December 31, 2017.30, 2018. This firm has served as the Company’s independent registered public accounting firm for many years and is considered to be well qualified. The reappointment process for the independent registered public accounting firm includes an annual assessment that takes into consideration, but is not limited to, a review of the following:
1. | Quality of services and sufficiency of resources provided by the auditor |
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2. | Communication and interaction during the engagements |
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3. | Independence, objectivity, and professional skepticism |
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The Board of Directors seeks ratification of the appointment of PwC. The representatives of the firm are expected to be present at the Annual Meeting and will be available to respond to all appropriate questions.
The Audit Committee is responsible for the compensation (including negotiations) of the independent registered public accounting firm and requirespre-approval of all audit andnon-audit services prior to engagement by the Company. In conjunction with thepre-approval, the Committee considers whethernon-audit services are consistent with the rules and regulations of the SEC on auditor independence. The authority of the Audit Committee is detailed in its charter, which is posted on the Company’s website atkellyservices.com.kellyservices.com.
The table below displays the fees incurred from the audit andnon-audit services provided by PwC.
2016 ($) | 2015 ($) | 2016 ($) | 2017 ($) | |||||||||||||
Audit Fees | 3,904,889 | 3,190,568 | 3,904,889 | 4,118,778 | ||||||||||||
Audit Related Fees | 29,147 | 57,431 | 29,147 | 56,800 | ||||||||||||
Tax Fees | 140,200 | 298,000 | 140,200 | 101,300 | ||||||||||||
All Other Fees | 1,800 | 1,800 | 1,800 | 1,800 | ||||||||||||
Total | 4,076,036 | 3,547,799 | 4,076,036 | 4,278,678 |
Audit Fees: Audits and quarterly reviews of our consolidated financial statements, statutory audits, attestation of controls, issuance of consent, and assistance with review of documents filed with the SEC.
Audit Related Fees:Technical assistance with new accounting standards and services associated with international regulatory reporting.
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Tax Fees:Tax and transfer pricing consulting.
All Other Fees: Accounting research.
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Proposal 5: Ratification of the Appointment of PricewaterhouseCoopers LLP
In connection with the financial statements for the fiscal year ended January 1,December 31, 2017, the Audit Committee has:
(1) reviewed and discussed the audited financial statements with management;
(2) discussed with PwC, the matters required to be discussed by the statement on Public Company Accounting Oversight Board AU Section 380 Communication With Audit Committees; and
(3) received the written disclosures and the letter from PwC required by applicable requirements of the Public Company Accounting Oversight Board regarding PwC’s communications with the Audit Committee concerning independence, and has discussed with PwC its independence.
Based upon these reviews and discussions, the Audit Committee recommended to the Board at its February 15, 201714, 2018 meeting that the Company’s audited financial statements be included in the Annual Report on Form10-K for the year ended January 1,December 31, 2017 filed with the SEC. The Board approved this inclusion.
THE AUDIT COMMITTEE
LESLIE A. MURPHY, CHAIR
ROBERT S. CUBBIN
TERRENCE B. LARKIN
CONRAD L. MALLETT, JR.
DONALD R. PARFET
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DRAFT 3/1610/1517
KELLY SERVICES, INC.
EQUITY INCENTIVE PLAN
(As Amended and Restated February 12, 201515, 2017)
Section 1 — Purposes
This KELLY SERVICES, INC. EQUITY INCENTIVE PLAN (the “Plan”) provides for long-term incentive stock-related or other performance-related compensation to selected key employeesand directorsof the Company or an Affiliated Entity for their contributions to the Company’s growth and profitability. Such compensation is intended to help the Company attract and retain superioremployeesindividuals, and it gives thoseemployeesindividuals shared financial interests with the Company’s stockholders that are believed to positively affect their job performance.
Section 2 — Definitions and Rules of Construction
(a) The terms in quotation marks below have the following meanings under the Plan:
“Additional Shares” means immediately vested shares of Company Stock awarded pursuant to Section 9A(c) of the Plan.
“Affiliated Entity” means a corporation, partnership or other business enterprise in which the Companydirectly or indirectly has a significant equity interest under United States generally accepted accounting principles.has control as defined in Rule 405 of the Securities Act of 1933.
“Annual Retainer” means the total amount payable in cash or Company Stock to a Director as an annual retainer (excluding meeting fees and committee fees) for services provided by the Director to the Company.
“Award” means a Restricted Award, Performance Award, Other Stock-Based Award, award of Additional Shares, Option, SAR,grant of Company Stock to Directors,or Foreign Award granted under the Plan.
“Board” means the Board of Directors of the Company.
“Cause” means the occurrence of any one or more of the following:
(i) The grantee’s willful and continued failure to substantially perform hisor herduties with the Company (other than any such failure resulting from the grantee’s Disability), after a written demand for substantial performance is delivered to the grantee, by the Board or the Chief Executive Officer of the Company, that specifically identifies the manner in which the Board or the Chief Executive Officer believes that the grantee has not substantially performed hisor herduties, and the grantee has been given an opportunity, within thirty (30) days following grantee’s receipt of such notice, to meet in person with the Board (or its designee) to explain or defend the alleged act or acts, or failure or failures to act relied upon by the Company and, to the extent such cure is possible, the grantee has not cured such act or acts or failure or failures to act within the thirty (30) day period;
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;
(ii) The grantee’s gross negligence or willful engagement in conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise;
(iii) The grantee’s conviction of, or plea of guilty or nolo contendere, to any felony or to any other crime which involves the personal enrichment of the grantee at the expense of the Company; and
(iv) The grantee’s material breach of the Company’s Code of Business Conduct and Ethics.
Notwithstanding the above, for purposes of this provision, no act or failure to act shall be considered “willful” or “intentional” unless done or omitted to be done, by the grantee in bad faith or without reasonable belief that the grantee’s act or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the grantee in good faith and in the best interests of the Company.
“Change in Control” means unless otherwise provided in the applicable Award Agreement, the occurrence of any of the following events:
(i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of either (A) the Class B Common Stock of the Company or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this paragraph (i), unless the Board adopts a resolution stating that such events constitute a Change in Control, the following acquisitions shall not constitute a Change in Control: (I) any acquisition directly from the Company, (II) any acquisition by the Company, (III) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (IV) transfers of shares of Company stock shown as beneficially owned by Terence E. Adderley, and any subsequent transfers of such shares, (V) an acquisition by an underwriter who temporarily holds securities pursuant to an offering of such securities, or (VI) any acquisition pursuant to a transaction which complies with clauses (A), (B), and (C) of paragraph (iii) below; or
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LESLIE A. MURPHY, CHAIR | ||
(ii) Individuals who, at the beginning of any period of twenty-four (24) consecutive months, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date of this Plan whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
(iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another entity (a “Corporate Transaction”), in each case, unless, following such Corporate Transaction, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Class B Common Stock of the Company or the Outstanding Company Voting Securities immediately prior to such Corporate Transaction beneficially own, directly or indirectly, more than fifty percent (50%) of, respectively, the Class B Common Stock of the Company or the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction of the Class B Common Stock of the Company or the Outstanding Company Voting Securities, as the case may be; (B) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Corporate Transaction) beneficially owns, directly or indirectly, more than twenty percent (20%) of the combined voting power of the then outstanding voting securities of the corporation resulting from such Corporate Transaction, except with respect to any Person who had such ownership in the Company prior to the Corporate Transaction; and (C) at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction were members of the Incumbent Board at the time of the execution of the documentation or action of the Board resulting in a Corporate Transaction; or
(iv) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.
“Code” means the Internal Revenue Code of 1986, as amended.
“Committee” means the Compensation Committee of the Board or any other committee designated by the Board to administer this Plan. The Committee shall be comprised of two or more “non-employee directors” within the meaning of Rule 16b-3 of the Securities and Exchange Commission. Further, to the extent that the Company determines it desirable to qualify Awards granted hereunder as “qualified performance-based compensation” within the meaning of Section 162(m), the Committee shall be comprised solely of two or more “outside directors” within the meaning of Section 162(m).
“Company” means Kelly Services, Inc.
“Company Stock” means the Class A Common Stock, $1.00 par value, of the Company.
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ROBERT S. CUBBIN | ||
“Director” means any individual who is a member of the Board and is not an Employee.
“Disability” means the total and permanent inability of an Employee by reason of sickness or injury to perform the material duties of such Employee’s regular occupation with his or her Employer where such inability has existed for at least six continuous months.
“Employee” means an employee of the Company or an Affiliated Entity.
“Employer” means the Company or the Affiliated Entity which employs an Employee.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Fair Market Value” means, for any given date, theclosing marketlast sale price for a share of Company Stock asa Nasdaq Stock Market LLC security reported by the National Association of Securities Dealers, Inc. Automated Quotation Systemreported by The NASDAQ Stock Market (“Nasdaq”) for that date (or if no such prices are so reported for such date, for the latest preceding date on which such sale prices were so reported). If the Fair Market Value for a given date cannot be determined by reference toaNasdaq price report, it shall be determined by the reasonable application of a reasonable valuation method that satisfies the requirements of Treasury Regulation Section 1.409A-1(b)(iv)(B).
“Foreign Award” means an award granted pursuant to Section 10 of the Plan.
“Incentive Stock Option” or “ISO” means an Option that meets the requirements of Section 422 of the Code (or any successor provision) and that is identified as intended to be an ISO in the written agreement evidencing the Option.
“Named Executive Officer” means, for purposes of Section 9B, an Employee who is the chief executive officer or among the three highest compensated officers (other than the chief executive officer or the chief financial officer) of the Company for any given fiscal year, whose compensation is subject to disclosure under Exchange Act rules, and who is a Section 16 Reporting Person, and any otherEmployee of the Companyindividual who is included in the definition of “covered employee” for purposes of Section 162(m) of the Code pursuant to Treasury Regulations or other Internal Revenue Service guidance.
“Nonqualified Stock Option” or “NQSO” means an Option that is not an ISO.
“Option” means an Option to purchase Company Stock granted pursuant to Section 6 of the Plan.
“Other Performance Award” means a cash-denominated award granted under Section 9A or 9B of the Plan which, until vested, is subject to forfeiture.
“Over-10% Owner” means an owner of over 10% of the total combined outstanding voting power of all classes of capital stock of the Company.
“Performance Award” means an award of Performance Shares, Performance Share Units or Other Performance Award.
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TERRENCE B. LARKIN, VICE CHAIR | ||
“Performance Shares” and “Performance Share Units” mean, respectively, shares of Company Stock and Share Units granted under Section 9A or 9B of the Plan which, until vested, are subject to forfeiture.
“Protected Information” means trade secrets, confidential and proprietary business information of the Company and Affiliated Entities, and any other information of the Company, including, but not limited to, customer lists (including potential customers), sources of supply, processes, plans, materials, pricing information, internal memoranda, marketing plans, internal policies, and products and services which may be developed from time to time by the Company and its agents or employees, including the grantee; provided, however, that information that is in the public domain (other than as a result of a breach of this Plan) is not Protected Information.
“Restoration Option” means an Option granted under, and subject to the conditions set forth in, Section 6(f) of the Plan.
“Restricted Award” means an award of Restricted Shares or Restricted Share Units.
“Restricted Shares” and “Restricted Share Units” mean, respectively, shares of Company Stock and Share Units granted under Section 8 of the Plan which, until vested, are subject to forfeiture.
“Rule 16b-3” means Securities and Exchange Commission Rule 16b-3, as amended.
“Section 16 Reporting Person” means a person required by Section 16 of the Exchange Act and related rules to file reports concerning such person’s ownership of and transactions in Company equity securities.
“Section 162(m)” means Section 162(m) of the Code (or any successor), together with the related U.S. Department of Treasury regulations.
