The following table presents certain information with respect to the beneficial ownership of our common stock as of April 5, 2019March 26, 2021 by (i) each person we know to be the beneficial owner of 5% or more of our outstanding shares of common stock, (ii) each named executive officer and director and (iii) all executive officers and directors as a group. Information with respect to beneficial ownership is based on a review of our stock transfer records and on the Schedules 13D and 13G that have been filed with the SEC by or on behalf of the stockholders listed below. Except as indicated by the footnotes below, we believe, based on the information available to us, that the persons named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws.
|
| | | | | | | | | | | | |
| | Number of Shares Held | | Number of Shares Subject to Options Exercisable within 60 Days | | Total Shares Beneficially Owned |
Name of Beneficial Owner | | | | Number | | % |
Principal Stockholders | | | | | | | | |
Schroder Investment Management, LTD (1) | | 2,865,700 |
| | — |
| | 2,865,700 |
| | 9.6 | % |
Nantahala Capital Management, LLC (2) | | 2,348,865 |
| | — |
| | 2,348,865 |
| | 7.8 | % |
Dimensional Fund Advisors, LP (3) | | 2,246,419 |
| | — |
| | 2,246,419 |
| | 7.5 | % |
Renaissance Technologies, LLC (4) | | 1,513,358 |
| | — |
| | 1,513,358 |
| | 5.1 | % |
Cloverdale Capital Management, LLC (5) | | 1,364,425 |
| | — |
| | 1,364,425 |
| | 4.6 | % |
Directors and Executive Officers | | | | | | | | |
Teresa S. Carroll | | 3,063 |
| | — |
| | 3,063 |
| | * |
|
Andrew S. Clark (6) | | 746,485 |
| | 860,457 |
| | 1,606,942 |
| | 5.2 | % |
Ryan D. Craig | | 28,889 |
| | 41,214 |
| | 70,103 |
| | * |
|
L. Dale Crandall | | 43,176 |
| | 41,214 |
| | 84,390 |
| | * |
|
Joseph L. D'Amico | | 16,355 |
| | 10,000 |
| | 26,355 |
| | * |
|
Robert D. Hartman (7) | | 73,196 |
| | 34,940 |
| | 108,136 |
| | * |
|
Michael B. Horn | | 14,613 |
| | — |
| | 14,613 |
| | * |
|
Anurag S. Malik | | 32,773 |
| | 10,054 |
| | — |
| | * |
|
Kirsten M. Marriner | | 3,063 |
| | — |
| | 3,063 |
| | * |
|
Thomas J. McCarty | | 6,755 |
| | 10,775 |
| | 17,530 |
| | * |
|
Victor K. Nichols | | 22,791 |
| | 28,034 |
| | 50,825 |
| | * |
|
George P. Pernsteiner | | 14,613 |
| | — |
| | 14,613 |
| | * |
|
Kevin S. Royal | | 32,054 |
| | 10,020 |
| | 42,074 |
| | * |
|
Diane L. Thompson | | 77,906 |
| | 213,264 |
| | 291,170 |
| | * |
|
| | | | | | | | |
All Directors and Executive Officers as a Group (20 Persons) | | 1,176,716 |
| | 1,384,461 |
| | 2,561,177 |
| | 8.2 | % |
| |
(1) | Based on the Schedule 13G, the address for Schroder Investment Management, LTD is 7 Bryant Park, 19th Floor, New York, NY 10018. |
| |
(2) | Based on the Schedule 13G, the address for Nantahala Capital Management, LLC is 19 Old Kings Highway S, Suite 200, Darien, CT 06820. |
| |
(3) | Based on the Schedule 13G, the address for Dimensional Fund Advisors, LP is Building One, 6300 Bee Cave Road, Austin, TX 78746. |
| |
(4) | Based on the Schedule 13G, the address for Renaissance Technologies, LLC is 800 Third Avenue, New York, NY 10022. |
| |
(5) | Based on the Schedule 13G, the address for Cloverdale Capital Management, LLC is 2651 N. Harwood, Suite 500, Dallas, TX 75201. |
| |
(6) | Includes 513,444 shares of common stock held by the Clark Family Trust, dated July 8, 1998. |
(6) Based on the Schedule 13G, the address for Renaissance Technologies, LLC is 800 Third Avenue, New York, NY 10022.
(7) Mr. Clark was the Company’s Chief Executive Officer and an employee until March 31, 2021, and was a director of the Company until March 22, 2021. Includes 513,444 shares of common stock held by the Clark Family Trust, dated July 8, 1998.
(8) Mr. Cole is the Managing Partner of SevenSaoi Capital, LLC. See also footnote (4) noted above.
| |
(7) | In connection with the Annual Meeting, Robert D. Hartman will retire from our Board and is not standing for re-election. |
PROPOSAL 1
ELECTION OF DIRECTORS
Board Composition
As of the date of this proxy statement, the Board consists of nineten members. Our bylaws provide that the number of directors will be fixed from time to time by resolution of the Board. All directors hold office until their successors have been elected and qualified or until their earlier death, resignation, disqualification or removal. We have divided the terms of office of the directors into three classes:
•Class I, whose term expires at the 20192022 Annual Meeting of Stockholders;
•Class II, whose term expires at the 20202023 Annual Meeting of Stockholders; and
•Class III, whose term expires at the 2021 Annual Meeting of Stockholders.
Class I consists of Robert D. Hartman,Ron Huberman, John J. Kiely, Victor K. Nichols and George P. Pernsteiner, Class II consists of L. Dale Crandall, Ryan D. Craig andMichael P. Cole, Michael B. Horn and John S. Wilson and Class III consists of Andrew S. Clark, Teresa S. Carroll, Ryan D. Craig and Kirsten M. Marriner. At each annual meeting of stockholders, the successors to directors whose terms then expire will serve from the time of election and qualification until the third annual meeting following election and until their successors are duly elected and qualified. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one third of the directors.
