Each theater transaction is examined at the time a binding agreement is entered into to determine which of the specific Commission Plans would apply. Subsequent to the signing of a binding agreement, the commissions payable under the completed transaction are calculated based on the applicable Commission Plans. The calculation is reviewed and approved by appropriate Company personnel. Effective April 2018, we amended the Commission Plans to reduce the level of commissions payable to managers who are not directly involved in a transaction. We also reduced commission levels on certain theater systems to better align with our current business strategy.
Don Savant was the President Worldwide Sales and Exhibitor Relations and Executive Vice President, IMAX Corporation until his employment agreement expired and was not renewed as of January 31, 2019. Accordingly, Mr. Savant participated in a sales commission plan for 2018. Mr. Savant was the only NEO who participated in any of our Commission Plans.
Under the terms of the Commission Plan, Don Savant’s performance in 2018 resulted in commission payments totaling $1,523,393.
Long-Term Incentives
Long-term incentive awards provide a direct alignment of interests with our shareholders given the exposure to movements in IMAX’s share price over a multi-year period. Such awards additionally recognize the scope of a role’s responsibility, rewards demonstrated performance, and encourages retention of talent and continuity in executive leadership. The level of value ultimately realized will largely reflect their successful execution of our strategy and ability to deliver long-term sustainable growth.
NEOs receive long-term incentives in the form of two types of equity-based awards that enable the Compensation Committee to achieve a combination of objectives.
| · | | Stock options enable the Compensation Committee to incentivize and reward sustained share price performance over a multi-year period, with no value realized unless the stock price increases; and |
| · | | RSUs help retain senior leaders, whose experience and contributions are critical to the successful execution of our strategy. As noted above, the Company will be adjusting its equity compensation to incorporate PSUs tied to specific performance goals for its CEO and NEOs, which we believe will further link executive compensation to Company performance. |
The Compensation Committee or full Board of Directors approves all long-term incentive awards to NEOs. These approvals are made either when an NEO’s employment agreement is entered into, or in connection with their participation in the annual equity grant process as appropriate. All NEOs are subject to share ownership guidelines as discussed in further detail above. In determining the award values the Compensation Committee takes into account a number of factors:
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Individual performance | | | | Company performance | | | | Role scope and responsibility | | | | Salary | | | | Internal relativities | | | | Market Data and Practices | | | | Equity availability |
The key features of the awards made in 2018 were as follows:
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| | · Exercise price equal to grant date fair market value · Ten-year term for CEO and seven-year term for other NEOs, subject to cancellation or forfeiture if the NEO’s employment terminates · CEO’s awards vest in accordance with his employment agreement over two years in six equal installments on May 1, September 1 and December 1 of 2018 and 2019 · Awards made in 2018 vest over four years subject to the following schedule, unless otherwise provided by the terms of the CEO’s or an NEO’s employment agreement: ∎ 20% on the first anniversary of the grant date; ∎ 25% on each of the second and third anniversaries of the grant date; and ∎ 30% on the fourth anniversary of the grant date |
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Executive Compensation Components
For 2016, the compensation elements for the NEOs were:
annual cash bonus awards;
long-term incentive compensation (stock options and RSUs); and
personal benefits and perquisites.
Annual Base Salary
We provide NEOs with competitive fixed annual base salaries to compensate them for services during the year and to provide a base level of income and cash flow not subject to performance-related risk or discretion. Each NEO’s base salary is specified in his employment agreement, other than for Mr. Cripps, whose salary was subject to annual review by the Compensation Committee. In reviewing base salaries, the Compensation Committee primarily considers the following:
the executive’s position and responsibilities;
the executive’s capability, knowledge, skills and experience relative to the job requirements;
market data for executives with similar responsibilities;
the executive’s actual and relative performance and contribution; and
other cash andnon-cash components of the executive’s total compensation.
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Base salary levels are typically considered upon renewal of the NEO’s employment agreement or when an agreement is amended in connection with a promotion or change in job responsibility. Base salary levels may be changed during the year due to a promotion or other change in position or responsibility. As contemplated by their employment agreements, Mr. Foster’s base salary increased to $1,000,000 (effective July 2, 2016), and Mr. Lister’s base salary increased to $675,000 (effective January 1, 2016). As part of the annual review process, Mr. Cripps’ base salary was increased to £540,000 (approximately $732,078 based on the average exchange rate between the U.K. pound sterling and the U.S. dollar during 2016) (effective January 1, 2016). Mr. McClymont’s base salary is set at $675,000 for the term of his employment. Mr. Gelfond’s new base salary of $1.2 million did not go into effect until January 1, 2017, while Mr. Sparacio’s base salary did not increase in 2016.
