| agreement was accelerated. However, his director RSU grant (5,870 RSUs) remains outstanding subject to the same terms and conditions as the grants to othernon-employee directors (vesting on July 31, 2018). |
(4) | Given his status as interim president and chief executive officer, Mr. Rigdon did not enter into a change in control agreement with the company. Following Mr. Rynd’s appointment as president and chief executive officer, we did enter into our new form of change of control agreement with Mr. Rynd. |
We did have a CEO succession during 2019, as Mr. Kneen was appointed to replace Mr. Rynd. As a result, Mr. Rynd received certain post-termination compensation and benefits to which he was entitled under to the terms of his employment agreement, as discussed in greater detail under “Compensation Components – Employment Agreements.”
As our industry enters a downturn, the committee is committed to ensuring that we have an appropriate program in place to retain, motivate, and incentivize our leadership team to guide us through the cycle.
Compensation Philosophy and
PracticeOur Compensation Philosophy. Objectives
As a company with a global reach in an operationally-demanding,
volatile, highly cyclical, and capital-intensive business,
the main objectives ofwe design our executive compensation program
are:to achieve the following objectives:
promote a performance- and results-oriented environment;
align compensation with performance measures that are directly related to our company’s strategic goals, key financial and safety results, individual performance, and creation of long-term stockholder value without incurring undue risk;
attract, motivate, develop, and retain the executive talent that we require to compete and manage our business effectively,effectively;
manage fixed costs by combining a more conservative approach to promote a performance-base salaries with more emphasis on performance-dependent and results-oriented environment,at-risk annual and
long-term incentives;maintain individual levels of compensation that are appropriate relative to the compensation of other executives at the company, at our peer companies, and across our industry generally; and
align the interests of executives and stockholders by delivering a significant portion of target compensation in equity or equity-based vehicles.
Since our executives with thosecompensation programs are designed to reward achievement of corporate objectives, we change our programs from time to time as our objectives change. The specific principles followed and decisions made in establishing the compensation of our stockholders through the use of equity and performance-based incentives.named executives for fiscal 2019 are discussed in more detail below.
Role of the Compensation CommitteeBest Practices. Our compensation committee (referred to throughout this section as the “committee”) strives to align executive compensation with stockholder interests and incorporate strong governance standards into our compensation program, including through the following:
Emphasis on Performance-Based and At-Risk Compensation. By design, a meaningful portion of our named executives’ pay is delivered in the form of performance-driven and at-risk incentive compensation, which closely aligns a significant portion of executive pay with successful attainment of our business objectives and, ultimately, stockholder returns.
No Single-Trigger Change of Control Benefits. We do not currently have any arrangements with our named executives that provide for single-trigger change of control benefits. We believe that our executive change of control agreements provide protections to our executives that align with current market practice (including modest severance multiples such as 2x for our CEO and 1x for our other named executives, caps on certain benefits, and a “best-net” provision in the event the total payments to the executive trigger an excise tax).
Limited Executive Perquisites. We offer our executives very few perquisites that are not generally available to all employees – reimbursement of certain club memberships and paid parking.
No Income or Excise Tax Gross-Ups. We do not have any contractual arrangements that would require us to pay tax gross-ups to any of our executives.
Clawback Policy. Given that a significant portion of each named executive’s compensation is incentive-based, the compensation committee has adopted a compensation recovery, or “clawback,” policy applicable to cash and equity incentive compensation, which permits the company to recoup such payments in certain situations if the financial statements covering the reporting period to which such compensation relates must be restated.
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| • | | Fiscal 2018 Action—Minimum 15% Reduction in Executive Base Salaries. In support of the company’s overall cost-cutting efforts, the current committee has approved a decrease in base salary, effective January 1, 2018, for our executive officers, including each of the current named executives. Specifically, the committee approved a 15% decrease in the annual base salary of each of Messrs. Fanning and Gorski, resulting in a new annual base salary of $335,750 for Mr. Fanning and $323,425 for Mr. Gorski. In addition, Mr. Rigdon and the committee agreed to amend his employment agreement in order to decrease his base salary from $240,000 to $150,000, which represented a 15% decrease in his overall base compensation (base salary plus grant date value of time-based RSUs).
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Short-termShort-Term Cash Incentive Compensation. Our short-term or annual cash incentive (“STI”) program is one key component of our executive compensation program.