At the Annual Meeting, Robert D. Hartman will retire from our Board and is not standing for re-election. The Board would like to thank Mr. Hartman for his dedicated service to the company. In connection with the retirement of Mr. Hartman as a director, our Board intends to reduce the authorized number of directors from nine to eight to be effective as of the Annual Meeting with the elimination of a Class I directorship.
Nominees for Election at the Annual Meeting
The Nominating and Governance Committee recommended, and the Board nominated, RobertTeresa S. Carroll, Ryan D. Hartman, Victor K. NicholsCraig and George P. PernsteinerKirsten M. Marriner as nominees for election to the Board as Class IIII directors at the Annual Meeting. As mentioned above, Robert D. Hartman has subsequently decided to retire from our Board and he will not stand for re-election at our Annual Meeting. If elected, Victor K. NicholsTeresa S. Carroll, Ryan D. Craig and George P. PernsteinerKirsten M. Marriner will continue as directors and their terms will expire at the 20222024 Annual Meeting of Stockholders.
Information about the Board of Directors
The names, ages as of December 31, 2020, and certain information regarding each member of the Board, including the nominees for election to the Board as Class IIII directors at the Annual Meeting, are set forth below. The following information has been furnished to us by the directors.
Andrew S. Clark, age 53, has served as our Chief Executive Officer and a director since November 2003 and as our President since February 2009. Mr. Clark also served from March 2005 to December 2008 on the Board of Trustees for Ashford University and served on the Board of Trustees of University of the Rockies from September 2007 to August 2010. Prior to joining us in November 2003, Mr. Clark consulted with several private equity firms examining the postsecondary education sector. Prior to 2003, Mr. Clark worked for Career Education Corporation as Divisional Vice President of Operations and Chief Operating Officer for American InterContinental University in 2002. From 1992 to 2001, Mr. Clark worked for Apollo Group, Inc. (University of Phoenix), where he served in various management roles, culminating in his position as Regional Vice President for the Mid-West region from 1999 to 2001. Mr. Clark earned a B.A. from Pacific Lutheran University and an M.B.A. from the University of Phoenix. Mr. Clark brings to the Board over 19 years of experience in the postsecondary education sector, as well as a deep understanding of our business and its history that he has acquired since he founded Bridgepoint Education, Inc. (now Zovio Inc) in 2004.
Teresa S. Carroll, age 5355, has served as a director of our company since March 2018. Ms. Carroll is the Executive Vicewas a former President President, Global Talent Solutions and General Manager - Sales, Marketing and HR for Kelly Services, Inc., a position that she has held since May 2017, and has served as an officerglobal leader in workforce management solutions. She is now the President of Kelly Services, Inc. since 2000.Oasis, a Paychex Company, a leading Professional Employer Organization. Ms. Carroll earned a B.S. in Industrial Engineering from GMIthe G.M.I. Engineering and Management Institute (now Kettering) and an M.B.A. from the University of Michigan. Ms. Carroll brings to the Board deep understanding of talent and skill challenges in the life sciences, energy, manufacturing, finance and insurance, consumer goods, and various other industries gained through her experience as the executive of a global workforce solutions company.driving strategy, operations, sales, marketing and human resources.
Michael P. Cole, age 48, has served as a director of our company since January 2020. Mr. Cole founded SevenSaoi Capital (pronounced “7C”), an investment management firm, in 2016. Previously, Mr. Cole served as President of MAEVA Group, a turnaround-oriented merchant bank. Before that, Mr. Cole was with Madison Dearborn Partners, a Chicago-based private equity firm that manages $23 billion in equity capital, for nearly 17 years. Mr. Cole does not currently serve on any other public boards, but has previously served on the boards of Univision Communications, Inc., Merge Healthcare Inc., MetroPCS Communications and The Topps Company. Mr. Cole also worked in a senior-level role on Madison Dearborn’s investments in technology-enabled service companies such as Intelsat, Ltd. and X.M. Satellite Radio. Mr. Cole received his A.B. degree from Harvard College.
Ryan D. Craig, age 47,48, has served as a director of our company since November 2003. Mr. Craig is a founding partner of University Ventures, an investment fund focused on innovation from within higher education.education, and a founding partner of Achieve Partners, a fund focused on investing at the intersection of education and employment. Prior to University Ventures,that, he foundedwas the founder and served as President of Wellspring, an organization providing treatment programs for overweight and obese adolescents. From 2001 to 2004, Mr. Craig was an Associate at Warburg Pincus LLC in the education sector. From 1999 to 2001, Mr. Craig served as Vice President Business Development for Fathom, a consortium of universities, museums and libraries. From 1994 to 1996, he worked as a consultant with McKinsey & Company. Mr. Craig earned a B.A. from Yale University and a J.D. from Yale Law
School. Mr. Craig currently serves on the boards of seven privately held companies. Mr. Craig brings to the Board extensive expertise in the postsecondary education sector and a long history with our business, which enables him to provide key strategic vision.