“Share Unit” means a unit available for award under the Plan which: (1) upon vesting or payout, shall entitle the holder to receive from the Company for each Share Unit vested or paid, a share of Company Stock, and (2) until settled after vesting, or until forfeited, shall entitle the holder to be paid by the Company the equivalent of any cash dividend paid on Company Stock to which the holder would have been entitled if, on the date of grant of such Share Unit, the grantee of the Share Unit had instead been granted a Restricted Share or Performance Share; provided, however, that with respect to Performance Share Units, any cash dividend equivalent shall either be not accrued and payable or be subject to the vesting restrictions applicable to the related Award, at the discretion of the Committee when the Award is granted.
“Solicitation” means to solicit, divert or attempt to solicit or divert from the Company and itsAaffiliatedAffiliated Entities, any work or business related to the employee staffing and consulting services business, which includes, but is not limited to, direct placement, outplacement, outsourcing, recruitment, recruitment process outsourcing, temporary staffing services, management services, vendor on-site, vendor management, and consulting services (the “Company’s Business”), or otherwise related to any activity that is in competition with the Company and its Affiliated Entities, from any client or customer, or potential client or customer, of the Company and its Affiliated Entities for either grantee or any other entity that may employ, engage, or associate with grantee in any fashion, or have any contact, through business-oriented social networking sites or otherwise, with any client or customer, or potential client or customer, of the Company and its Affiliated Entities for either grantee or any other entity that may employ, engage or associate with grantee in any fashion, for purposes of influencing any such client or customer, or potential client or customer, to not use or not continue to use the Company or its Affiliated Entities for work or business related to the Company’s Business (provided,
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however, that notwithstanding anything to the contrary contained in thisAgreementPlan, a grantee may own up to two percent (2%) of the outstanding shares of the capital stock of a company whose securities are registered under Section 12 of the Securities Exchange Act of 1934). For purposes of this section, “client(s)” or “customer(s)” of the Company and its Affiliated Entities, shall mean any individual, corporation, limited liability company, partnership, proprietorship, firm, association, or any other entity that the Company or its Affiliated Entities has invoiced during the preceding twelve (12) months, and “potential client(s) or customer(s)” shall be any individual, corporation, limited liability company, partnership, proprietorship, firm, association, or any other entity that the grantee knew or should have known was a potential customer through personal knowledge or had any personal exposure through Company meetings or marketing efforts, during the preceding twelve (12) months.
“Stock Appreciation Right” or “SAR” means a right granted pursuant to Section 7 of the Plan which, upon exercise, shall entitle the holder to receive from the Company the Fair Market Value of a share of Company Stock on the exercise date minus the Fair Market Value of such a share on the date of grant.
(b)References in this Plan to the “issuance” of shares, to shares “issued” or “issuable,” and the like, include transfers of treasury shares as well as new issuances of authorized but previously unissued shares.
Section 3 — Administration
(a)General.The Plan shall be administered by the Committee, subject to the express limitations set forth in the Plan. The Committee may, by majority vote, grant Awards and determine the type, amount and other terms and conditions of each Award. The Committee shall have authority to prescribe the forms of written agreements to evidence Awards, to interpret the Plan and the provisions of such agreements, to adopt administrative rules and procedures concerning administration of the Plan and to take such other action as it determines to be necessary, advisable, appropriate or convenient for the administration of the Plan in accordance with its purposes, including certifying whether any performance measures have been met.
The Committee may delegate to the chief executive officer of the Company, if also a director, some or all of its authority to grant Awards under the Plan to Employees who are not Section 16 Reporting Persons or Senior Vice Presidents or officers of higher rank, in which case actions taken by the chief executive officer pursuant to such delegated authority shall have the same effect as if taken by the Committee. The chief executive officer shall periodically notify the Committee of any grants made pursuant to such delegation of authority.
The Committee may delegate performance of recordkeeping and other ministerial functions concerning the Plan and its day-to-day operations to such persons as it may specify from time to time.
(b)Repricing.AbsentExcept for adjustments made pursuant to Sections 14 and 15, absent stockholder approval, neither the Committee nor the Board shall approve a program providing foreither(i) the cancellation of outstanding Options and/or SARsandin exchange for cash or the grant in substitution therefore of new Options and/or SARs having a lower exercise price or, (ii) the amendment of outstanding Options and/or SARs to reduce the exercise price thereof. This paragraph shall, or (iii) the payment, at the time of exercise of an Option or SAR, of a cash bonus or grant or sale of another Award. This paragraph is intended to prohibit the repricing of “underwater” Options or SARs without stockholder approval and will not be construed to apply to “issuing or assuming a stock option in a transaction to which section 424(a) applies,” within the meaning of Code Section 424.
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(c)Interpretation and Construction. If an Award is intended to qualify performance-based compensation under Section 162(m), any provision of the Plan that would prevent such Award from so qualifying shall be established and administered, interpreted and construed to carry out such intention and any provision that cannot be so administered, interpreted and construed shall to that extent be disregarded.
Section 4 — Eligibility for Awards; No Requirement of Uniformity
Any type of Award may be granted to any Employeeor Directorat any time, except that Foreign Awards may be granted only as permitted under Section 10 of the Plan. The type, amount, timing and other terms and conditions of Awards made to a grantee need not be uniform, comparable or proportionate among grantees.
Section 5 — Maximum Number of Shares; Other Award Limits
(a)Maximum Number of Shares. For purposes of this section, “Affected Shares” are shares of Company Stock that have been issued as Restricted Shares or Units, Performance Awards, Additional Shares or similar Foreign Awards or that have been made subject to future issuance in settlement of Options (whether or not with related SARs), Share Units or Foreign Awards. For a given date, the “Adjustment Period” comprises the Company’s current fiscal year to date, plus its four immediately preceding fiscal years.
The total number of Affected Shares awarded through the Company’s 2017 shareholders meeting shall never exceed 15% of the number of outstanding shares of Company Stock (exclusive of treasury shares) at the end of the immediately preceding Company fiscal year (rounded downward, if necessary to eliminate fractional shares)
(i) minus the sum, for the Adjustment Period, of the numbers of:
(A) Shares awarded as Restricted Shares or Performance Awards
(B) Share Units awarded
(C) Shares made subject to Option grants(including Restoration Options)
(D) Shares issued or granted for future issuance as Foreign Awards.
(ii) plus the sum, for the Adjustment Period, of the numbers of:
(A) Shares as to which Options have expired or terminated for any reason other than exercise of such Options or of related Tandem SARs
(B) Shares as to which Restricted Awards and Performance Awards have been both granted and forfeited
(C) Shares transferred to the Company (actually or constructively) to satisfy the exercise price of outstanding Options.
Stock options, SARs and other equity-based awards assumed by the Company in a merger or acquisition of another company shall not count against the shares available for Award under the Plan.
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Commencing with the Company’s 2017 shareholders meeting, the maximum number of shares of Company Stock that may be issued or delivered pursuant to Awards under the Plan shall be 4,700,000. Shares issued or delivered pursuant to an Award may be authorized but unissued Shares, treasury Shares, including Shares purchased in the open market, or a combination of the foregoing.
The aggregate number of Shares available for issuance or delivery under the Plan shall be subject to adjustment as provided in Section 14.
(b)ISO Award Limits.The number of shares covered by outstanding ISOs plus the number of shares issued in settlement of exercised ISOs under this Plan may not exceed 4,000,000 shares.
(c)Options, SARs, Restricted Awards, Performance Awards and Other Stock-Based Awards.The number of shares of Company Stock subject to an Option, SAR, Restricted Award, Performance Award or Other Stock-Based Award shall be specified at the time of grant. Subject to the limits on Award amounts set forth in Section 5(b) above, this Section 5(c) and any adjustment under Section 14 of the Plan: (i) the maximum number of shares of Company Stock that may be granted as Options (whether or not in tandem with SARs) during any consecutive five calendar years to any single Employee shall be 750,000; (ii) the maximum number of shares of Company Stock that may be granted in connection with stand-alone SARs during any consecutive five calendar years to any single Employee shall be 750,000; (iii) the maximum number of shares of Company Stock that may be granted in connection with Other Stock-Based Awards during any consecutive five calendar years to any single Employee shall be 750,000; (iv) the maximum number of shares of Company Stock subject to Restricted Awards that may be granted to any single Employee with respect to a single performance period during any consecutive five calendar years to any single Employee shall be 750,000; and (v) the maximum number of shares of Company Stock subject to Performance Shares and/or Performance Share Units that may be granted to any single Employee with respect to a single performance period is500,000 and (vi) the maximum Fair Market Value (determined on the grant date) of Company Stock that may be granted to any single Director with respect to each twelve-month period beginning with each annual shareholder meeting is $500,000.
(d)Cash Denominated Award Limits.The maximum amount of an Other Performance Award payable with respect to any single Employee shall be $1,000,0002,500,000 multiplied by the number of years included in any applicable performance period(s) (and any applicable fraction for any portion of a performance period of less than one year) relating to such Awards.The maximum amount of cash compensation that may be paid (taking any deferrals into account for the year of the deferral) to any single Director with respect to each twelve-month period beginning with each annual shareholder meeting is $500,000.
(e)Share Usage. In addition to the number of shares of Company Stock provided for in Section 5(a) with respect to Awards granted on the date of or after the Company’s 2017 shareholders meeting, the following shares shall be available for Awards under the Plan: (i) shares covered by an Award that expires or is forfeited, canceled, surrendered or otherwise terminated without the issuance of such shares and the release of the “substantial risk of forfeiture” under Section 83 of the Code, if applicable; (ii) shares covered by an Award that is settled only in cash; (iii) shares granted through the assumption of, or in substitution for, outstanding awards granted by a company to individuals who become Employees or Directors as the result of a merger, consolidation, acquisition or other corporate transaction involving such company and the Company or any of its Affiliates (except as may be required by reason of Section 422 of the Code or the rules and regulations of any stock exchange or other trading market on which the Shares are listed); and (iv) any Shares from Awards exercised for or settled in vested and nonforfeitable Shares that are later returned to the Company pursuant to any compensation recoupment policy, provision or agreement. Notwithstanding the foregoing, the following shares issued or delivered under this Plan
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shall not again be available for grant as described above with respect to Awards granted on the date of or after the Company’s 2017 shareholders meeting: Shares tendered in payment of the exercise price of an Option, shares withheld by the Company or any Affiliated Entity to satisfy a tax withholding obligation, and shares that are repurchased by the Company with Option proceeds. Without limiting the foregoing, with respect to any SAR that is settled in shares, the full number of shares subject to the Award shall count against the number of shares available for Awards under the Plan regardless of the number of shares used to settle the SAR upon exercise. This Section 5(e) shall apply to the number of shares reserved and available for Incentive Stock Options only to the extent consistent with applicable Treasury regulations relating to Incentive Stock Options under the Code.
Section 6 — Options
(a)Incentive Stock Options and Nonqualified Stock Options.At the time of the grant of an Option, the Committee shall specify whether it is intended to be an Incentive Stock Option or a Nonqualified Stock Option, and the agreement evidencing such Option shall designate the Option accordingly. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the shares with respect to which ISOs are exercisable for the first time by the grantee during any calendar year exceeds $100,000 (or such other amount as permitted by Code Section 422(d)) such Options shall be treated as Nonqualified Stock Options. For purposes of this Section 6(a), ISOs shall be taken into account in the order in which they were granted. The Committee may prescribe such terms and conditions for an ISO grant, other than those specified in the Plan, as it deems desirable to qualify the Option as an incentive stock option under the Code. If an Option (or any portion thereof) intended by the Committee to be an ISO fails to qualify as an ISO, either at the time of grant or subsequently, such failure to qualify shall not invalidate the Option (or such portion), and instead the nonqualified portion (or, if necessary, the entire Option) shall be deemed to have been granted as a Nonqualified Stock Option regardless of its designation in the grant and in the Option agreement.