General Structure of the Program. Our typical practice is to pay short-term cash incentives to our named executives for the purpose of rewarding both company and individual performance during a given year. In recent years, the company’s STI program for executive officers has consisted of four equally-weightedincluded the following performance metrics, (each represents 25% of the overall target award):among others: cash flow from operations (“CFFO”), defined as net cash provided by operating activities as reported in our consolidated statements of cash flows;
vessel operating margin percentage (“VOMP”), which is equal to the difference between vessel revenue and vessel operating expenses, divided by vessel revenue, as reported in our consolidated statements of earnings;
a safety performance component, which depends upon our achievement of apre-established goal for the period, which is based uponsuch as lost-time accidents or our Total Recordable Incident Rate (“TRIR”) per 200,000 work hours;TRIR results; and
a discretionary component, based on the committee’s subjective assessment of the individual executive’s performance during the period.
The two company performance metrics—
CFFO
and VOMP—are amongis one of our most important shorter-term company strategic objectives.
We believe that CFFO is a core measure of the company’s performance and our focus on CFFO is intended, among other things, to incentivize management to focus on key cash flow initiatives, including timely collection of accounts receivable balances and working down the net working capital balance due to the company that has been generated by our Angolan operations.balances. CFFO is also important for long-term stockholder value creation in that it keeps management focused on the ability to fund growth through operations in an effort to manage debt levels.
We believe that VOMP, which captures vessel revenue net of vessel operating costs, is an important measure of the annual productivity of our asset base and is the main driver of our annual consolidated earnings performance. VOMP is important for longer-term stockholder value creation in that it incentivizes operating expense reduction, which is critical during a period of declining revenues. Given the company’s near-term focus on reducing general and administrative expenses, VOMP was not used as a performance measurement for the 2017 transition period.
We include a safety performance component in our STI planprogram to reinforce our commitment to continue to be an industry leader in safety. We believe that a safe work environment helps us to attract and retain a more
experienced work force and gives us a competitive advantage among our peers, both in retaining existing business and when bidding for new work. In addition, a strong safety record helps us to minimize our insurance and loss costs and the overall cost of doing business.
The inclusion of a discretionary individual performance component in our typical STI program, equal to 25% of the overall target award, ensures that our committee can take into account the individual performance of our executives that is not readily evident in, or translatable from, financial results for a given quarter or year.
Each of these components is calculated separately from the other components. For each of the company metrics, the committee sets threshold, target, and maximum performance levels, with any payout scaled within that range of results (with target paying out at 100% of each component). The committee has discretion to reduce, but not increase, any payouts earned on the basis of the three company performance metrics.
The committee’s practice has been to approve the executive STI planprogram during the first quarter of our fiscal year. In approving the plan, the committee approves the company performance metrics, the specific performance levels for each metric, and the target award for each named executive, which is expressed as a percentage of the executive’s base salary.
2019 STI Program Design. In March 2016, given2019, the uncertain economic outlookcommittee approved the fiscal 2019 STI program and in supportdesignated each of the named executives as a participant.
Unlike the 2018 plan, our 2019 plan did not use CFFO as an explicit plan funding mechanism but rather allocated the target award among five separate metrics, with the company’s cost-cutting efforts,actual CFFO for the predecessor committee approvedyear acting as an overall funding consideration. The five individual metrics, intended to be weighted and evaluated separately, were a decreasegeneral and administrative expense (G&A) target (25% of 20% in each named executive’sthe overall STI target opportunity for bonuses earned duringaward), a dry dock target (25% of the overall target award), a vessel operating margin (VOM) target (20% of the overall target award); a safety performance target (10% of the overall target award); and individual performance goals (20% of the overall target award).
For the first three metrics (G&A, dry dock, and VOM), payout could range between 0-150% of the individual component’s target award, depending on performance. Payout on the safety portion could range from 0-100% of the target safety component while payout on the individual performance component could range from 0-125%. Assuming maximum performance on all metrics, the overall maximum a participant could earn under the fiscal
2017 (April 1, 2016—March 31, 2017).At the time that the predecessor committee began to consider an2019 STI program for the next fiscal year, the company was engaged in restructuring negotiations. Given the difficulty of setting financial targets in the context of a corporate restructuring and considering, among other factors, the retention bonus program that had been put in place in December of 2016 (as described below), the predecessor committee decided to defer approval of the 2017 transition period STI program until after the restructuring was complete.