L. Dale Crandall, age 77, has served as a director of our company since December 2008. Mr. Crandall founded Piedmont Corporate Advisors, Inc., a private financial consulting firm, in 2003 and currently serves as its President. From April 2000 to June 2002, Mr. Crandall served as the President and Chief Operating Officer of Kaiser Foundation Health Plan Inc. and Kaiser Foundation Hospitals. From June 1998 to March 2000, Mr. Crandall served as the Senior Vice President and Chief Financial Officer of Kaiser Foundation Health Plan Inc. and Kaiser Foundation Hospitals. Mr. Crandall also serves as a director for Endurance International Group, Inc. and two private companies. Within the last five years, Mr. Crandall also served as a director for Ansell Limited and Coventry Health Care, Inc. and as lead trustee for The Dodge & Cox Mutual Funds. Mr. Crandall earned a B.A. from Claremont McKenna College and an M.B.A. from the University of California, Berkeley, and is a certified public accountant (inactive). Mr. Crandall brings to the Board a strong foundation in financial reporting and accounting matters for complex organizations, as well as executive leadership and management experience.
Robert D. Hartman, age 70, has served as a director of our company since November 2006. Mr. Hartman is not standing for re-election to our Board at the Annual Meeting. Mr. Hartman is currently a private investor. From 1979 to September 2005, Mr. Hartman served in various management roles for Universal Technical Institute, including President, Chief Executive Officer and Chairman of the Board. During the 1980s, Mr. Hartman served as Chairman of the Arizona State Board for Private Postsecondary Education and was Founder and Chairman of the Western Council of Private Career Schools. Mr. Hartman currently serves on the board of one privately held company. Mr. Hartman earned a B.A. from Michigan State University and an M.B.A. from DePaul University. Mr. Hartman provides the Board with the insight generated by decades of experience in the postsecondary education sector, as well as experience in management and corporate governance.
Michael B. Horn, age 39,41, has served as a director of our company since August 2017. Mr. Horn currently serves as the owner of Horn-Ed LLC, serving as Board Member, advisor, and consultant to a portfolio of education companies. Mr. Horn has also been a Venture Partner for Nextgen Venture Partners since 2017. Mr. Horn has served as the Chief Strategy Officer and Senior Partner at The Entangled Group and Entangled Solutions since October 2015 and as Co-Founder, Distinguished Fellow, and Board Member of Clayton Christensen Institute for Disruptive Innovation since October 2015. The Entangled Group was acquired in May 2020 by Guild Education, where Mr. Horn now serves as a senior strategist. Previously, Mr. Horn served as Co-Founder and Executive Director, Education, of the Clayton Christensen Institute for Disruptive Innovation from 2007 through October 2015. Mr. Horn earned a B.A. in History from Yale University and an M.B.A. from the Harvard Business School. Mr. Horn brings to the BroadBoard significant expertise in innovation across sectors with a deep focus on innovation and quality assurance in higher education and its strategic and organizational implications.
Ron Huberman, age 49, has served as a director of our company since March 2021. Mr. Huberman currently serves as the Chief Executive Officer of Benchmark Analytics, a provider of enterprise human capital management software and learning management. Mr. Huberman has also been a Senior Advisor for PeopleAdmin, a human capital software company, from 2016 to 2018. Mr. Huberman was also the Founder and Executive Board Chair for TeacherMatch from 2012 to 2016, which provides online predictive hiring tools for the K-12 market. Mr. Huberman has also held executive roles at Prairie Capital as well as within the Chicago Public Schools, Chicago Transit Authority, Chicago Office of the Mayor and Chicago Police Department. Mr. Huberman earned his B.A. from the University of Wisconsin and both his M.A. and M.B.A. from the University of Chicago. Mr. Huberman currently serves on the boards of Benchmark Analytics, Learner's Edge and Right-at-School. Mr. Huberman brings to the Board a deep knowledge of business and a special focus on human capital management.
John J. Kiely, age 62, has served as a director of our company since July 2019. Mr. Kiely currently serves as a director for Amneal Pharmaceutical and Covis Group Pharmaceutical. Mr. Kiely retired from PricewaterhouseCoopers LLP in 2019. During his 39-year career, he had significant leadership roles, including Assurance Chief Quality Officer, Assurance Leader of the Private Equity Sector, and Leader of the U.S. Pharmaceutical Industry. Additionally, he had extensive experience working with Fortune 500 companies and Private Equity portfolio companies. Mr. Kiely earned a B.A. from St. Francis University (Pa) and is a certified public accountant.
Kirsten M. Marriner, age 46,48, has served as a director of our company since March 2018. Ms. Marriner is the executive vice presidentExecutive Vice President - chief people officerChief People and Corporate Affairs Officer of the Clorox Company, a position she has held since March 2016. Prior to joining the Clorox Company, she served as senior vice president and chief human resources officer at Omnicare, from March 2013 to August 2015. She served in various leadership roles, including as senior vice president, director of talent management and development at Fifth Third Bank, from October 2004 to March 2013. She has held human resources leadership roles at KeyCorp and worked in the human capital consulting practices at Deloitte and KPMG. Ms. Marriner earned a B.S. in Industrial/Organizational Psychology from John Carroll University and an M.B.A. from Cleveland State University. Ms. Marriner brings to the Board her executive leadership experience with Fortune 500 companies across a variety ofvarious industries and expertise on human resources.culture, talent and succession, and environmental, social and governance leadership.