(b) Exercisability.The time at which any portion of an Option first becomes exercisable (which may be at or after the date of grant) and the latest date on which the Option may be exercised (the “expiration date”) shall be as specified at the time of grant., provided that no Option shall be exercisable prior to twelve (12) months of continued service by a grantee following the date of grant, except as otherwise provided in the Option Award or this Plan for termination of service for death or Disability, or pursuant to Section 15. However, the expiration date for any ISO granted to an Over-10% Owner may be no later than five years after the grant, and the expiration date for any other Option may be no later than ten years after the date of grant. The Committee may, in its discretion, accelerate the exercisability of any portion of an Option or provide for automatic acceleration of exercisability of any portion of an Option upon the occurrence of such events as it may specify, such as upon the death or Disability of a grantee. However, no acceleration of exercisability of any portion of an ISO shall be effective without the consent of the Option holder if such acceleration would cause the ISO or any other ISO of such holder (or any portion thereof) to become a Nonqualified Stock Option. During the lifetime of the grantee of an Option, the Option may be exercised only by the grantee or the grantee’s legal representative.
(c) Exercise Price. Unless a higher price is specified at the time of grant, the per share exercise price of each Option shall be the Fair Market Value of a share of Company Stock on the date of grant, except that the per share exercise price of any ISO granted to an Over-10% Owner shall be at least 110% of such Fair Market Value on the grant date.
(d) Exercise Procedures and Payment. The holder of an exercisable Option (or Option portion) may exercise it in whole or in part by complying with such procedures for exercise as are then in effect and tendering payment in full of the aggregate exercise price for the number of shares in respect of which the Option is then
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being exercised. Except to the extent further restricted or limited at the time of grant, payment may be made (1) entirely in cash, (2) by delivery of whole shares of Company Stock owned by the Option holder for more than six months on the date of surrender, (3) pursuant to a cashless exercise program implemented by the Company in connection with the Plan or (4) by any combination of the foregoing methods of payment. Any shares delivered in payment shall be valued at their Fair Market Value on the date of delivery.
(e) Effect of Employmentor ServiceTermination. The Committee shall determine the disposition of the grant of each Option in the event of the disability, death or other termination of employment of an Employee or termination of service as a Director.
(f) Restoration Options. Subject to the provisions below, the Committee may provide that an Option shall also carry with it a right to receive another Option (a “Restoration Option”) in certain circumstances. A Restoration Option may be created at the time of grant of an Option (for purposes of this paragraph, an “original Option”) that is not itself a Restoration Option at the time a Restoration Option arises (so as to provide a subsequent Restoration Option to it), or at any other time while the grantee continues to be eligible for Awards and the original or Restoration Option (the “prior Option”) is outstanding. In addition to any other terms and conditions (including additional limitations on exercisability) that the Committee deems appropriate, each Restoration Option shall be subject to the following:
(i) A Restoration Option may arise only if, earlier than six months before the expiration date of the prior Option, the grantee exercises the prior Option (or a portion thereof) while still an Employee and pays all or some of the relevant exercise price in shares of Company Stock that have been owned by the grantee for at least six months prior to exercise
(ii) The number of shares subject to the Restoration Option shall be the number of whole shares delivered in exercise of the prior Option, except that the number will be reduced to the extent necessaryfor the Plan to comply with the limitations imposed by Section 5 of the Plan
(iii) The Restoration Option shall arise and be granted (if ever) at the time of payment of the relevant exercise price in respect of the prior Option
(iv) The per share exercise price of the Restoration Option shall be the Fair Market Value of a share of Company Stock on the date the Restoration Option arises
(v) The expiration date of the Restoration Option shall be the same as that of the prior Option
(vi) The Restoration Option shall first become exercisable six months after it arises
(vii) The Restoration Option shall be a Nonqualified Stock Option.
Section 7 — Stock Appreciation Rights
(a) Types of SARs Authorized.SARs may be granted in tandem with all or any portion of a related Option (a “Tandem SAR”) or may be granted independently of any Option (a “Stand-Alone SAR”). A Tandem SAR may be granted either concurrently with the grant of the related Option or at any time thereafter prior to the complete exercise, termination, expiration or cancellation of such related Option.
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(b) Exercise Price.The exercise price for each SAR shall be established in the discretion of the Committee; provided, however, that (i) the exercise price per share subject to a Tandem SAR shall be the exercise price per share under the related Option (but not less than the Fair Market Value per share of Company Stock on the effective date of grant of the SAR) and (ii) the exercise price per share subject to a Stand-Alone SAR shall not be less than the Fair Market Value of a share of Company Stock on the effective date of grant of the SAR.
(c) Exercisability and Termination.
(i) Tandem SARs. Tandem SARs shall be exercisable as follows, subject to such other provisions as the Committee may specify when the Tandem SAR is granted:
(A) The only persons entitled to exercise such SARs shall be the holder of the related Option or such holder’s legal representative
(B) The expiration date of such SARs shall be the same as that of the related Option
(C) SARs shall be exercisable if (and only if) and to the extent that the related Option is then exercisable, except that SARs shall not be exercisable by a Section 16 Reporting Person at any time within six months after the date on which the SARs were granted even if the related Option is then exercisable
(D) Exercise of SARs shall automatically terminate the related Option with respect to the same number of shares as the number of SARs being exercised
(E) Exercise, cancellation or termination of an Option shall automatically terminate the same number of related SARs as the number of shares with respect to which the Option is being exercised, canceled or terminated
(F) Tandem SARs related to an Incentive Stock Option shall be exercisable only when the then Fair Market Value of a share of Company Stock exceeds the exercise price of the Incentive Stock Option.
(ii) Stand-Alone SARs. Stand-Alone SARs shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria and restrictions as shall be determined by the Committee and set forth in the Award agreement evidencing such SAR; provided, however, that no Stand-Alone SAR shall be exercisable after the expiration of ten (10) years after the effective date of grant of such SAR., and further provided that no SAR shall be exercisable prior to twelve (12) months of continued service by a grantee following the date of grant, except as otherwise provided in the SAR Award or this Plan for termination of service for death or Disability, or pursuant to Section 15.
(d) Exercise Procedures and Settlement Elections. Exercisable SARs may be exercised at any time in accordance with such exercise procedures as are then in effect. Except to the extent further restricted at the time of grant, at or prior to exercise of SARs, the holder may elect to have the exercised SARs settled (1) entirely in cash, (2) to the extent possible, in whole shares of Company Stock and the balance in cash, or (3) partially in cash in an amount specified by the holder and the balance in whole shares of Company Stock plus cash in lieu of any fractional share. If no election is made, the SARs shall be settled in any of the foregoing manners as the Committee shall determine. For purposes of settlement, shares of Company Stock shall be valued at their Fair Market Value as of the settlement date.
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(e) Effect of Termination of Employment. A SAR shall be exercisable after a grantee’s termination of employment to the extent and during such period as determined by the Committee, in its discretion, and as set forth in the Award agreement evidencing such SAR.
Section 8 — Restricted Awards
(a) General.Awards of Restricted Shares are awards of actual Company Stock, while Awards of Restricted Share Units are awards that may consist of Company Stock, cash equivalents of Company Stock, or a combination of both. The restrictions that may be imposed relate to possession, vesting and conditions to vesting, payment of dividends and potential forfeiture.
(b) Restriction Period.At the time of grant of a Restricted Award, the Committee shall establish a period of no less than twelve months with respect to such Restricted Award, which period (the “restriction period”) shall commence on the date of grant or such other date selected by the Committee. The Committee may provide for such restriction period to lapse in installments. The Committee may impose such restrictions or conditions to the vesting of a Restricted Award as it, in its sole discretion, deems appropriate. By way of example and not by way of limitation, the Committee may require, as a condition to the vesting of any Restricted Award, that the grantee or the Company achieves such performance goals as the Committee may specify. If a Restricted Award is intended to qualify as “qualified performance-based compensation” under Code Section 162(m), all requirements set forth in Section 9B that otherwise apply to Performance Awards must also be satisfied with respect to such Restricted Award in order for a grantee to be entitled to payment.
(c) Vesting and Forfeiture. If the grantee of a Restricted Award remains an Employeeor Director throughout the applicable restriction period, and any other conditions imposed by the Committee are satisfied, the entire Restricted Award shall become fully vested and no longer subject to forfeiture at the end of the restriction period. If the grantee ceases to be an Employeeor Directorduring the restriction period due to death or Disability (including during the first twelve months following the date of grant), the Award shall be vested in proportion to the then elapsed portion of the restriction period, and the remainder of such Award shall be forfeited, unless the Committee determines to waive such forfeiture, in whole or in part, and vest those Shares or Units. If the grantee otherwise ceases to be an Employeeor Directorduring the restriction period, the Committee shall determine the disposition of the Award.
(d) Restricted Share Certificates and Dividends or Distributions. Restricted Shares shall be issued to the grantee as promptly as practicable after the grant, but the certificates representing such Restricted Shares shall bear an appropriate legend and shall be held by the Company. Non-cash dividends or other distributions upon Restricted Shares shall be retained and held by the Company, pending vesting or forfeiture of the Restricted Shares. Such retained non-cash dividends and other distributions shall be vested or forfeited, as the case may be, upon the vesting or forfeiture of such Restricted Shares. Non-cash dividends and other distributions that vest shall be distributed to the grantee of the Restricted Shares as promptly as practicable after the vesting date. The grantee of Restricted Shares shall be entitled to receive any cash dividends paid with respect to such Shares during the restriction period.
(e) Settlement of Restricted Share Units. An Award of Restricted Share Units that vests shall be settled in cash, whole shares of Company Stock (valued at Fair Market Value as of the settlement date), or a combination
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thereof, as the Committee shall determine. The mode of settlement shall not violate the Plan’s limitations on available shares or any limitations imposed by the Committee at the time of grant of the Award or at any other time while the Award is unvested and the grantee is still an Employee or Director. Restricted Share Units that vest shall be settled in full during the year that the vesting date occurs, and no later than two and one-half months after the calendar year in which vesting occurs.
Section 9A — Performance Awards and Additional Shares in General
(a) Performance Period and Goals.At the time of grant of a Performance Award, the Committee shall establish one or more performance periodsof no less than twelve (12) monthswith respect to such Performance Award. If the Award is granted during the first fiscal quarter of the Company’s fiscal year, the performance period will commence on the first day of that fiscal year and can also be based on the calendar years. For grants made after the first fiscal quarter of the Company’s fiscal year, the Committee can also use the performance period that starts on the first day of the fiscal year or calendar year, pro-rated as determined by the Committee. Otherwise, the performance period will commence on the date of grant or such other period selected by the Committee. At the time of grant of the Performance Award, the Committee shall also establish one or more business performance goals for the performance period and, if it establishes more than one, the weight to be given each such goal (collectively, “performance goals”). The initial performance goals with respect to a Performance Award may be modified or adjusted during the performance period in light of previously unforeseen transactions, events or circumstances occurring after the initial performance goals are established. All performance goals shall be subject to the approval of the Board.