Annual Cash Bonus Awards
We provide NEOs with competitive annual performance bonus opportunities as a percentage of their salary through our management bonus plan (the “Management Bonus Plan”).
The purpose of the Management Bonus Plan is to:
link annual incentive cash compensation to the achievement of annual priorities and key goals of our business, including overall Company performance; and
reward individual performance and contribution.
With respect to 2016, each of the NEOs, other than Messrs. Gelfond and Sparacio, received a cash bonus under our Management Bonus Plan. Mr. Gelfond received an annual cash bonus award pursuant to his employment agreement. Mr. Sparacio’s role as Chief Financial Officer concluded effective August 8, 2016, and he was therefore not eligible for a cash bonus under the Management Bonus Plan. However, pursuant to his employment agreement, Mr. Sparacio received a $75,000 bonus in recognition of achieving specific performance deliverables, including the effective transition to his successor.
Bonuses for each of our NEOs, other than Mr. Gelfond, are awarded based on Company performance and the performance and relative contribution of the participating executive for the year. Generally, 50% of an NEO’s bonus is based on Company performance, and 50% is based on individual performance. Our assessment of overall Company performance atyear-end considers the achievement of corporate financial, strategic and operational goals including, but not limited to the following:
theater signings and installations, particularly under joint revenue sharing arrangements and in international markets;
progress on new business initiatives;
reductions in selling, general and administrative expenses; and
The assessment of an NEO’s individual performance takes into account the level of achievement of individual goals that are annually agreed upon between the executive and the CEO, other than with respect to Mr. Gelfond, whose performance is assessed by the Compensation Committee alone. Examples of individual goals include business targets, operating, strategic, budgetary and/or managerial goals.
Management uses the corporate and personal goals described above to make recommendations to the Compensation Committee for executive bonus amounts. These goals are not fixed quantitative formulas, but rather are guidelines to determine bonuses atyear-end. The Compensation Committee and Company management are not limited to considering thesepre-determined goals in assessing performance, and failure or success with respect to any individual goal is not dispositive of the final assessment of either Company or personal performance.
Each executive employment agreement sets forth target bonuses, although management retains discretion to recommend to the Compensation Committee that no bonus be paid, or that bonuses be paid out below or above target, as circumstances warrant. Similarly, the Compensation Committee retains discretion to determine the final bonus amount notwithstanding the targets set forth in the employment agreements. We believe that, at this time, a flexible annual bonus process is more appropriate and yields better results than setting fixed quantitative targets in advance. This flexible process allows management and the Compensation Committee to consider: (i) goals set by the Board of Directors and communicated to senior management at any point during the year; (ii) the effects of unanticipated events and circumstances on our business or on a particular executive’s performance; (iii) the performance and contribution of the executive relative to other executives; and (iv) strategic contributions and achievements that will contribute to the long-term financial success of the Company, but may not have a short-term impact in a particular year. However, beginning in 2017, we have modified our annual bonus program to comply with Code Sec. 162(m), including Compensation Committee approval of metrics and targets at the beginning of the fiscal year (although the Compensation Committee retains discretion to pay compensation or issue awards that are not deductible under Code Sec. 162(m)).
In setting 2016 bonuses, management and the Compensation Committee took into account, among other things, our record theater signings; the impressive number of theater installations, bringing our global network to 1,215 screens across 75 countries; and the
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significant progress achieved in advancing new business initiatives, balanced against disappointing box office results. Although informed by these objective,non-formulaic factors, bonus decisions were ultimately made at the discretion of the Compensation Committee in the exercise of its judgment. For 2016, the NEOs received bonuses that were below target and lower than the prior-year period, and that represented the following percentages of their base salaries:
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| Named Executive Officers | | 2016 Target Bonus Opportunity as a
Percentage of Base Salary | | 2016 Bonus Earned as a Percentage of Base
Salary |
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Richard L. Gelfond | | 100% | | 86% |
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Patrick McClymont | | 70% | | 67%(1) |
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Joseph Sparacio | | 35% | | N/A(2) |
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Greg Foster | | 100%(3) | | 69% |
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Robert D. Lister | | 60% | | 48% |
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Andrew Cripps | | 70% | | 20% |
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| (1) | Mr. McClymont joined the Company effective August 8, 2016. Mr. McClymont’s bonus was therefore based on hispro-rated base salary. |
| (2) | Mr. Sparacio’s position as Chief Financial Officer concluded on August 8, 2016, and therefore he was not eligible for a bonus under the Management Bonus Plan. However, pursuant to his employment agreement, Mr. Sparacio was awarded a $75,000 bonus in recognition of achieving specific performance deliverables, including the effective transition to his successor.