Victor K. Nichols, age 62,64, has served as a director of our company since September 2014. Mr. Nichols is currently the Chairman ofwas an independent advisor to Harland Clarke Holdings, a portfolio of companies optimizing customer relationships through a broad variety of omni-channel solutions. Mrsolutions, from June 2019 to December 2019, and was previously the Chairman of Harland Clarke Holdings. Mr. Nichols was previouslyalso served as the Chief Executive Officer of Harland Clarke Holdings from January 2017 until December 2018. Prior to this role, Mr. Nichols served as the Chief Executive Officer of Valassis, a wholly-owned subsidiary of Harland Clarke Holdings. He has also served as Chief Executive Officer for North America at Experian, a global leader in data and analytics based information systems, as well asand the Managing Director UKU.K. and EMEA at Experian. In addition, Mr. Nichols has held strategic roles as Chief Information Officer for Wells Fargo & Company, and Chief Executive Officer of Vicor, a company delivering advanced corporate receivables management solutions. His experience also includes serving as the President of Safeguard Business Systems, as well asand various senior leadership positions at Bank of America, managing the consumer lending business and retail operations. Mr. Nichols currently sitsserves on public and charitable companythe boards and advisory committees, includingof Bank of Hawaii Corporation MiTek and Revlon Inc., and previously served on the Economic Leadership Councilboard of UCSD.Harland Clarke Holdings. Mr. Nichols holds a B.A. in Economics from the University of California, San Diego, and an M.B.A. from the
University of California, Berkeley. Mr. Nichols brings to the Board extensive business and leadership experience across multiple industries, including finance, marketing, technology and data analytics, which enables him to provide key operational and management perspective.
George P. Pernsteiner, age 70,72, has served as a director of our company since August 2017. Mr. Pernsteiner has over 28 years of experience serving in several leadership posts in the post-secondary education system. From September 2013 through
August 2017, he served as President of the State Higher Education Executive Officers Association, which represents chancellors and commissioners of higher education from every state. Mr. Pernsteiner also served as Chancellor of the Oregon University System from July 2004 through May 2013. Mr. Pernsteiner has a B.A. in Political Science from Seattle University and an M.P.A. from the University of Washington in Public Administration. Mr. Pernsteiner brings to the Board his broad experience in managing universities and in developing and advancing education policies and practices.
John S. Wilson, age 63, has served as a director of our company since March 2021. Mr. Wilson is a visiting scholar at the Harvard Business School, and is currently on leave from the Board of Overseers at Harvard University. Mr Wilson was previously a Senior Advisor to the President of Harvard from April 2018 to September 2020, and the President in Residence to the Harvard School of Education from August 2017 to April 2018. Prior to that, Mr. Wilson also served as the President of Morehouse College from 2013 to 2017. Additionally, Mr. Wilson served as the Executive Director of the White House initiative on Historically Black Colleges and Universities (HBCUs) from 2009 to 2013. Mr. Wilson has also held Executive Dean and Associate Professor roles at the George Washington University, as well as Director positions at the Massachusetts Institute of Technology (MIT). Mr. Wilson earned his B.A. from Morehouse College and a Masters in Education and Masters in Theological Studies from Harvard. Mr. Wilson also earned his Doctorate in Education from Harvard Graduate School of Education. Mr. Wilson brings to the Board his vast experience in the higher education industry and governmental policy.
Vote Required
Directors are elected by a plurality of the votes present in person or represented by proxy and entitled to vote at a meeting at which a quorum is present. Shares represented by proxy will be voted, if authority to do so is not withheld, for the election of the twothree nominees for election as Class IIII directors named above. Abstentions and broker non-votes will be counted as present for purposes of determining the presence of a quorum. If a quorum is present, the twothree nominees for Class IIII director receiving the highest number of votes will be elected as Class IIII directors. Abstentions and broker non-votes will have no effect on the outcome of the vote. The proxy holdersNeither stockholders nor proxies may not vote the proxies for a greater number of persons than the number of nominees named. If any nominee should be unavailable for election as a result of an unexpected occurrence, shares will be voted for the election of such substitute nominee as the Board may propose. Each person nominated for election has agreed to serve if elected, and the Board has no reason to believe that any nominee will be unable to serve.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE ELECTION
AS A CLASS IIII DIRECTOR OF EACH NOMINEE LISTED ABOVE.
CORPORATE GOVERNANCE
Director Independence
The Board has affirmatively determined that Ms.Mmes. Carroll Ms.and Marriner and Messrs. Cole, Craig, Crandall, Hartman, Horn, PernsteinerHuberman, Kiely, Nichols and NicholsWilson have no material relationships with us (either directly or as a partner, stockholder or officer of an organization that has a relationship with us) and, accordingly, each of the foregoing members of the Board were determined to be independent under the rules of the New YorkThe Nasdaq Stock Exchange (“NYSE”Nasdaq”). Mr. ClarkPernsteiner is not independent under NYSENasdaq rules because he is employed by us.currently serving in an interim role as part of the office of the Chief Executive Officer (as described below).
In determining whether directors were independent under NYSENasdaq rules, the Board considered the matters discussed in the section entitled “Certain Relationships and Related Transactions” below. There are no family relationships between any of our directors and executive officers. There are currently no legal proceedings, and during the past ten years there have been no legal proceedings, that are material to the evaluation orof the ability or integrity of any of our directors or director nominees.
Leadership Structure of the Board of Directors
Pursuant to our bylaws and Corporate Governance Guidelines, the Board has the following general leadership structure:
•The positions of Chief Executive Officer and Chairman of the Board are separate, but may be held by the same individual. The positionsposition of Chairman of the Board is currently held by Mr. Pernsteiner. Until March 2021, the position of Chief Executive Officer was held by Andrew Clark. The Company and ChairmanMr. Clark agreed that Mr. Clark would separate from service with the Company, resigning as Chief Executive Officer and all other offices of the Company, effective as of March 31, 2021. The Company has commenced a search for a new Chief Executive Officer and, in the interim, the Company will be led by an office of the Chief Executive Officer comprised of Mr. Pernsteiner, the Company’s Executive Vice President of Operations Christopher Spohn, and the Company’s Executive Vice President and General Counsel Diane Thompson. Under the guidance of the Board are currently held by Messrs. Clarkof Directors, the Office of the Chief Executive Officer will advance the Company’s strategic plan and Pernsteiner, respectively.ensure continued operations and provision of quality services.