(b) Performance Assessment, Vesting and Forfeiture.As soon as practicable after the end of a performance period for a Performance Award, the Committee shall determine the extent to which the performance goals for that Award were attained. Subject to the terms of any applicable award agreement (which terms shall govern), if the grantee of a Performance Award remains an Employee throughout the applicable performance period, and any other conditions imposed by the Committee are satisfied, the Performance Award (or any applicable portion thereof based on the extent the performance-goals are satisfied) shall become vested according to its terms and no longer subject to forfeiture at the end of the applicable performance period. If the grantee ceases to be an Employee during the performance period due to his or her death, Disability or termination by the Company without Cause, then shortly after termination of employmentor servicefor these reasons (but not earlier than after the applicable performance periods are completed and the date the Committee determines that the performance goals are attained) the grantee shall be entitled to receive a pro-rata portion of the portion of the Performance Award that would have otherwise vested if his or her employmentor servicehad continued until the end of such performance period, based on the portion of the performance period that the grantee was employed by the Company, and the remainder of such Performance Award shall be forfeited, unless the Committee determines to waive such forfeiture in whole or in part; provided, however, that in the event of a termination by the Company without Cause, the Committee has no such discretion to waive such forfeiture if the grantee is a Named Executive Officer or an individual that the Committee reasonably believes may become a Named Executive Officer and designates the Performance Award as subject to Section 162(m)’s requirements (a “Prospective NEO”). In the event of termination by the Company without Cause, the grantee must be employed for at least one year after the date the grants were approved to be entitled to a pro rata award. If a grantee who is not a Named Executive Officer otherwise ceases to be an Employee during the applicable performance period for any reason other than death, Disability, or termination by the Company without Cause, or other than following normal retirement, as defined by the Committee, the Committee shall determine the disposition of the Performance Award. IfExcept as stated in the applicable award agreement, if a grantee who is a Named Executive Officer otherwise ceases to be an Employee during the performance period for any reason other than death, Disability termination by the
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Company without Cause, or following normal retirement, as defined by the Committee, the Performance Award will be forfeited in its entirety. Performance Awards that vest shall be settled during the year that the vesting date occurs, and no later than two and one-half months after the year in which vesting occurs.
(c) Additional Shares. At the end of the performance period, the Committee may recommend a grant of Additional Shares to the grantee of a Performance Award that is settled in Company Stock if the grantee is then an Employee and is not a Named Executive Officer, and the Committee determines that satisfaction of the performance goals so warrants. Additional Shares awarded to a grantee shall be immediately vested and shall be issued to the grantee as soon as practicable after the grant.
(d) Other Matters. The provisions of Section 8(d) of the Plan shall also apply to Performance Shares, and the provisions of Section 8(e) shall also apply to Performance Share Units. The Committee may make interim grants of Awards to new Employees in a fair and equitable manner. The Committee may, in its sole discretion, settle any vested and payable Other Performance Award (1) entirely in cash, (2) to the extent possible, in whole shares of Company Stock and the balance in cash, or (3) partially in cash in an amount specified by the Committee and the balance in whole shares of Company Stock. For purposes of settlement, shares of Company Stock shall be valued at their Fair Market Value as of the settlement date.
Section 9B — Performance Awards to Named Executive Officers
(a) Special Provisions Applicable. Notwithstanding other provisions of the Plan, the provisions of this Section 9B shall apply to all Performance Awards granted to Named Executive Officers that are intended to qualify as “qualified performance-based compensation” and that are not subject to the tax deduction limit imposed by Section 162(m). Except as superseded by this Section 9B and unless otherwise stated, all provisions of the Plan applicable to Performance Awards shall also apply to such Performance Awards granted to Named Executive Officers.
(b) Timing of Grants. Performance Awards may be granted to Named Executive Officers only during the first 90 days of the Company’s applicable performance period, except in limited circumstances. .
(c) Performance Objectives and Payout Schedules. At or prior to the grant of each Performance Award to a Named Executive Officer or Prospective NEO, the Committee shall establish one or more objectively determinable performance goals (which may be annual, cumulative or based on some other portion of the performance period) for the Award relating to one or more or any combination of the following areas of Company or other business unit performance, either in absolute terms or relative to the performance of one or more other companies or an index covering multiple companies, over the relevant performance period.
(i) Earnings (which includes net profits, operating profits, operating earnings, and net income, and which may be calculated before or after taxes, interest, depreciation, amortization or taxes, as specified at the time of the any Performance Award is granted) or earnings per share of Company Stock;
(ii) Revenues;
(iii) Gross Profits;
(iv) Cash flow;
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(v)Return on revenues, gross profits, sales, assets or equity;
(vi) Customer or employee retention;
(vii)Customer satisfaction;
(viii) Expenses or expense levels;
(ix) One or more operating ratios;
(x)Stock price;
(xi) Market share;
(xii)Capital expenditures;
(xiii) Net borrowing, debt leverage levels, credit quality or debt ratings;
(xiv) The accomplishment of mergers, acquisitions, dispositions, public offerings or similar extraordinary business transactions;
(xv) The Company’s Quality Management System;
(xvi) Shareholder return;
(xvii) Organizational health/productivity;
(xviii) Sales volume; and/or
(xix) Brand or product recognition/acceptance
At the same time, the Committee shall establish a payout schedule for the Performance Award, which shall be a predetermined range from threshold performance amount or level of the target Other Performance Award, Performance Shares and/or Performance Share Units constituting the Award (if actual Company results for the period do not at least equal threshold performance amount or level specified by the Committee, then payout will be zero) to maximum performance amount or level of such Award (if actual Company results for the performance period at least equal the threshold performance goal(s) established) and shall be structured so as to permit objective determination of payouts over the full range of actual Company results. At the time any Performance Award is granted, the Committee shall specify which (if any) types or categories of extraordinary, unusual, non-recurring, or other items or events shall be excluded or otherwise not fully taken into account when actual Company results relating to such goal(s) are calculated, and the only adjustments in actual Company results which thereafter shall be permissible for purposes of applying the established payout schedule for the Performance Award shall be objectively determinable adjustments for the items or events so specified.
(d)No Discretion to Increase Awards or Waive Forfeitures. The Committee may establish other preconditions to payout of a Performance Award to a Named Executive Officer, including preconditions that may call for subjective determinations by the Committee. The otherwise scheduled payout on any Performance Award
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granted to a Named Executive Officer may be reduced by the Committee to the extent it deems appropriate if, in the Committee’s judgment, the Named Executive Officer’s individual performance during the performance period has not warranted the scheduled payout. However, for so long as Code Section 162(m) may require, the payout on any Performance Award granted to a Named Executive Officer that is intended to qualify as “qualified performance based compensation” shall not exceed the payout permissible under the Award’s payout schedule, and no Additional Shares or additional cash amount shall be granted to any Named Executive Officer.
(e) Promotions and New Hires. With respect to a Named Executive Officer who is newly hired or is promoted by the Company during a performance period, the Committee shall grant a Performance Award, or adjust a Performance Award previously granted, to such Named Executive Officer for such performance period pursuant to the provisions of this Section 9B(e); provided, however, that no Performance Award shall be granted or adjusted in such a manner as to cause any such award to fail as “qualified performance-based compensation” within the meaning of section 162(m)(4)(C) of the Code and Section 1.162-27 of the Treasury Regulations promulgated thereunder.
(i). Pro-Rated Performance Awards for Newly-Eligible Executives. A Named Executive Officer who is granted an Performance Award more than 90 days after the beginning of the performance period, either because the Named Executive Officer is newly hired or is promoted into a Named Executive Officer position, will be granted a Performance Award under the Plan for such performance period based on the number of maximum, target, and threshold levels established by the Committee during the first 90 days of the performance period for similar Employees at the new or promoted Named Executive Officer’s award level, with the number of maximum, target, and threshold number of shares that can be earned at each level pro-rated based on the ratio of the number of full months remaining in the performance period on and after the date of hire or promotion (as applicable) to the total number of months in the performance period. For any award grade created between the award grades for which the Committee has established the maximum, target, and threshold levels, straight-line interpolation shall be used to determine the pro-rated number of maximum, target, and threshold shares in accordance with this Section 9B(e).
(ii).Adjustments to Outstanding Performance Awards. If a Named Executive Officer is promoted after the beginning of a performance period, such Employee’s outstanding Performance Award granted for such performance period will be adjusted, effective as of the date of such promotion, based on the number of maximum, target, and threshold levels established by the Committee during the first 90 days of the Performance Period for such Employee’s award level. The adjustments to each such Named Executive Officer’s Performance Award shall be pro-rated on a monthly basis, with the number of maximum, target, and threshold shares for the Employee’s original position and the original achievement levels applicable for the number of full months preceding the effective date of the promotion and the number of maximum, target, and threshold shares for the Employee’s new position applicable and the revised achievement levels for the remaining number of months in the performance period. For any award created between the levels for which the Committee has established the number of maximum, target, and threshold shares as described above, straight-line interpolation shall be used to determine the pro-rated number of maximum, target, and threshold shares in accordance with this Section 9B(e).
(iii). Negative Discretion. Notwithstanding any other provision of this Section 9B(e), the Committee retains the discretion to reduce the amount of any Performance Shares, including a reduction of such amount to zero. By way of illustration, and not in limitation of the foregoing, the Committee may, in its discretion, determine (A) not to grant a pro-rated Performance Award pursuant to Section 9B(e), (B) not to adjust an outstanding Performance Award pursuant to Section 9B(e), (C) to grant a pro-rated
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Performance Award in a smaller amount than would otherwise be provided by Section 9B(e), or (D) to adjust an outstanding Performance Award to produce a smaller award than would otherwise be provided by Section 9B(e), above.
(f)Certification by Committee.As soon as practicable following the completion of the performance period applicable to a Performance Award, the Committee shall certify in writing the extent to which the applicable performance goals have been attained and the resulting final value of the Award earned by the Named Executive Officer.
Section 10 — Foreign Awards
The Committee may modify the terms of any type of Award described in Sections 6, 7, 8 or 9A of the Plan for grant to an Employeeor Directorwho is subject to tax or similar laws of a country other than the United States and may grant such modified Award, and structure and grant other types of awards related to appreciation in value of Company Stock, to such an Employee or Director, as the Committee determines necessary or advisable in order to provide such grantee with benefits and incentives comparable (to the extent practically possible) to those which would be provided the grantee if the grantee were not subject to such foreign laws. Notwithstanding the foregoing, if the Employee or Director is also subject to Code Section 409A, the modifications of any type of Award described in Sections 6, 7, 8, or 9A of the Plan, or the structure of other types of awards related to appreciation in value of Company Stock may not be made in a manner that would cause non-compliance with Code Section 409A.
Section 11 — Other Stock-Based Awards
(a)General.The Committee may, in its sole discretion, grant Awards of Company Stock or Awards that are valued in whole or in part by reference to, or are otherwise based on the Fair Market Value of Company Stock (“Other Stock-Based Awards”). Such Other Stock-Based Awards shall be in such form, and dependent on such conditions, as the Committee shall determine including, without limitation, the right to receive one or more shares of Company Stock (or the equivalent cash value of such shares) upon the completion of a specified period of service, the occurrence of an event, the attainment of performance objectives and/or other criteria specified by the Committee. Other Stock-Based Awards may be granted alone or in addition to any other Awards granted under the Plan. Subject to the provisions of the Plan, the Committee shall determine to whom and when Other Stock-Based Awards will be made; the number of shares to be awarded under (or otherwise related to) such Other Stock-Based Awards; whether such Other Stock-Based Awards shall be settled in cash, Company Stock or a combination of cash and Company Stock; and all other terms and conditions of such Awards (including, without limitation, the vesting provisions thereof). If an Other Stock-Based Award is intended to qualify as “qualified performance-based compensation” under Code Section 162(m), all requirements set forth in Section 9B that otherwise apply to Performance Awards must also be satisfied with respect to such Other Stock-Based Award in order for a grantee to be entitled to payment. Other Stock-Based Awards must provide either that they will be paid no later than 2 1/2 months after the end of the year in which they vest or that they will be paid in a lump-sum payment at a specified time, within the meaning of Treasury Regulation Section 1.409A-3(i)(1)(i).
(b) Director Awards.In addition to any other Award that might be granted to a Director, each Director who is elected at the annual stockholders meeting, whose term continues thereafter, or who is elected between annual stockholders meetings shall receive a portion of his or her Annual Retainer (or pro-rated Annual Retainer for a Director elected between annual stockholders meetings) in the form of Company Stock in a percentage (up to a maximum of 100%) of the Annual Retainer as determined from time to time by the Board.