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| (3) | Under Mr. Foster’s prior employment agreement, which expired July 1, 2016, his target bonus opportunity was set at 70% of his base salary. Under his new employment agreement, effective July 2, 2016, Mr. Foster’s target bonus opportunity is set at 100%. In determining Mr. Foster’s 2016 bonus, the Compensation Committee averaged the target opportunities under each contract.
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In assessing individual performance for 2016, the Compensation Committee recognized the following:
Mr. McClymont’sefforts in connection with the streamlining of costs and further strengthening of controls over selling, general and administrative expenses; as well as his efforts in promoting and maintaining stability of our financial controls;
| • | | Mr. Foster’s role· An RSU represents a contingent right to receive one Common Share of IMAX
· Award determined by dividing the target value by the fair market value on the date of grant · Awards are subject to forfeiture if the NEO’s employment terminates · Awards made in managing a robust current2018 vest over four years subject to the following schedule, unless otherwise provided by the terms of the CEO’s or an NEO’s employment agreement: ∎ 20% on the first anniversary of the grant date; ∎ 25% on each of the second and future film slate; his efforts in enhancing our relationships with studiothird anniversaries of the grant date; and filmmaking partners, including by signing multi-picture deals with Warner Bros. Pictures, Twentieth Century Fox, and Paramount Pictures; his success in continuing to build and strengthen our international relationships with studios and filmmakers; his involvement in our previously announced IMAX China Film Fund; and his contributions to our new original content strategy, including the ground-breaking partnership with Marvel and ABC for Marvel’sInhumans; |
Mr. Lister’s role in significantly restructuring and advancing our business development initiatives to focus on building a comprehensive virtual reality platform, in particular by forging relationships with key partners including HTC, Acer Inc. and Google, with whom Mr. Lister executed a partnership to develop a virtual reality camera; his efforts in successfully launching our flagship virtual reality center in Los Angeles and signing agreements to open an additional five pilot sites in 2017; his negotiation of a virtual reality content fund; and his leadership of our expanding global legal function, which continues to increase in breadth and complexity; and
Mr. Cripps’ role in the continued global expansion of the IMAX theater network through the cultivation of local relationships with studios and exhibition partners which resulted in robust theater signings in the Europe, Middle East and Africa region, high profile locations opened in key markets and the entry into several new markets.
As a result of this assessment, considering the significant accomplishments enumerated above, particularly on the strategic side, balanced against weaker-than-expected box office results, the NEOs received bonuses that were below their target bonus opportunities and lower than the prior-year period, consistent with ourpay-for-performance philosophy.
The Compensation Committee is responsible for determining Mr. Gelfond’s annual bonus based on its assessment of Company performance and his personal contribution to our overall success. In awarding Mr. Gelfond’s 2016 bonus, the Compensation Committee recognized his significant contributions to our many strategic and operational successes of 2016, including our record signings; our robust installation activity; and significant progress towards new business initiatives, including the launch of our location-based virtual reality strategy and new content initiatives. The Compensation Committee concluded that a bonus equal to 86% of target, representing a 52.5% decrease over his prior-year bonus, was consistent with the intent and design of our variable pay plans, which link pay to performance.
Long-Term Incentive Compensation
Long-term incentive awards are important in recognizing the scope of responsibilities, rewarding demonstrated performance, creating alignment between senior management and shareholders and preserving the continuity of executive leadership through retention. The level of benefit received by our executive officers depends, to a large degree, on the execution of our strategy and delivering significant and sustained growth.
Long-term incentive compensation has been provided through stock option and RSU grants with time-based vesting conditions. The Compensation Committee continues to believe that equity awards with time-based vesting conditions are appropriate vehicles for
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providing forward-looking incentives and for promoting retention of executives. Stock options and RSUs also align the executives’ interests with those of our shareholders over the long term.