•The Chairman of the Board presides at meetings of the Board and, so long as the Chairman of the Board is an independent director, also presides at executive sessions of the non-management and/or independent directors. The Company’s current Chairman of the Board, Mr. Pernsteiner, is currently deemed not to be independent due to his interim service as a member of the office of the Chief Executive Officer.
•The Chief Executive Officer and the Chairman of the Board jointly establish the agenda for each meeting of the Board, though any director may request the inclusion of items on the agenda.
•If the Chairman of the Board is not an independent director, the independent directors will appoint one independent director to serve as “lead independent director.” In that scenario, the lead independent director will preside at executive sessions of the non-management and/or independent directors, preside at meetings of the Board in the absence of the Chairman of the Board, review agendas for meetings of the Board with the Chief Executive Officer and Chairman of the Board, and assume such other functions as the Board may deem appropriate.
The Chief Executive Officer and the Chairman of the Board jointly establish the agenda for each meeting of the Board, though any director may request the inclusion of items on the agenda.
Our Corporate Governance Guidelines are available on our website at http://www.zovio.com under “Investor Relations — Corporate Governance Highlights.” Because Mr. Pernsteiner currently serves as Chairman of the Board and is an independent director, the Board does not currently have a lead independent director. The Board has determined that this leadership structure, specifically the separation of the Chief Executive Officer and Chairman of the Board positions, is appropriate for our company because, in the judgment of the Board, an independent Chairman of the Board (or lead independent director, if the Chairman of the Board is not an independent director) is best positioned to express to management the views of the Board (and, particularly, the independent directors) and to provide constructive feedback to the Chief Executive Officer regarding management'smanagement’s performance. Because Mr. Pernsteiner is serving on our Office of the Chief Executive Officer following the recent departure of Mr. Clark and is not currently considered independent, the Board expects to appoint a Lead Independent Director in the near future.
Our Corporate Governance Guidelines are available on our website at http://www.zovio.com under “Investors - Governance.”
Board Committees
The Board has an Audit Committee, a Compensation Committee, a Nominating and Governance Committee and an M&A Oversight Committee. These committees operate under written charters, which are available on our website at http://www.zovio.com under “Investor Relations — Corporate Governance Highlights.“Investors - Governance.” The Board has determined that all members of these committees satisfy the applicable independence requirements under NYSENasdaq rules. The members of the committees are identified in the table below. In connection with the Annual Meeting, Robert D. Hartman will retire from our Board and is not standing for re-election. After the date of the Annual Meeting, Mr. Hartman will no longer be a member of the Audit Committee or the Nominating and Governance Committee.
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| | | | | | | | | | | | | | | | | | | | | | | | | |
Director | | Audit Committee | | Compensation Committee | | Nominating and Governance Committee | | M&A Oversight Committee |
Teresa S. Carroll | | Member | | — | | — | | — |
L. Dale CrandallMichael Cole | | Chair— | | Member | | — | | Member |
Ryan D. Craig | | Member | | — | | Chair | | Chair |
Robert D. HartmanMichael Horn | | — | | — | | Member | | — |
Ron Huberman | | Member | | — | | — | | — |
John Kiely | | Chair | | — | | Member | | — |
Kirsten M. Marriner | | — | | Member | | — | — |
Michael B. Horn | | — | | — | | Member | — |
Victor K. Nichols | | Member | | Chair | | — | | Member |
George P. Pernsteiner | | — | | — | | — | | Member |
John Wilson | | — | | — | | Member | | — | Member |
The Audit Committee is responsible primarily for overseeing (i) the services provided by our independent registered public accounting firm, (ii) the integrity of our financial statements and internal control over financial reporting, and (iii) risk management, internal audit and our compliance with legal and regulatory requirements. Mr. Crandall,Kiely, the Chair of the Audit Committee, has been determined by the Board to be an audit committee financial expert. The Audit Committee held nineeight meetings in 2018.2020.
The Compensation Committee is responsible primarily for evaluating and approving all compensation plans, policies and programs as they affect our executive officers, administering our equity compensation plans, and reviewing the compensation of the Board. For information regarding the Compensation Committee's processes and procedures, including (i) the scope of authority of the Compensation Committee and (ii) the role of executive officers and compensation consultants in determining or recommending the amount or form of executive and director compensation, see “Executive Compensation — Compensation Discussion and Analysis” below. The Compensation Committee held ninesixteen meetings in 2018.2020.
The Nominating and Governance Committee is responsible primarily for identifying, evaluating and recommending to the Board, nominees for election or appointment to the Board and committees of the Board, evaluating the performance and independence of the Board and of individual directors, and evaluating the adequacy of our corporate governance practices. The Nominating and Governance Committee held sixfour meetings in 2018.2020.
The M&A Oversight Committee is responsible primarily for evaluating strategies for near-term and long term value and considering other strategic transactions involving the Company, including but not limited to a business combination transaction, a sale of an entity, or recapitalization or similar transaction. The M&A Oversight Committee held ten meetings in 2020.
Meetings of the Board of Directors and Board Committees
The Board has regularly scheduled meetings at least quarterly, and theholds additional meetings as needed. The committees of the Board usually meet at leastquarterly and hold additional meetings as often.needed. Our independent directors hold executive sessions without management present at least once per quarter. During 2018,2020, the Board held eightten meetings.
Each director who served during 2020 attended at least 75% of the aggregate number of meetings held by the Board and all applicable committees of the Board during the period that he or she served. It is our policy to encourage membersMembers of the Board toof Directors traditionally attend our annual meetings of stockholders;stockholders. In 2020, all directors who served during 2020 except for one, attended the 2018 Annual Meeting of Stockholders.Stockholders, held virtually.