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Unless deferred pursuant to a deferral program adopted by the Company for Directors, with respect to those Directors elected at the annual meeting of stockholders, or whose term continues thereafter, the portion of the Annual Retainer to be paid in the form of Company Stock shall be paid on the first business day next following the date of the annual meeting of stockholders, and with respect to any Director elected to the Board between annual meetings, the portion of the Annual Retainer to be paid in the form of Company Stock will be paid on the first business day following his or her election to the Board (each an “Issue Date”).
Unless otherwise determined by the Board, the number of shares of Company Stock issued to a Director in accordance with Section 11(b) shall be determined by multiplying (x) the Annual Retainer (or pro-rated Annual Retainer for a Director elected between annual stockholders meetings) provided to such Director for the year by (y) the percentage established by the Board in accordance with Section 11(b) for the year and dividing the product of (x) and (y) by the Fair Market Value of a share of Company Stock on the Issue Date. Fractional shares resulting from this formula shall be rounded, up or down, to the nearest whole share at the sole discretion of the Board.
The Board shall determine whether any Award to Directors shall be subject to any restrictions consistent with Section 8 or Section 9A.
(c) At the time of the grant of Awards to Employees pursuant to Section 11(a), the Committee shall require a period of no less than twelve (12) months of continued service by an Employee following the date of grant, except as otherwise provided in the Award or this Plan for death, Disability, or pursuant to Section 15, or with respect to 5 percent (5%) of the maximum number of shares of Company Stock that may be issued or delivered pursuant to Section 5.
Section 12 — Certain Provisions Generally Applicable to Awards
(a)Award Agreements. Each Award (other than any award of Additional Shares and any similar Foreign Award unless the Committee otherwise determines) shall be evidenced by a written agreement setting forth the type, amount and other terms and conditions of such Award, as are not inconsistent with the Plan as the Committee shall have specified with respect to such Award.
(b) Transfer Restrictions; Potential Forfeiture. No Option or SAR, no Other Stock-Based Award, no unvested Performance Award or Restricted Award, no Foreign Award similar to any of the foregoing, and none of the rights or privileges conferred by any such Award may be sold, assigned, pledged, hypothecated or otherwise transferred in any manner whatsoever, except that, if the Committee determines that such transfer will not violate any requirements of the Securities and Exchange Commission or the Internal Revenue Service, the Committee may permit an intervivos transfer by gift to or for the benefit of a family member of the grantee. Any attempt to sell, assign, pledge, hypothecate or otherwise transfer any such Award or any of the rights and privileges conferred thereby contrary to the provisions of the Plan shall be void and unenforceable against the Company.
(c)Overriding Precondition; Potential Forfeiture. It shall be an overriding precondition to the vesting of each Performance Award, Restricted Award, Other Stock-Based Award, and similar Foreign Award and the exercisability of each Option, SAR and similar Foreign Award: (1) that the grantee of such Award not engage in any activity that, in the opinion of the Committee, is in competition with any activity of the Company or any Affiliated Entity or is otherwise inimical to the best interests of the Company and that has not been approved by the Board or the Committee and (2) that the grantee furnish the Committee with all the information confirming satisfaction of the foregoing condition that the Committee reasonably requests. If the Committee determines that
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a grantee has engaged in any activity prohibited by the foregoing conditions, all of the grantee’s then outstanding Options, SARs and similar Foreign Awards shall immediately be cancelled, and all of the grantee’s then unvested Restricted Awards, Performance Awards, Other Stock-Based Awards, and similar Foreign Awards shall immediately be forfeited.
For this purpose, the Awards shall state that the grantee agrees that for a period of twelve (12) months after a grantee’s termination of employment, the grantee shall not directly or indirectly, individually, or as a director, employee, officer, principal, agent, or in any other capacity or relationship, engage in any business or employment, or aid or endeavor to assist any business or legal entity that is in direct competition with the business of the Company as then being carried out (provided, however, that notwithstanding anything to the contrary contained in thisAgreementPlan, a grantee may own up to two percent (2%) of the outstanding shares of the capital stock of a company whose securities are registered under Section 12 of the Securities Exchange Act of 1934). A Grantee will acknowledge that Company has operations in all 50 states, the District of Columbia and at least twenty-nine other countries, that the Company’s strategic plan is to continue to expand its operations and presence both domestically and internationally and that grantee’s services are integral to these operations and expansion plans.
In addition, during grantee’s employment with the Company, and any subsidiary thereof, and during the twelve (12) month period following any termination of grantee’s employment for any reason, grantee shall not, except in the course of carrying out hisor herduties hereunder, directly or indirectly induce any employee of the Company or any of its subsidiaries to terminate employment with such entity, and shall not directly or indirectly, either individually or as owner, agent, employee, consultant or otherwise, knowingly employ or offer employment to any person who is or was employed by the Company or a subsidiary thereof unless such person shall have ceased to be employed by such entity for a period of at least six (6) months.
Grantee shall not, directly or indirectly, during hisor heremployment with the Company and during the twelve (12) month period following any termination of grantee’s employment for any reason engage in any Solicitation.
Grantee shall not disparage, slander or injure the business reputation or goodwill of the Company in any material way, including, by way of illustration, through any contact with vendors, suppliers, employees or agents of the Company which could harm the business reputation or goodwill of the Company.
The Company has advised the grantee and the grantee acknowledges that it is the policy of the Company to maintain as secret and confidential all Protected Information, and that Protected Information has been and will be developed at substantial cost and effort to the Company. All Protected Information shall remain confidential permanently, and the grantee shall not, at any time, directly or indirectly, divulge, furnish, or make accessible to any person, firm, corporation, association, or other entity (otherwise than as may be required in the regular course of the grantee’s employment with the Company), nor use in any manner, either during the term of employment or after termination, at any time, for any reason, any Protected Information, or cause any such information of the Company to enter public domain.
In the event of a violation of this provision, Company retains all rights to seek monetary damages against a grantee or to seek other equitable remedies against the grantee.
For purposes of this Section 12(c), “grantee” refers only to Employees.
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(d) Tax Withholding; Notice to Company of Certain Actions.Whenever cash is to be paid pursuant to the settlement of an Award, the Company shall have the right to deduct therefrom an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto.
The Committee may provide, on request of a grantee, for withholding of otherwise issuable shares upon the grant, exercise, vesting or settlement of Awards or for the tender of other shares of Company Stock owned by such grantee or holder in order to satisfy tax withholding obligations arising in connection with the grant, exercise, vesting or settlement of an Award. If the Committee grants such elections, it may condition, limit or qualify them in any manner it deems appropriate.
If any grantee shall, in connection with the acquisition of shares of Company Stock under the Plan, make the election permitted under Code Section 83(b) (i.e., an election to include in gross income in the year of transfer the amounts specified in Code Section 83(b)), the grantee shall notify the Company of such election within ten days of filing notice with the Internal Revenue Service, in addition to any filing and notification required pursuant to regulations issued under the authority of Code Section 83(b).
(e) Stockholder Status. The grantee of an Award, and other persons to whom the Award or the grantee’s rights thereunder may pass, shall have no rights or privileges of a holder of shares of Company Stock, in respect of any shares issuable pursuant to or in settlement of such Award, unless and until certificates representing such shares have been issued in their name(s).
Section 13 — No Right to Employment or Award
No person shall have any claim or right to be granted an Award. The grant of an Award shall not confer upon any Employeeor Directora right with respect to continued employmentor serviceby the Company or an Affiliated Entity. Further, the Company and each Affiliated Entity reaffirms its at-will employment relationship with its Employees and expressly reserves the right to dismiss a grantee at any time free from any liability or claim, except as provided under this Plan.
Section 14 — Adjustments upon Changes in Capitalization
In the event of a stock split, stock dividend, reverse stock split, combination of shares or conversion or exchange of voting shares for non-voting shares, the Board shall make a proportionate adjustment to the number and kind of shares available for issuance in the aggregate and to any individual under and pursuant to the Plan (including the settlement of ISOs), the number and kind of shares covered by outstanding Options and the per share exercise price of such Options, the numbers of outstanding SARs and Share Units and the terms of Foreign Awards. In the event of a reorganization or recapitalization, merger, consolidation or similar transaction involving the Company, a rights offering or any other change in the corporate or capital structure of the Company (other than as provided in the immediately preceding sentence), the Board shall make such adjustments as it may deem appropriate in the number and kind of shares available for issuance in the aggregate and to any individual under and pursuant to the Plan (including in settlement of ISOs), the number and kind of shares covered by outstanding Options and the per share exercise price of such Options, the numbers of outstanding SARs and Share Units and the terms of Foreign Awards. Any adjustment with respect to an ISO in connection with a transaction to which Section 424(a) of the Code (or its successor) applies shall be made in accordance therewith unless the Board specifically determines otherwise. Notwithstanding the foregoing, the Board shall not make any adjustment to the number of shares covered by outstanding Options or the per share exercise price of such Options or the number of outstanding SARs that would cause the exercise price to be less than the Fair Market Value of the underlying shares on the date the Option or SAR was granted or cause the number of shares subject to the Option or SAR to be other than fixed on the original date of grant of the Option or SAR.
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Section 15 Change In Control
(a)Committee Discretion. The Committee may, in its sole discretion and without the consent of a grantee of an Award, either by the terms of the Award or by resolution adopted prior to the occurrence of a Change in Control, determine whether and to what extent outstanding Awards under the Plan shall be assumed, converted or replaced by the resulting entity in connection with the Change in Control (or, if the Company is the resulting entity, whether such Awards shall be continued by the Company), in each case subject to equitable adjustments in accordance with Section 14 of the Plan.
(b) Awards that are Assumed. To the extent outstanding Awards granted under the Plan are assumed, converted or replaced by the resulting entity in the event of a Change in Control (or, if the Company is the resulting entity, to the extent such Awards are continued by the Company) as provided in Section 15(a) of the Plan, then, except as otherwise provided in the applicable Award or in another written agreement with the grantee, or in a Company severance plan, if any:
(i) Any such outstanding Awards that are subject to performance goals shall be converted to service-based Awards by the resulting entity based on the shares of Company Stock payable as if the “target” level performance goal had been achieved, and such converted Awards shall continue to vest and become exercisable or be paid (as applicable) based on continued service during the remaining vesting period;
(ii) All other such outstanding Awards shall continue to vest and become exercisable or be paid (as applicable) based on continued service during the remaining vesting period, if any; and
(iii) Notwithstanding the foregoing, if the Employee’s employment is involuntarily terminated without Cause within two years after such Change in Control, all such outstanding Awards shall become vested and exercisable or be paid (as applicable) in full, effective as of the date of such termination, and any such Awards that are Options or Stock Appreciation Rights shall be cancelled in accordance with Section 15(d) as of the date of termination of employment.
(c) Awards that are not Assumed. To the extent outstanding Awards granted under the Plan are not assumed, converted or replaced by the resulting entity in connection with a Change in Control (or, if the Company is the resulting entity, to the extent such Awards are not continued by the Company) in accordance with Section 15(a) of the Plan, then, except as otherwise provided in the applicable Award or in another written agreement with the grantee, or in a Company severance plan, if any, then, effective immediately prior to the Change in Control:
(i) All service-based and performance-based vesting restrictions with respect to all such outstanding Awards shall lapse, with any applicable performance goals deemed to be satisfied as if “target” performance had been achieved, and all such Awards shall become fully vested and exercisable or be paid, as applicable, effective as of the date of such Change in Control; and
(ii) All such outstanding Awards that are Options or Stock Appreciation Rights shall be cancelled in accordance with Section 15(d) effective on the Change in Control.
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(d) Cancellation Right. The Committee may, in its sole discretion and without the consent of the grantee of an Award, either by the terms of the Award or by resolution adopted prior to the occurrence of the Change in Control, provide that any outstanding Award (or a portion thereof) shall, upon the occurrence of such Change in Control, be cancelled in exchange for a payment in cash or other property (including shares of the resulting entity in connection with a Change in Control) in an amount equal to the excess, if any, of the Fair Market Value of the shares subject to the Award, over any exercise price related to the Award, which amount may be zero if the Fair Market Value of a share on the date of the Change in Control does not exceed the exercise price per share of the applicable Awards.