In the fall of 2017, the current committee approved a simplified STI plan for the company’s executives for the 2017 transition period. Given the Restructuring and the change in our fiscal year, the committee determined that the 2017 transition period STI plan for our executives, other than Mr. Rigdon, would be limited to140% of his target award.
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However, in July 2016, the predecessor committee made a decision to renegotiate all existing change in control agreements with company officers and therefore gave a notice ofnon-renewal to each officer. As a result, eachEach of
these agreements was scheduled to expire automatically on December 31, 2017 unless a “change of control” occurred on or prior to that date. A few of these legacy agreements (including Mr. Fanning’s agreement) included the right to receive an excise taxgross-up if such a tax was triggered in connection with the officer’s termination following a change of control. In early 2017, given the status of the restructuring negotiations, the predecessor committee decided to defer consideration of any newour change of control agreements
to the new board, although the legacy agreements continued in effect through December 31, 2017.As noted above under “Long-term Incentive Compensation,” the Restructuring could have been deemed to be a “change of control” under certainpre-restructuring compensation plans or programs (including the legacy change of control agreements) and each of our officers agreed to execute the waiver letter in which he conditionally waived certain change of control protections or compensation arrangements in exchange for stated consideration. Specifically, the waiver letter for each of Messrs. Platt, Gorski, and Fanning provided that (1) the consummation of the Restructuring transaction would not be a “Change in Control” under (a) his legacy change in control agreement or (b) his outstanding long-term incentive award agreements and (2) certain unvested LTI
awards would be forfeited, without any payment to the named executive, immediately prior to the Effective Date. For each of Messrs. Fanning and Gorski, that consideration also included receipt of his emergence grant. Mr. Platt elected to forgo an emergence grant but his waiver letter would have been ineffective if, among other things, the committee failed to make an emergence grant to any officer with the title of vice president or higher as provided in the allocation schedule (thus excluding any officer, such as himself, who elected to forgo such an award). Once the emergence grants were formally approved by the committee on August 18, 2017, these change in control waivers were in full force and effect.
| • | | Fiscal 2018 Actions—New Change of Control Agreements and Elimination of Legacy TaxGross-up Obligations. As previously announced, the current committee approved a new form of change of control agreement that was entered into with certain company officers effective January 1, 2018. Messrs. Fanning and Gorski were the only named executive officers who entered into the agreement at that time, given Mr. Platt’s departure from the company during 2017 and Mr. Rigdon’s status as interim president and chief executive officer.
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The agreement has an initial term of one year (January1-December 31, 2018)(ending on December 31) but is subject toone-year “evergreen” renewal periods unless the Companycompany provides written notice to the officer by June 30 of a given year that it does not wish to extend the agreement past its then-current term.
The agreement provides the officer with certain employment protections for atwo-year period following a change in control of the company. In addition, if the officer is terminated without “cause” or terminates his own employment with “good reason” during thattwo-year protected period (as defined in the agreement), he will be entitled to receive certain payments and benefits. Specifically, among other benefits, the officer would be entitled to receive: (1) a cash severance payment equal to a specific multiple (two times for the chief executive officer,CEO, one-and-a-half times for any executive vice president, and one time for all other covered officers) of the sum of (a) his base salary in effect at the time of termination and (b) his target bonus; (2) apro-rata cash bonus for the fiscal year in which the termination occurs; (3) a cash payment equal to any accrued but unpaid bonus for a completed fiscal year; and (4) reimbursement for the cost of insurance and welfare benefits for a specified number of months (24 months for the chief executive officer,CEO, 18 months for any executive vice president, and 12 months for all other officers) following termination of employment.
Under the agreement, the officer would not be entitled to any taxgross-ups for excise taxes that may be triggered under Sections 280G and 4999 of the Internal Revenue Code of 1986, as amended. However, the officer would be entitled to receive the “best net” treatment, which means that if the total of all change of control payments due him exceeds the threshold that would trigger the imposition of excise taxes, the officer will either (1) receive all payments and benefits due him and be responsible for paying all such taxes or (2) have his payments and benefits reduced such that imposition of the excise taxes is no longer triggered, depending on which method provides him the betterafter-tax result.