Role of the Board of Directors in Risk Oversight
Management is responsible for day-to-day risk management at our company. The role of the Board is to provide oversight of the processes designed to identify, assess and monitor key risks and risk mitigation activities. The Board fulfills its risk oversight responsibilities through (i) a robust Enterprise Risk Management process that incorporates all levels of employees views on risks in their areas and culminates in a board presentation on key risks and mitigation strategies each quarter, (ii) the receipt of reports directly from managers responsible for the management of particular business risks and (ii)(iii) the receipt of reports from each committee chair regarding such committee'scommittee’s oversight of specific risk topics.
Delegation of Risk Oversight
The Board has delegated oversight of specific risk areas to its committees. For example, the Audit Committee is tasked with overseeing risk management at our company with respect to financial matters and the adequacy of our internal control over financial reporting. Pursuant to its charter, the Audit Committee is required, among other things, to discuss with management our policies with respect to risk assessment and risk management, including guidelines and procedures to govern the process by which risk assessment and risk management are handled, and to review our major risk exposures and the steps management has
taken to monitor, control and report such exposures. The Audit Committee typically has these discussions with management at least once per quarter, and the Chair of the Audit Committee subsequently reports on these discussions to the full Board. Similarly, the Compensation Committee assists the Board in overseeing risks arising from our compensation policies and practices, and the Nominating and Governance Committee assists the Board in overseeing risks associated with corporate governance, director and executive officer succession planning, board membership and board structure. The Board then discusses significant risk management issues with the Chief Executive Officer and other members of the management team and recommends appropriate action.
Enterprise Risk Management
At the direction of the Board and the Audit Committee, we have developed and implemented an enterprise risk management (“ERM”) process for our company.process. The ERM process is managed by a steering committee comprised of representatives from each of our company'scompany’s principal business units in consultation with our executive team. The ERM steering committee meets at least quarterly to evaluate current risks, identify new risks, quantify the likelihood and potential impact of such risks, and develop mitigation plans for such risks. Additionally, each quarter a representative of the ERM steering committeeexecutive team presents to, and receives feedback from, the Board regarding our outstanding risks and related mitigation plans.
Environmental, Social and Governance Programs
Environmental, social and governance (“ESG”) refers to three central factors in measuring the sustainability and societal impact of an investment. These criteria, and the activities making up each area, have long been a part of the way we operate. The way we approach sustainability at our facilities, the way we interact with our communities, the process by which we make decisions and our people-first culture all contribute to our ESG program.
Environmental Matters
We believe that the facilities we occupy are state-of-the-art and are in substantial compliance with federal, state and local laws and regulations that have been enacted or adopted regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. Compliance with these laws and regulations has not had, and is not expected to have, a material effect on our capital expenditures, results of operations, or competitive position.
Optimizing and conserving our resources through sustainable practices are at the center of our Company's focus on the environment. With a mindset of continuous improvement, we focus on being sustainable by using industry-leading technologies within our facilities and supporting systems to minimize the impact on the environment. We have many initiatives in the areas of conserving energy and reducing waste at our facilities. Our Arizona-based 131,000 square-foot headquarters generates approximately 480kWh of solar power annually that provides at least 32% of the electricity needs, 24 electric car charging stations, and energy-efficient LED lighting. Additionally, two biophilic plant walls containing more than 1,300 individual plants can be found throughout the two-story building. Efforts such as these have resulted in Zovio being awarded the 2020 Arizona Red Award for Office Interiors Project of the Year. We have also identified and implemented methods that improve resource conservation and maintain compliance with the U.S. Green Building Council, in addition to federal, state, and local regulations.
We provide our services primarily online, which inherently has a friendlier impact on the environment. As a leader in education technology services, our focus is to drive sustainability through our products and services. Our programs are 100% online, and courseware is 100% digital.
Human Capital Management and Social Awareness
A key pillar of our corporate strategy is attracting, developing, and retaining top talent with a shared purpose to help everyone be in a class of their own. The Company is committed to building a culture where ambitious individuals can come together to create innovative solutions for a brighter future. We subscribe to a set of beliefs—make meaningful connections, craft exceptional experiences, all voices matter, develop bold ideas—that guide how we interact, champion change, and inspire others.
In 2020, the COVID-19 global pandemic had a direct impact on our employees. We immediately pivoted the vast majority of our workforce to remote work with minimal disruption while implementing additional safety measures for employees conducting critical on-site work. Despite the challenging economic realities brought on by the pandemic, Zovio added 569 new positions, hiring workers from many of the community’s hardest-hit industries. To minimize risk to employees, nearly 90% of new hires in 2020 onboarded and trained remotely. New hires obtained all the necessary tools and resources to be successful in a remote setting through our creative curbside pick-up process. We also offered flexible work schedules and offered additional time off for those with unforeseen caregiving responsibilities due to COVID-19.
As of December 31, 2020, the Company and its subsidiaries employed over 1,550 individuals, 1,505 of whom were full-time. This includes staff in university services, academic advising and academic support, enrollment services, university administration, financial aid, marketing, information technology, human resources, legal and compliance, external affairs, corporate accounting, finance and other administrative functions. At the conclusion of 2020, Zovio’s workforce was 60% female and 40% male and women represented 55% of those in leadership roles.