(e) Miscellaneous.
(i) Any action or determination to be taken by the Committee pursuant to this Section 15 in connection with a Change in Control shall be taken prior to such Change in Control.
(ii) For purposes of Section 15(b), the cancellation of an Award and subjecting a cash equivalent amount to the remaining vesting schedule based on continued service will be treated as a conversion of an Award that is assumed.
(f)Section 409A.Notwithstanding any provision of this Plan to the contrary, and except as otherwise provided in the Award, if (i) an Award is considered a “deferral of compensation” (within the meaning of Section 409A of the Code), (ii) the Award becomes vested or restrictions lapse, expire or terminate upon the occurrence of a Change in Control, and (iii) either such Change in Control is not treated as a “change in ownership” of the Company, a “change in the effective control” of the Company or a “change in the effective ownership of a substantial portion of the assets” of the Company (within the meaning of Section 409A of the Code) or payment of the Award is not otherwise permitted upon the Change in Control under Section 409A of the Code without the imposition of taxes and penalties, then even though such Award may be deemed to be vested or restrictions lapse, expire or terminate upon the occurrence of the Change in Control, payment of the vested Award will be made, to the extent necessaryto comply with the provisions of Section 409A of the Code, to the grantee on the earliest of: (A) the grantee’s “separation from service” with the Company (as defined for Section 409A of the Code), provided that if the grantee is a “specified employee” (determined pursuant to the Company’s policy for determining specified employees in accordance with Section 409A of the Code), the payment date shall be the first day of the seventh (7th) month after the date of the grantee’s separation from service; (B) the date payment otherwise would have been made in the absence of any provisions in this Plan to the contrary (provided such date is permissible under Section 409A of the Code); or (C) the grantee’s death.
(g) Nonapplication to Fully Vested Awards. This Section 15 shall not apply to any Other Stock-Based Awards or Director Awards granted pursuant to Section 11 that are not subject to any vesting restriction and payment is deferred pursuant to the Company’s Management Retirement Plan or the Non-Employee Directors Deferred Compensation Plan.
Section 16 — Duration, Amendment, Suspension and Termination
The Plan shall become effective upon approval by the Board, subject to approval of the stockholders of the Company, and shall continue in effect for a term of ten (10) years unless terminated by the Board. The Board may amend, suspend or terminate any portion or all of the Plan at any time, but no such Board action shall adversely affect the rights of any grantee or other holder of any Award then outstanding or unvested without the consent of such grantee or holder, unless such amendment or termination is necessary to comply with any applicable law, regulation or rule. Notwithstanding the foregoing, the Plan shall not be amended without the
95
approval of the Company’s stockholders (a) to increase the maximum aggregate number of shares of Company Stock that may be issued under the Plan (except by operation of Section 14); (b) to change the class of persons eligible to receive Incentive Stock Options; or (c) to make any other amendment that would require approval of the Company’s stockholders under any applicable law, regulation or rule, including any applicable Nasdaq listing standard.
Section 1617 — Miscellaneous Provisions
(a) Governing Law.The Plan shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in the State of Delaware.
(b) Severability.If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or as to any grantee or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be construed or deemed stricken as to such jurisdiction, grantee or Award, and the remainder of the Plan and any such Award shall remain in full force and effect.
It is intended that the Plan be applied and administered in compliance with Rule 16b-3. If any provision of the Plan would be in violation of Rule 16b-3 if applied as written, such provision shall not have effect as written and shall be given effect so as to comply with Rule 16b-3, as determined by the Board.
Adopted by the Board of Directors of the Company: February 7, 2005, As Amended November 6, 2006, November 8, 2007, February 18, 2010, December 31, 2011,andFebruary 12,2015.2015, and February 15, 2017.
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q PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q
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Questions and Answers About the Proxy Statement and the Annual Meeting
KELLY SERVICES, INC.
999 West Big Beaver Road
Troy, Michigan 48084-4716
April 9, 2018
QUESTIONS AND ANSWERS ABOUT THE PROXY STATEMENT AND THE ANNUAL MEETING
Q) | WHO IS MAKING THE SOLICITATION IN THIS PROXY STATEMENT? |
A) | ||||||||||||||||||||||||||||
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enclosed form of proxy are first being sent to stockholders of the Company is April 9, 2018. |
For | Against | Abstain | For | Against | Abstain | |||||||||||||||||||
2. | Non-binding advisory vote on executive compensation. | ☐ | ☐ | ☐ | 5. | Ratification of PricewaterhouseCoopers LLP as independent accountants for the 2017 fiscal year. | ☐ | ☐ | ☐ | |||||||||||||||
1 Year | 2 Years | 3 Years | Abstain | |||||||||||||||||||||
3. | Non-binding advisory vote on the frequency of future voting on executive compensation. | ☐ | ☐ | ☐ | ☐ | 6. | Transacting any other business as may properly come before the meeting or any postponement or adjournments thereof. | |||||||||||||||||
Management recommends a vote for annual (1 Year) shareholder voting. | ||||||||||||||||||||||||
For | Against | Abstain | ||||||||||||||||||||||
4. | Amended and Restated equity incentive plan. | ☐ | ☐ | ☐ |
Q) | WHO WILL BEAR THE COST OF THE PROXY SOLICITATION? |
A) | The cost of soliciting proxies will be borne by the Company. The solicitation of proxies will be made primarily by mail. The Company may also make arrangements with brokerage houses, custodians, banks, nominees, and fiduciaries to forward solicitation material to beneficial owners of stock held of record by them and to obtain authorization to execute proxies. The Company may reimburse such institutional holders for reasonable expenses incurred by them in connection therewith. |
A copy of the Company’s Annual Report and Annual Report on Form 10-K as of December 31, 2017, the close of the Company’s latest fiscal year, has been mailed or otherwise made available to each stockholder of record. The expense of preparing, printing, assembling, and mailing the accompanying form of proxy and the material used in the solicitation of proxies will be paid by the Company. In addition, the Company may reimburse brokers or nominees for their expenses in transmitting proxies and proxy material to principals.
Q) | ||||||||||||||
WHO IS ENTITLED TO VOTE? |
NOTE: Please sign as name appears hereon. Joint owners should
A) | Only stockholders of record of our Class B common stock, par value $1.00 per share, at the close of business on March 19, 2018, the record date for the Annual Meeting, are entitled to notice of and to vote at the Annual Meeting. Class B common stock is the only class of the Company’s securities with voting rights. |
At the close of business on March 19, 2018, the number of issued and outstanding voting securities (exclusive of treasury shares) was 3,431,972 shares of the Class B common stock. Class B stockholders on the record date will be entitled to one vote for each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such.share held of record.
Q) | ||||||||||||
A) | We encourage stockholders to return their proxies promptly via the enclosed form of proxy in the enclosed postage prepaid envelope or vote via the internet, QR code scan, or telephone. |
Q) | HOW IS MY VOTE COUNTED? |
A) | If a proxy in the accompanying form is properly executed, returned to the Company and not revoked, the shares represented by the proxy will be voted in accordance with the instructions set forth thereon. If no instructions are given with respect to the matters to be acted upon, the shares represented by the proxy will be voted in accordance with the recommendation of the Company’s Board of Directors on each of the proposals set forth in the accompanying Notice of Annual Meeting of Stockholders and on any other matters that properly come before the Annual Meeting in such manner as may be determined by the individuals named as proxies. |
Q) | CAN I REVOKE MY PROXY AFTER I HAVE SUBMITTED IT? |
A) | If the enclosed form of proxy is executed and returned by the stockholder, it may nevertheless be revoked by the person giving it by written notice of revocation to the Corporate Secretary of the Company or by submitting a later dated proxy, provided such notice or later dated proxy is received by 11:59 p.m., Central Time, on May 8, 2018, or by appearing in person at the Annual Meeting. |
Q) | WHAT CONSTITUTES A QUORUM? |
A) | ||||||||||||
| Pursuant to the Company’s By-laws, the holders of 60% of the issued and outstanding shares of Class B common stock who are entitled to vote at a stockholders’ meeting, in person or represented by proxy, will constitute a quorum. Shares that are present and entitled to vote on any of the proposals to be considered at the Annual Meeting will be considered to be present at the Annual Meeting for purposes of establishing the presence or absence of a quorum for the transaction of business. |
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Questions and Answers About the Proxy Statement and the Annual Meeting
Q) | WHAT IS A BROKER NON-VOTE? |
A) | A “broker non-vote” occurs if a broker or other nominee indicates on the enclosed proxy that it does not have discretionary authority as to certain shares to vote on a particular proposal, but otherwise has authority to vote at the Annual Meeting. Abstentions and shares subject to broker non-votes will be considered as present for purposes of determining the presence or absence of a quorum at the Annual Meeting. For the purposes of Proposals 3 |
Q) | HOW IS IT DETERMINED IF A MATTER HAS BEEN APPROVED? |
A) | Under the Company’s Restated Certificate of Incorporation, Directors are elected by plurality vote and the nominees who receive the greatest number of votes at the Annual Meeting will be elected. Withheld votes and broker non-votes will not be taken into account for purposes of determining the outcome of the election of Directors. |
For Proposal 2 and Proposal 5, the affirmative vote of a majority of the shares present in person or by proxy at the Annual Meeting and entitled to vote on such proposal will be required to approve each of the other proposals to be considered at the Annual Meeting. Abstentions will have the effect of negative votes with respect to these proposals. Broker non-votes will not be taken into account for purposes of these proposals.
For Proposal 3 and Proposal 4, the affirmative vote of the outstanding shares entitled to vote on such proposal will be required to approve each of the other proposals to be considered at the Annual Meeting. Abstentions and broker non-votes will have the effect of votes against these proposals.
Q) | WHAT HAPPENS IF ADDITIONAL MATTERS (OTHER THAN THE PROPOSALS DESCRIBED IN THIS PROXY STATEMENT) ARE PRESENTED AT THE ANNUAL MEETING? |
A) | If any other matters do properly come before the Annual Meeting, all proxies signed and returned by holders of the Class B common stock, if not limited to the contrary, will be voted thereon in accordance with the best judgment of the persons voting the proxies. |
Q) | HOW CAN I COMMUNICATE WITH THE BOARD? |
A) | Stockholders may communicate with the Board in writing, addressed to the Board of Directors and mailed to the Corporate Secretary, Kelly Services, Inc., 999 West Big Beaver Road, Troy, Michigan 48084-4716. All written stockholder communications will be summarized and reported to the Board at its regularly scheduled meetings. |
Q) | WHAT IS THE DEADLINE TO SUBMIT STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS FOR THE COMPANY’S 2019 ANNUAL MEETING OF STOCKHOLDERS? |
A) | If a stockholder intends to present a proposal for action at the Company’s 2019 Annual Meeting of Stockholders and wishes to have such proposal considered for inclusion in the Company’s Proxy Statement in reliance on Rule 14a-8 under the Exchange Act, the proposal must be submitted in writing and received by the Corporate Secretary, Kelly Services, Inc., 999 West Big Beaver Road, Troy, Michigan 48084-4716, no later than December 10, 2018. |
The Company’s Amended and Restated Bylaws provide advance notice procedures with regard to certain matters, including stockholder proposals and nominations of individuals for election to the Board of Directors, outside the process of Rule 14a-8, beginning in connection with the 2019 Annual Meeting of Stockholders. In general, notice of a stockholder proposal or director nomination must be received by the Company not less than 90 nor more than 120 days prior to the first anniversary of the previous year’s annual meeting, and must contain specified information to conform to the requirements set forth in the bylaws. To be timely for the 2019 Annual Meeting of Stockholders, the notice must be received by the Company no earlier than January 9, 2019 and no later than February 8, 2019. If the chair of the meeting of stockholders determines that a stockholder proposal or director nomination was not made in accordance with the bylaws, the Company may disregard such proposal or nomination. In addition, if a stockholder submits a proposal outside of Rule 14a-8 for the 2019 Annual Meeting of Stockholders and the proposal fails to comply with the advance notice procedures under the Amended and Restated Bylaws, then the Company’s proxy may confer discretionary authority on the persons being appointed as proxies on behalf of the Board to vote on the proposal.