Retirement Benefits. Our named executives participate in employee benefit plans generally available to all employees. These broad-based plans include a Pension Plan (now frozen and closed to new participants) and a qualified defined contribution retirement plan (the 401(k) Savings Plan). We have frozen the benefits under our Pension Plan for all participants effective December 31, 2010, and there will be no future benefit accruals under that plan. Since January 1, 2011, qualified retirement benefits have been provided through our 401(k) Savings Plan.
In addition to these broad-based programs, we provide our executives with anon-qualified deferred compensation plan, the Supplemental Savings Plan, which acts as a supplement to our 401(k) Savings Plan, and a SERP that operates as a supplement to our Pension and 401(k) Savings Plans. Both the Supplemental Savings Plan and the SERP are designed to provide retirement benefits to our officers that they are precluded from receiving under the underlying qualified plans due to the compensation and benefit limits in the Internal Revenue
Code. The SERP has been closed to new participants since March 1, 2010, although individuals who were participants as of that date continued to accrue benefits under it. Currently, all of the named executives are SERP participants except for Messrs. Gorski and Rynd, each of whom joined the company after the SERP was closed to new participants. Mr. Rigdon, who retired from the company in 2002, is currently receiving payouts under the SERP based on his prior service and has not accrued any additional benefits for his service as interim president and chief executive officer.
| • | | Fiscal 2018 Actions—SERP Suspension. In support of the company’s cost-containment efforts, the board has suspended any additional accruals under the SERP, effective January 1, 2018.
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| • | | Fiscal 2018 Actions—Contributions Suspended For 401(k) Savings Plan and Supplemental Savings Plan. In support of the company’s cost-containment efforts, the company has suspended any matching contributions to the 401(k) Savings Plan and the Supplemental Savings Plan, effective January 1, 2018.
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Other Benefits and Perquisites. We also provide certain limited perquisites to our named executives. For the 2017 transition period,2019, these perquisites consisted primarily of tax and financial planning services, an executive physical, club dues for one country club membership for each named executive, lunch club memberships, and, until his retirement in October 2017, a corporate apartment in Houston for Mr. Platt, who was required to divide his time between our Houston and New Orleans offices.executive. We do not provide taxgross-ups on any perquisites.
Employment Agreements.
Mr. Kneen. Separation AgreementWe are party to an employment agreement with Mr. Platt. As noted previously, Mr. Platt retired from his position as president, chief executive officer, and a director of the company effective October 15, 2017. In connection with his retirement, Mr. Platt and the company entered into a separation agreement. Under this agreement, in addition to any other accrued but unpaid compensation and benefits, Mr. Platt received the following:in consideration of his efforts in navigating the company through a successful restructuring, a cash separation payment equal to $1.22 million (the sum of his most recent annual base salary and target annual bonus), Kneen, which was paid to him in a lump sum following the effectiveness of the agreement;
a prorated annual bonusinitially assumed in the amount of $77,458 for the period beginning April 1, 2017business combination with GulfMark and ending October 15, 2017, which was paidamended upon his promotion to himPresident and CEO in the first quarter of fiscal year 2018, when annual bonuses were paid to other executives of the company;
payment of his vested accrued SERP benefits and an additional payment of approximately $830,000 representing the difference between his vested SERP payment and the calculation of his SERP payment without applying provisions of the SERP that would have reduced his benefits for an early retirement prior to age 62; and
continued participation in the company’s group health plan at the active employee rate (which is paid bySeptember 2019. Mr. Platt) until he attains age 62.
The agreement provided for a mutual release of all claims between the parties as well as customary post-employment obligations including mutual nondisparagement, nondisclosure of confidential information, nonsolicitation of employees and business relations, and noncompetition.
Employment Agreement with Mr. Rigdon. On October 16, 2017, the board appointed Mr. Rigdon, a former executive of the company who had joined our board as an independent director in connection with the Restructuring,Kneen continues to serve as president and chief executive officerour Chief Financial Officer on an interim basis while it conducteduntil a search for a longer termlonger-term successor is appointed to that role. In connection with this appointment, the company andUnder his employment agreement, which is in effect through December 28, 2021, Mr. Rigdon entered into an employment agreement. Under this agreement, Mr. RigdonKneen is entitled to the following:
base compensation of $600,000, which was divided between:
areceive an annual base salary atof no less than $500,000, to participate in our STI program with an annual ratetarget opportunity of $240,000 (decreased by mutual amendment100% of base salary, and is eligible to participate in early 2018any LTI program for executive officers.