To attract, retain, and inspire our talent, we offer fair and competitive compensation and benefits programs that support our employees through the entire employee lifecycle. Our compensation and benefits program includes: base pay, short-term incentives, cash and stock-based long-term incentives, an employee savings plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code of 1986, as amended, with an employer match, an employee stock purchase plan, health and wellness benefits, health savings accounts, flexible spending accounts, paid time off, paid parental leave, and an employee assistance program. Additionally, we offer an on-site gym and café with healthy food alternatives, a fully-staffed Health and Wellness Center, lifestyle coaching, ergonomic programs, and financial education and coaching to help employees reach their personal financial goals. The Company also benchmarks positions and regularly reviews the design of employee compensation and benefits programs to ensure we remain competitive with the market. We undertake an external third-party facilitated pay equity analysis annually and conduct regular internal assessments on pay disparities and make adjustments as necessary.
Creating a culture that embraces diversity, where all employees feel supported and valued, is paramount to delivering innovative solutions to our university partners and students. Our employees participate in an annual survey to measure overall engagement. In 2020, 81% of our employees reported that they have pride in the Company, intend to stay, get intrinsic motivation from their work and would refer the Company as a great place to work.
The Company is committed to developing its people where employees are empowered to drive their own career progression. The Company provides training to its employees annually, focusing on on-the-job development and on-demand learning. For those interested in taking on leadership roles, our Leadership Education and Development LEAD program is designed to provide new leaders with the basic tenants of leading, ensuring they are well-supported as they take on this important role in the organization.
To support personal and professional growth, Zovio offers tuition reimbursement programs. We also provide a tuition benefit, up to $5,250 annually, alongside a College Savings 529 Plan and Student Debt Repayment program for eligible employees. We also offer free online tutoring services for employees and their dependents as many parents turned to virtual learning during the COVID-19 pandemic.
Fiscal year 2020 was particularly challenging given the COVID-19 pandemic. In response, Zovio supported the Arizona Coronavirus Relief Fund, Chandler Chamber of Commerce’s COVID-19 Relief Program, United Way Workplace Campaign, food drives, community laptop drives, and provided materials to support online instruction to our educational partners.
We understand the life-changing impact that education resources can have on individuals, no matter their background, experience, or career goals. Zovio supports nonprofit organizations aligned with our pillars of "Opportunities for All" and "Learning Beyond the Classroom" through our Corporate Giving program. In 2020, Zovio supported six educational partners including Arizona Tech Council, Greater Phoenix Chamber Foundation, Jobs for Arizona’s Graduates, Center for the Future of Arizona, Wounded Warriors Project, and The Johnston Family Foundations for Urban Agriculture. All Zovio employees are provided 16 hours of paid time off to volunteer at nonprofit organizations of their choice. In 2020, Zovio employees logged more than 5,100 volunteer hours, either virtually or in person.
Our culture is anchored in a long-standing commitment to giving back to the communities in which our employees live and work. Since 2005, the Company has donated over $11 million in charitable contributions. Our employees have collectively given 160,000 hours in volunteer efforts and have generously donated over $2.2 million through workplace giving campaigns
Governance Standards
Management of the Company is led by talented leaders with deep experience in education and technology. The Board of Directors of the Company sets high standards for the Company's employees, officers and directors. Implicit in this philosophy is the importance of sound corporate governance. It is the duty of the Board of Directors to serve as a prudent fiduciary for stockholders and to oversee the management of the Company's business. To fulfill its responsibilities and to discharge its duty, the Board of Directors follows the procedures and standards that are set forth in our Corporate Governance Guidelines, committee charters and other governance documents. See further information below in the “Executive Officers” section below.
Recoupment Policy
To help mitigate risk, the Board has adopted a Policy on Recoupment of Compensation (the “Recoupment Policy”) pursuant to which certain key employees may be directed to return to us performance-based compensation they previously received if either:
•there is a restatement of any of our financial statements previously filed with the SEC (regardless of whether there was any misconduct), other than those due to changes in accounting principles, and the restated financial results would have resulted in a lesser amount of performance-based compensation being paid to them; or
their•there is intentional misconduct, gross negligence or failure to report intentional misconduct or gross negligence by one of our employees (or service providers) that either (i) was a contributing factor or partial factor to having to restate any of our financial statements previously filed with the SEC or (ii) constituted fraud, bribery or any other unlawful act, or contributed to another person'sperson’s fraud, bribery or other unlawful act, which in each case adversely impacted our finances, business and/or reputation.
In the event of a restatement of our financial statements, the Compensation Committee will review performance-based compensation awarded or paid to the key employees that was attributable to performance during the applicable time periods. To the extent permitted by applicable law, the Compensation Committee will make a determination as to whether, and how much, compensation is to be recouped by us on an individual basis. If there has been no misconduct as described above, any recoupment of compensation will be limited to a three-year lookback period from the date the financial or accounting irregularity was discovered by us and brought to the attention of the Compensation Committee.
Moreover, if the Compensation Committee determines that a key employee has engaged in misconduct, the Compensation Committee may take such actions with respect to such employee as it deems to be in our best interests and necessary to remedy the misconduct and prevent its recurrence. To the extent permitted by applicable law, such actions can include, among other things, recoupment of compensation (which would not be limited to the three-year lookback period referenced above), adjustment of future compensation, cancellation of grants or vesting of equity-based compensation, recoupment of profits gained by such employee on any stock issued to such employee regardless of when issued, and/or disciplinary actions up to and including termination of employment. The Compensation Committee'sCommittee’s power to determine the appropriate remedy is in addition to, and not in replacement of, remedies imposed by law enforcement agencies, regulators or other authorities.