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Annex A
ANNEX A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
KELLY SERVICES, INC.
* * * * *
Kelly Services, Inc., a corporation organized and existing under the laws of Delaware, certifies as follows:
1. The name of the Corporation is KELLY SERVICES, INC.
2. The original certificate of incorporation was filed with the Secretary of State of Delaware on August 27, 1952 under the name of PERSONNEL SERVICE, INC.
3. ThisAmended and Restated Certificate of Incorporation amends and, restatesand integrates the certificate of incorporation of the corporation heretofore in effect. ThisAmended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware by the directors and stockholders of the corporation.
4. TheAmended and Restated Certificate of Incorporation so adopted reads in full as follows:
FIRST: The name of this corporation is Kelly Services, Inc.
SECOND:Its principalThe address of the corporation’s registered office in the State of Delaware islocated at 1209 Orange Street, in the City of Wilmington, County of New Castle, 19801. The name of its resident agent at such address is The Corporation Trust Company.
THIRD: Thenature of the business, or objects or purposes to be transacted, promoted or carried on are:purpose of the corporation is to engage in any lawful act or activity for which corporations may be organizedunder the General Corporation Law of the State of Delaware.
To furnish office, clerical, supervisory and consultant services.
To manufacture, purchase or otherwise acquire, invest in, own, mortgage, pledge, sell, assign and transfer or otherwise dispose of, trade, deal in and deal with goods, wares and merchandise and personal property of every class and description.
To acquire, and pay for in cash, stock or bonds of this corporation or otherwise, the good will, rights, assets and property, and to undertake or assume the whole or any part of the obligations or liabilities of any person, firm, association or corporation.
To acquire, hold, use, sell, assign, lease, grant licenses in respect of, mortgage or otherwise dispose of letters patent of the United States or any foreign country, patent rights, licenses and privileges, inventions, improvements and processes, copyrights, trade-marks and trade names, relating to or useful in connection with any business of this corporation.
To acquire by purchase, subscription or otherwise, and to receive, hold, own, guarantee, sell, assign, exchange, transfer, mortgage, pledge or otherwise dispose of or deal in and with any of the shares of the capital stock, or any voting trust certificates in respect of the shares of capital stock, scrip, warrants, rights, bonds, debentures, notes, trust receipts, and other securities, obligations, choses in action and evidences of indebtedness or interest issued or created by any corporations, joint stock companies, syndicates, associations, firms, trusts or persons, public or private, or by the government of the United States of America, or by any foreign government, or by any state, territory, province, municipality or other political subdivision or by any governmental agency, and as owner thereof to possess and exercise all the rights, powers and privileges of ownership, including the right to execute consents and vote thereon, and to do any and all acts and things necessary or advisable for the preservation, protection, improvement and enhancement in value thereof.
To enter into, make and perform contracts of every kind and description with any person, firm, association, corporation, municipality, county, state, body politic or government or colony or dependency thereof.
To borrow or raise moneys for any of the purposes of the corporation and, from time to time, without limit as to amount to draw, make, accept, endorse, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures and other negotiable or non-negotiable instruments and evidences of indebtedness, and to secure the payment of any thereof and of the interest thereon by mortgage upon or pledge, conveyance or assignment in trust of the whole or any part of the property of the corporation, whether at the time owned or thereafter acquired, and to sell, pledge or otherwise dispose of such bonds or other obligations of the corporation for its corporate purposes.
To loan to any person, firm or corporation any of its surplus funds, either with or without security.
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Annex A
To purchase, hold, sell and transfer the shares of its own capital stock; provided it shall not use its funds or property for the purchase of its own shares of capital stock when such use would cause any impairment of its capital except as otherwise permitted by law, and provided further that shares of its own capital stock belonging to it shall not be voted upon directly or indirectly.
To operate a private trade school and business school in the State of Michigan after obtaining the necessary license for such operation for the instruction of students in various office skills, including, but not by way of limitation, instruction in the use of various office equipment and machines.
To have one or more offices, to carry on all or any of its operations and business and without restriction or limit as to amount to purchase or otherwise acquire, hold, own, mortgage, sell, convey, or otherwise dispose of real and personal property of every class and description in any of the States, Districts, Territories or Colonies of the United States, and in any and all foreign countries, subject to the laws of such State, District, Territory, Colony or Country.
In general, to carry on any other business in connection with the foregoing, and to have and exercise all the powers conferred by the laws of Delaware upon corporations formedunder the General Corporation Law of the State of Delaware, and to do any or all of the things hereinbefore set forth to the same extent as natural persons might or could do.
The objects and purposes specified in the foregoing clauses shall, except where otherwise expressed, be in nowise limited or restricted by reference to, or inference from, the terms of any other clause in this certificate of incorporation, but the objects and purposes specified in each of the foregoing clauses of this article shall be regarded as independent objects and purposes.
FOURTH:
Division A
The total number of shares of stock which the corporation shall have authority to issue is 110,000,000 shares, the par value of each of the shares is $1.00,amounting in the aggregate to $110,000,000, and the shares are divided into two classes consisting of 100,000,000 shares of Class A Common Stock and 10,000,000 shares of Class B Common Stock.
Division B
The designations, preferences and relative, participating, optional or other special rights and the qualifications, limitations or restrictions in respect of the shares of each class are as follows:
(a)Dividends. Holders of the Class A Common Stock and the Class B Common Stock shall be entitled to receive dividends, out of funds legally available therefor, when and as declared by the Board of Directors, subject only to the limitations that (1) no cash dividend payable on the shares of the Class B Common Stock shall be declared unless the Board of Directors shall concurrently declare a cash dividend on the shares of the Class A Common Stock at a rate which is not less than the rate of the cash dividend payable on the shares of the Class B Common Stock (but a cash dividend may be declared on the Class A Common Stock without declaring a cash dividend on the Class B Common Stock), and (2) no dividend payable in shares of the Class B Common Stock shall be declared on the Class A Common Stock (but a dividend payable in shares of Class A Common Stock may be declared on the Class A Common Stock or the Class B Common Stock and a dividend payable in shares of Class B Common Stock may be declared on the Class B Common Stock).
(b)Voting Rights. Except on matters where their vote is required by Delaware law, the holders of the Class A Common Stock shall not be entitled to vote on any matter coming before any meeting of stockholders. The holders of the Class B Common Stock shall be entitled to one vote per share upon each matter coming before any meeting of stockholders.
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Annex A
(c)Conversion of Class B Common Stock.
1. Shares of Class B Common Stock shall be convertible, at the option of the respective holders thereof, at any time, into fully paid and non-assessable shares of Class A Common Stock on the basis of one share of Class A Common Stock for each share of Class B Common Stock.
2. No payment or adjustment with respect to dividends on shares of the Class A Common Stock or on the Class B Common Stock shall be made in connection with any conversion of shares of Class B Common Stock into shares of Class A Common Stock.
3. The holders of a certificate or certificates for Class B Common Stock, in order to effect the conversion of shares represented thereby, shall surrender the certificate or certificates to the corporation or to the Transfer Agent for the shares of the Class B Common Stock, with request for conversion. If the shares of the Class A Common Stock issuable upon conversion are to be issued in a name other than that in which the shares of the Class B Common Stock to be converted are registered, the certificate or certificates shall be duly endorsed for transfer or accompanied by a duly executed stock transfer power, and shall also be accompanied by the necessary stock transfer stamps or equivalent funds.
Upon surrender of the certificate or certificates, the corporation shall issue and deliver or cause to be issued and delivered to the person entitled thereto a certificate or certificates for the number of full shares of the Class A Common Stock issuable upon conversion. The corporation shall pay all original issue taxes, if any, payable upon the issue of shares of the Class A Common Stock issued upon any conversion.
The conversion shall be deemed to have been effected on the date of the surrender of the certificate or certificates of shares of the Class B Common Stock, and the person in whose name the certificate or certificates of the shares of the Class A Common Stock issuable upon conversion are to be issued shall be deemed to be the holder of record of the shares as of that date.
4. If there should be any capital reorganization or any reclassification of the Class A Common Stock, the shares of the Class B Common Stock shall thereafter have the right to be converted into the number of shares of stock or other securities or property of the corporation to which outstanding shares of the Class A Common Stock would have been entitled upon the effective date of the reorganization or reclassification. The Board of Directors shall make an appropriate adjustment in the application of the provisions of this paragraph (c) with respect to the conversion rights of the holders of the shares of the Class B Common Stock after the reorganization or reclassification, to the end that the provisions shall be applicable, as nearly as reasonably may be, in respect to any shares or other securities or property thereafter issuable or deliverable upon the conversion of shares of the Class B Common Stock. The provisions of this sub-paragraph shall not apply to a reorganization or reclassification involving merely a subdivision or combination of outstanding shares of the Class A Common Stock.
5. In case the corporation shall be consolidated with or merged into any other corporation or shall sell or transfer its property and business as or substantially as an entirety, then the stock or other securities or other property, including cash, issuable or deliverable in connection with such consolidation, merger or sale in respect of each share of the Class A Common Stock then outstanding, shall thereafter, for the purposes of the conversion rights of the Class B Common Stock, be deemed the equivalent of one share of Class A Common Stock. Upon the exercise of conversion rights, holders of Class B Common Stock shall be entitled to receive on an equivalent basis and at the same rate and on the other terms and conditions set forth in this paragraph (c), the stock or other securities or property, including cash, deemed to be the equivalent of Class A Common Stock. Lawful provisions to this effect shall be made a part of and condition to the consolidation, merger or sale.
6. In case the corporation shall propose (i) to effect any reclassification of the Class A Common Stock or any capital reorganization involving a change in the Class A Common Stock, other than a reclassification or reorganization involving merely a subdivision or combination of outstanding shares of the Class A Common Stock, or (ii) to consolidate with or merge into another corporation, or to sell or transfer its property and business as or substantially as an entirety, then, in each such case, the corporation shall file with each Transfer Agent for the shares of the Class B Common Stock and shall mail to the holders of record of the shares at their respective addresses then appearing on the records of the corporation a statement, signed by an officer of the corporation, with respect to the proposed action, the statement to be so filed and mailed at least 30 days prior to the record date for holders of the Class A Common Stock for the purposes thereof. The statement shall set forth such facts with respect to the proposed action as shall be reasonably necessary to inform each Transfer Agent for the shares of the Class B Common Stock and the holders of those shares as to the effect of the action upon the conversion rights of the holders.
7. The corporation shall at all times have authorized but unissued, or in its treasury, a number of shares of the Class A Common Stock sufficient for the conversion of all shares of the Class B Common Stock from time to time outstanding.
8. In case the shares of the Class A Common Stock or the Class B Common Stock at any time outstanding shall, by reclassification or otherwise, be subdivided into a greater number of shares or combined into a lesser number of shares, the shares of Class B Common Stock or Class A Common Stock, respectively, then outstanding shall, at the same time, be subdivided or combined, as the case may be, on the same basis.
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Annex A
(d)Preemptive Rights. Holders of the Class A Common Stock shall have no preemptive right to subscribe to any securities issued by the corporation. Holders of the Class B Common Stock shall have the preemptive right to subscribe to additional shares of Class B Common Stock, or any other voting stock or any security convertible into Class B Common Stock or other voting stock, hereafter issued by the corporation.
(e)Liquidation Preferences.
1. In the event of dissolution, liquidation or winding up of the corporation, whether voluntary or involuntary, holders of the Class A Common Stock and of the Class B Common Stock shall be entitled to payment out of the assets of the corporation ratably in accordance with the number of shares held by them respectively.