Either the Compensation Committee or the full Board of Directors approves all stock option and RSU grants to NEOs. In determining the number of stock options or RSUs to grant to the NEOs, the Compensation Committee or the Board of Directors, as applicable, considers each NEO’s actual performance and relative contribution, salary range, responsibility and the number of stock options or RSUs granted to our other executives. These analyses are undertaken both for purposes of determining annual equity awards to NEOs or equity awards granted pursuant to employment agreements, depending on the NEO. In addition, the Compensation Committee or the Board of Directors considers and compares compensation disclosed by the Comparator Group to obtain a general understanding of the compensation structures maintained by similarly situated companies. Moreover, the Compensation Committee periodically compares various elements of stock-based compensation against general survey data provided by Willis Towers Watson (“Towers Watson”), Mercer or other outside consultants. Equity awards are generally granted to executive officers as part of an annual grant to employees, in connection with an executive’s employment agreement renewal or upon an executive’s hire or promotion. However, we reserve the right to make grants at other times as determined by the Compensation Committee or the Board of Directors.
We account for stock-based payments to officers, employees and eligible directors in accordance with the requirements of Financial Accounting Standards Board Accounting Standards Codification Topic 718 “Compensation-Stock Compensation”. Unless overridden by the terms of an employment agreement, stock option and RSU grants are generally made in March of each year.
Stock Options
In 2016, we granted stock options to purchase Common Shares to align executives’ interests with those of our shareholders over the long term. Either the Compensation Committee or the full Board of Directors approves all stock option grants to NEOs.
Stock options have an exercise price equal to the fair market value of our Common Shares on the date of grant. The fair market value of a Common Share on a given date means the closing price of a Common Share on the grant date (or the most recent trading date if the grant date is not a trading date) on the NYSE. Stock options are generally exercisable for seven years from the date of grant, subject to earlier cancellation or forfeiture if the executive’s employment terminates. The Board of Directors or the Compensation Committee determines vesting requirements applicable to each grant of stock options. The 2016 stock option awards vest according to the following schedule, unless otherwise provided by the terms of an NEO’s employment agreement:
on the first anniversary of the grant date: 20%;
on the second anniversary of the grant date: 25%;
on the third anniversary of the grant date: 25%; and
on the fourth anniversary of the grant date: 30%
Messrs. Gelfond, McClymont, Foster and Lister are eligible to receive periodic stock option grants on terms set forth in their employment agreements, as described below. During the term of his employment, Mr. Cripps was eligible to receive stock options under the IMAX LTIP as part of our annual grant process. Mr. Sparacio did not receive stock option grants in 2016 in view of his planned end date with the Company. In 2016, the NEOs received the following grants of stock options:
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|
Named Executive Officers | | 2016 Option Awards | | Grant Date Fair Value ($) |
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Richard L. Gelfond | | 486,284 | | 3,899,998 |
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Patrick McClymont | | 15,723 | | 124,998 |
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Greg Foster | | 136,187 | | 1,050,002 |
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Robert D. Lister | | 54,805 | | 462,006 |
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Andrew Cripps | | 21,879 | | 187,503 |
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For a description of the vesting and exercise terms of stock options granted to the NEOs following a termination orchange-in-control, please see “Employment Agreements and Potential Payments upon Termination orChange-in-Control” on page 43.
Restricted Share Units
In 2016, we granted RSUs to officers, employees, and eligible directors on the terms and conditions set forth in the IMAX LTIP and in individual award agreements. Each RSU represents a contingent right to receive one Common Share. Either the Compensation Committee or the full Board of Directors determines vesting requirements applicable to each grant of RSUs and approves all RSU grants to NEOs. If an NEO’s employment or term of office terminates for any reason, RSUs that have not vested are generally cancelled on the termination date, subject to certain exceptions as further described in “Employment Agreements and Potential Payments upon Termination orChange-in-Control” on page 43. The 2016 RSU awards vest according to the following schedule, unless otherwise provided by the terms of an NEO’s employment agreement:
on the first anniversary of the grant date: 20%;
on the second anniversary of the grant date: 25%
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on the third anniversary of the grant date: 25%; and
| • | | ∎ 30% on December 1st1st, immediately prior to the fourth anniversary of the grant date: 30%date |
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