To induce Mr. Kneen to $150,000, which represents a decrease of 15% in overall base compensation), and
ajoin us as our CFO following the GulfMark business combination, the committee awarded him an initial LTI grant of time-based RSUs on October 16, 2017, valued at $360,000 on the date of grant, which vests in four equal quarterly installments;
participation in the short-term cash incentive plan, with a target annual bonus opportunity equal to $600,000 (prorated for partial years); and
participation in all benefit plans and programs available to other executives of the company.
In the event that, prior to October 15, 2018, we terminated his employment without “cause” (defined in the agreement to include the appointment of a long term successor to the president and chief executive officer roles), Mr. Rigdon would be entitled to alump-sum severance payment equal to the base salary that would have been paid to him through October 15, 2018, but for such earlier termination, and any unvested portion of his equity grant will vest in full.
As described below, following the end of the 2017 transition period, Mr. Rigdon’s interim service as president and chief executive officer ended on March 5, 2018, when we appointed John T. Rynd as president, chief executive officer, and a director. Our appointment of Mr. Rynd triggered Mr. Rigdon’s rights to the termination without cause benefits described above (lump sum severance plus accelerated vesting of the RSUs granted to him under his employment agreement), effective as of March 5, 2018. In addition, Mr. Rigdon will be eligible to receive a pro rata bonus under the fiscal 2018 STI plan (based on the number of days he was employed during the year).
Appointment of New President and CEO in Fiscal 2018
As previously announced, we appointed John T. Rynd as our president, chief executive officer, and a director effective March 5, 2018. We entered into an employment agreement with him as well as a side letter that established his initial base salary. The agreement has a three-year term (through March 5, 2021) but is subject toone-year “evergreen” renewal periods unless the company provides written notice to Mr. Rynd at least 60 days prior to the expiration date that it does not wish to extend the agreement past its then-current term.
The agreement provides for an initial base salary of $705,000, which may be increased but not decreased during the term except with Mr. Rynd’s written consent. However, given that we reduced base salaries for certain executive officers by 15% effective January 1, 2018 as part of our cost containment measures, we entered into a side letter with Mr. Rynd, which provides that from his first day as an executive officer, his base salary will also be reduced by 15% until such time as the salary reduction is lifted for other executives. As a result of the side letter, Mr. Rynd’s starting base salary is $600,000.
The agreement establishes Mr. Rynd’s target award opportunity in the STI program at 100% of base salary,pro-rated for partial year service. In addition, as contemplated by the agreement, he received an initial LTI grant with a grant date target value of $2,750,000. Of$1,050,000, which will vest in equal installments over the first three anniversaries of the date of grant. The value of this amount, 40%initial LTI grant was granted to Mr. Rynd as time-based RSUs and the remaining 60% will be structured as a performance-based award based on metricsthe severance for which Mr. Kneen would have been eligible had he not accepted our offer of continued employment. In addition, Mr. Kneen’s legacy GulfMark RSUs, which were assumed and converted by us in the business combination (his “converted RSUs”) remained outstanding subject to be mutually agreed upon between Mr. Rynd andtheir original vesting schedule (with the committee. last such tranche vesting on April 13, 2021).
In the event of Mr. Rynd’sKneen’s death or termination due to disability during the term of the agreement, Mr. RyndKneen would be entitled to receive apro-rata STI award for the year of termination based on actual performance and allthe vesting of any unvested portion of his outstanding unvested equity awardsinitial LTI grant and his converted RSUs would accelerate, with performance deemed to have been achieved at target performance levels for any performance-based awards.accelerate. In addition, if Mr. Kneen’s employment is terminated by the event that we terminate Mr. Rynd’s employmentcompany without “cause” or if he terminates his employment with “good reason” during the term heof his employment agreement then, subject to his execution and non-revocation of a general release of claims against the company, Mr. Kneen will be entitled to receive certain payments and benefits. Specifically, in such event, Mr. Kneen would be entitled to receive a lump sum cash severance equal to 24 months’ of then-current base salary, a lump sum cash payment equal to the total premiums that Mr. Kneen would have been required to pay for 12 months’ of continuation coverage under the Company’s health plans, and would remain eligible to receive a pro rata bonus under the STI program for the year of termination based on actual performance. In addition, any unvested portion of his initial LTI grant and his converted RSUs would automatically vest in full.