2. Neither a consolidation nor a merger of the corporation with or into any other corporation, nor a merger of any other corporation into the corporation, nor the purchase or other acquisition by the corporation of all or a part of the outstanding shares of any class or classes of its stock, nor the sale or transfer of the property and business of the corporation, as or substantially as an entirety, shall be considered a dissolution, liquidation or winding up of the corporation within the meaning of the foregoing provisions.
FIFTH: The business, property and affairs of this corporation shall be managed by a Board of Directors consisting of no fewer than five (5) and no more than eleven (11) members, the exact number to be determined from time to time by resolution of the Board of Directors.Effective atAt each annual meeting of the stockholders of the corporation from and after the annual meeting to be held in 2010, all director nominees shall stand for election to terms expiring at the next succeeding annual meeting, with each director to hold office until his successor is duly elected and qualified, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Theterm of each director serving as of and immediately prior to the annual meeting of the stockholders of the corporation to be held in 2010 shall expire as of the date of such annual meeting, notwithstanding that such director may have been elected for a term that extended beyond the date of such annual meeting. TheBoard of Directors may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by theCcertificate ofIincorporation or by the by-lawsof the corporation (the “Bylaws”) directed or required to be exercised or done by the stockholders.
Newly created directorships resulting from any increase in the authorized number of directors and vacancies in the Board of Directors from death, resignation, retirement, disqualification, removal from office or othercause, shallreason, may only be filled by a majority vote of the directors then in office, and directors so chosen shall hold office for a term expiring at the next annual meeting of the stockholders of the corporation and until their successors are duly elected and qualified, subject, however, to prior death, resignation, retirement, disqualification or removal from office. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
Any director, or the entire Board of Directors, may be removed at any time, with or without cause. The affirmative vote of the holders of a majority of the voting power of all of the stock of this corporation entitled to vote in elections of directors shall be required to remove a director from office. The stockholders of the corporation are expressly prohibited from cumulating their votes in any election of directors of the corporation.
SIXTH: The names and places of residence of the incorporators were as follows:
SIXTH: Unless and except to the extent that the Bylaws shall so require, the election of directors of the corporation need not be by written ballot.
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SEVENTH: By-laws of the corporation may be adopted, amended or repealed by the affirmative vote of a majority of the total number of directors or by the affirmative vote of the holders of a majority of the voting power of all of the stock of this corporation entitled to vote in elections of directors. Theby-lawsBylaws may contain any provision for the regulation and management of the affairs of the corporation and the rights or powers of its stockholders, directors, officers, or employees not inconsistent with the laws of the State of Delaware or this certificate of incorporation.
EIGHTH:
In furtherance, and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized:
To fix the amount to be reserved as working capital over and above its capital stock paid in, to authorize and cause to be executed mortgages and liens upon the real and personal property of this corporation.
From time to time to determine whether and to what extent, and at what times and places, and under what conditions and regulations, the accounts and books of this corporation (other than the stock ledger), or any of them, shall be open to inspection of stockholders; and no stockholder shall have any right of inspecting any account, book or document of this corporation except as conferred by statute, unless authorized by a resolution of the stockholders or directors.
By resolution or resolutions, passed by a majority of the whole board to designate one or more committees, each committee to consist of two or more of the directors of the corporation, which, to the extent provided in said resolution or resolutions, or in the by-laws of this corporation, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of this corporation, and may have power to authorize the seal of this corporation to be affixed to all papers which may require it. The committee or committees shall have the name or names as may be stated in the by-laws of this corporation or as may be determined from time to time by resolution adopted by the Board of Directors.
This corporation may in its by-laws confer powers upon its directors in addition to the foregoing, and in addition to the powers and authorities expressly conferred upon them by the statute.
Both stockholders and directors shall have power, if the by-laws so provide, to hold their meetings, and to have one or more offices within or without the State of Delaware, and to keep the books of this corporation (subject to the provisions of the statutes), outside of the State of Delaware at such places as may be from time to time designated by the Board of Directors.
NINTH: Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for this corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said Court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the Court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation.
TENTH: The Board of Directors of this corporation, when evaluating any offer of another party to (a) make a tender or exchangeoffer for any equity security of this corporation; (b) merge or consolidate this corporation with another corporation; or (c) purchase or otherwise acquire all or substantially all of the properties and assets of this corporation, shall, in connection with the exercise of its judgment in determining what is in the best interest of this corporation and its stockholders, give due consideration to such factors as the Board of Directors determines to be relevant, including without limitation, the social, legal and economic effects of the proposed transaction upon employees, customers, suppliers, and other affected persons, firms and corporations and on the communities in which this corporation and its subsidiaries operate or are located.
ELEVENTHEIGHTH: No action required or permitted to be taken at any annual or special meeting of the stockholders of this corporation may be taken without a meeting and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied.
TWELFTHNINTH: No director of the corporation shall be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty by such director as a director; provided, however, that this ArticleTWELFTHNINTH shall not eliminate or limit liability (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. No amendment or repeal of this ArticleTWELFTHNINTH shall apply to or have any effect on the liability or alleged liability of any director of the corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal.
THIRTEENTHTENTH: Special meetings of the stockholders of this corporation for any purpose or purposes may be called at any time by the Board of Directors or by a committee of the Board of Directors which has been duly designated by the Board of Directors and whose powers and authority, as provided in a resolution of the Board of Directors or in theby-laws of this corporationBylaws, include the power to call such meetings, but such special meetings may not be called by any other person or persons.
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Annex A
FOURTEENTHELEVENTH:This corporation reserves the right to amend, alter, change or repeal any provision contained in this Ccertificate of Iincorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
[Signature Page Follows]
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IN WITNESS WHEREOF, Kelly Services, Inc. has caused thisAmended and Restated Certificate of Incorporation to be signed byDaniel T. Lis, its Senior Vice President and Corporate Secretary this 5th , its this day of May, 20092018.
KELLY SERVICES, INC. | ||
By | / | |
02K4BC
Important notice regarding the Internet availability of proxy materials for the Annual Meeting of Stockholders.
The Proxy Statement and the 2016 Annual Report to stockholders are available at:
www.edocumentview.com/kelyb
q PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q
Proxy — Kelly Services, Inc.
999 West Big Beaver Road
Annual Meeting of Stockholders - May 10, 2017
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned hereby names, constitutes and appoints George S. Corona and Peter W. Quigley, and each of them, with power to act without the other and with power of substitution, as proxies andattorneys-in-fact and hereby authorizes them to represent and vote, as provided on the other side, all the shares of Kelly Services, Inc. Class B Common Stock which the undersigned is entitled to vote, and, in their discretion, to vote upon such other business as may properly come before the Annual Meeting of Stockholders of the Company to be held May 10, 2017 or at any adjournment or postponement thereof, with all powers which the undersigned would possess if present at the Meeting.
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED “FOR” THE PROPOSALS.
(Continued to be marked, dated and signed, on the other side.)
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Electronic Voting Instructions
Available 24 hours a day, 7 days a week.
Instead of mailing your proxy, you may choose one of the voting methods outlined below to vote your proxy. | ||||||||||
VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. | ||||||||||
Proxies submitted by the Internet or telephone must be received by 11:59 p.m., Central Time, on May | ||||||||||
Vote by Internet | ||||||||||
• Go to www.envisionreports.com/kelyb | ||||||||||
• Or scan the QR code with your smartphone | ||||||||||
• Follow the steps outlined on the secure website | ||||||||||
Vote by telephone | ||||||||||
• Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone
• Follow the instructions provided by the recorded message | ||||||||||
Using ablack inkpen, mark your votes with anXas shown in this example. Please do not write outside the designated areas. | ☒ |
q IF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q
A | Proposals – The Board of Directors recommends a voteFOR all the nominees listed andFOR Proposals 2 - 5. |
1. |
Election of directors of the Company, to serve for one-year terms expiring
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+ | ||||||||||||||||||||||||||||||||
For | Withhold | For | Withhold | For | Withhold | |||||||||||||||||||||||||||||
01 - T.E. Adderley | ☐ | ☐ | 02 - C.M. Adderley | ☐ | ☐ | 03 - | ☐ | ☐ | ||||||||||||||||||||||||||
04 - G.S. Corona | ☐ | ☐ | 05 - R.S. Cubbin | ☐ | ☐ | | ☐ | ☐ | ||||||||||||||||||||||||||
07 - T.B. Larkin | ☐ | ☐ | 08 - L.A. Murphy | ☐ | ☐ | | ☐ | ☐ | ||||||||||||||||||||||||||
☐ | ☐ |
For | Against | Abstain | For | Against | Abstain | |||||||||||||||
2. | Non-binding advisory vote on executive compensation. | ☐ | ☐ | ☐ | 5. | Ratification of PricewaterhouseCoopers LLP as independent accountants for the 2017 fiscal year. | ☐ | ☐ | ☐ | |||||||||||
1 Year | 2 Years | 3 Years | Abstain | |||||||||||||||||
3. | Non-binding advisory vote on the frequency of future voting on executive compensation.
| ☐ | ☐ | ☐ | ☐ | 6. | Transacting any other business as may properly come before the meeting or any postponement or adjournments thereof. | |||||||||||||
Management recommends a vote for annual (1 Year) shareholder voting. | ||||||||||||||||||||
For | Against | Abstain | ||||||||||||||||||
4. |
Amended and Restated equity incentive plan. | ☐ | ☐ | ☐ |
For | Against | Abstain | For | Against | Abstain | |||||||||||||||
2. | Non-binding advisory vote on executive compensation. | ☐ | ☐ | ☐ | 4. | Amending the Company’s Amended and Restated Bylaws to designate the Delaware Chancery Court as the exclusive forum for certain legal actions.
| ☐ | ☐ | ☐ | |||||||||||
3. | Amendment and restatement of the Company’s Restated Certificate of Incorporation to eliminate certain obsolete provisions, to eliminate a “Stakeholder provision” that could conflict with Delaware law, and to make additional revisions in the interest of modernization.
| ☐ | ☐ | ☐ | 5. | Ratification of PricewaterhouseCoopers LLP as independent accountants for the 2018 fiscal year. | ☐ | ☐ | ☐ | |||||||||||
6. | Transacting any other business as may properly come before the Meeting or any postponement or adjournments thereof. |
B | Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below |
NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such.
Date (mm/dd/yyyy) — Please print date below. | Signature 1 — Please keep signature within the box. | Signature 2 — Please keep signature within the box. |
/ / |
IF VOTING BY MAIL, YOUMUST COMPLETE SECTIONS A - C ON BOTH SIDES OF THIS CARD.
Important notice regarding the Internet availability of proxy materials for the Annual Meeting of Stockholders.
The Proxy Statement and the 20162017 Annual Report to stockholders are available at:
www.envisionreports.com/kelyb
q IF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q
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Proxy — Kelly Services, Inc.
999 West Big Beaver Road
Annual Meeting of Stockholders - May 10, 20179, 2018
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned hereby names, constitutes and appoints George S. Corona and Peter W. Quigley and Olivier G. Thirot, and each of them, with power to act without the other and with power of substitution, as proxies andattorneys-in-fact and hereby authorizes them to represent and vote, as provided on the other side, all the shares of Kelly Services, Inc. Class B Common Stock which the undersigned is entitled to vote, and, in their discretion, to vote upon such other business as may properly come before the Annual Meeting of Stockholders of the Company to be held May 10, 20179, 2018 or at any adjournment or postponement thereof, with all powers which the undersigned would possess if present at the Meeting.
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED “FOR” THE PROPOSALS.
(Continued to be marked, dated and signed, on the other side.)
C | Non-Voting Items |
Change of Address— Please print new address below. |
Comments— Please print your comments below. | |||
∎ | IF VOTING BY MAIL, YOU MUST COMPLETE SECTIONS A - C ON BOTH SIDES OF THIS CARD. | + |