Communications with the Board of Directors
We have adopted a formal process by which security holders and other interested parties may communicate with the Board, which policy is available on our website at http://www.zovio.com under “Investor Relations — Corporate Governance Highlights.“Investors - Governance.” Interested parties may send communications to the non-management members of the Board. Communications to the Board must either be in writing and sent care of the Secretary by mail to our offices at 8620 Spectrum Center1811 E. Northrop Blvd, San Diego, California 92123,Chandler, AZ 85286, or delivered via e-mail to secretary@zovio.com. This centralized process will assist the Board in reviewing and responding to stockholder and interested party communications in an appropriate manner. The name of any specific intended recipient should be noted in the communication. All communications must be accompanied by the following information:
•if the person submitting the communication is a security holder, a statement of the type and amount of securities of our company the person holds;
•if the person submitting the communication is not a security holder and is submitting the communication to the non-management directors as an interested party, the nature of the person'sperson’s interest in our company;
•any special interest, meaning an interest not in the capacity of a stockholder of our company, of the person in the subject matter of the communication; and
•the address, telephone number and e-mail address, if any, of the person submitting the communication.
Communications should be addressed to the attention of the Secretary and should not exceed 500 words in length, excluding the information required to accompany the communication as described above. The Board has instructed the Secretary to forward such correspondence to the Board; however, before forwarding any correspondence, the Board has also instructed the Secretary to review such correspondence and, in the Secretary'sSecretary’s discretion, not to forward certain items if they are deemed of a personal, illegal, commercial, offensive or frivolous nature or otherwise inappropriate for director consideration.
Consideration of Director Nominees
Director Qualifications
The Nominating and Governance Committee evaluates all incumbent, replacement or additional nominees for election as directors, taking into account (i) all factors the committee considers appropriate, which may include career specialization, relevant technical skills or financial acumen, diversity of viewpoint and industry knowledge, and (ii) the following minimum qualifications:
•Each director nominee must have displayed the highest personal and professional ethics, integrity and values, and sound business judgment;
•Each director must be highly accomplished in his or her respective field, with superior credentials and recognition and broad experience at the administrative and/or policy making level in business, government, education, technology or public interest;
•Each director must have relevant expertise and experience, and be able to offer advice and guidance to the Chief Executive Officer based on that expertise and experience;
•Each director must be able to represent all of our stockholders and be committed to enhancing long-term stockholder value; and
•Each director must have sufficient time available to devote to activities of the Board and to enhance his or her knowledge of our business.
In determining whether to recommend a director for re-election to the Board, the Nominating and Governance Committee also considers the director'sdirector’s past attendance at meetings and participation in and contributions to the activities of the Board and any applicable committees of the Board.
The Nominating and Governance Committee has also determined that no person may be nominated or elected for directorship if he or she has attained the age of 75; provided that if a director reaches the age of 75 after he or she has been elected as a director, he or she may remain a director until his or her term has expired and his or her successor is elected and shall qualify.
TheAlthough the Nominating and Governance Committee does not have a formal policy governingin place, they acknowledge and are aware of the considerationimportance of diversity as a consideration in identifying nominees for director.
Stockholder Recommendations and Nominees
The Nominating and Governance Committee has not received director candidate recommendations from our stockholders and does not have a formal policy regarding consideration of such recommendations.stockholders. The Board believes this is appropriate, as any recommendations received from stockholders will be evaluated in the same manner as potential nominees suggested by members of the Board or management. Stockholders wishing to recommend a candidate for director should write to our Secretary at Zovio Inc, Attn: Secretary, 8620 Spectrum Center1811 E. Northrop Blvd, San Diego, California 92123.Chandler, AZ 85286.
To be considered, the recommendation of a director candidate must include the following written information: (i) the stockholder'sstockholder’s name and contact information; (ii) a statement that the writer is a stockholder and is proposing a candidate for consideration by the Nominating and Governance Committee; (iii) the name of, and contact information for, the candidate and a statement that the candidate is willing to be considered and serve as a director, if nominated and elected; (iv) a statement of the candidate'scandidate’s business and educational experience and qualifications; (v) information regarding each of the factors listed under “Director Qualifications” above sufficient to enable the Nominating and Governance Committee to evaluate the candidate; (vi) a statement of the value that the candidate would add to the Board; (vii) a statement detailing any relationship between the candidate and any customer, supplier or competitor of our company; (viii) detailed information about any relationship or understanding between the proposing stockholder and the candidate; and (ix) a list of three character references, including complete contact information for such references. To give the Nominating and Governance Committee sufficient time to evaluate a recommended director candidate for the 20202022 Annual Meeting of Stockholders, the recommendation should be
received by our Secretary at our principal executive offices no later than November 27, 2019,December 10, 2021, which is the 120th calendar day before the first anniversary of the date our proxy statement was mailed to stockholders in connection with the Annual Meeting.
In addition, our bylaws permit stockholders to nominate directors for consideration at an annual meeting. For a description of the process for nominating directors in accordance with our bylaws, see “Stockholder Proposals for the 20202022 Annual Meeting of Stockholders” above.
Identification and Evaluation of Nominees for Director
The Nominating and Governance Committee uses a variety of methods for identifying and evaluating nominees for director. The Nominating and Governance Committee regularly assesses the appropriate size and composition of the Board, the needs of the Board and each committee of the Board, and the qualifications of candidates in light of these needs. Candidates may come to the attention of the Nominating and Governance Committee through stockholders, management, current members of the Board or search firms. The evaluation of these candidates may be based solely upon information provided to the Nominating and Governance Committee or may also include discussions with persons familiar with the candidate, an interview of the candidate or other actions the Nominating and Governance Committee deems appropriate, including the use of third parties to review candidates.
Code of Ethics
We have adopted a written Code of Ethics applicable to the Board and our officers and employees, including our principal executive officer, principal financial officer and principal accounting officer, in accordance with the rules of the Nasdaq and the SEC. The Code of Ethics is available on our website at http://www.zovio.com under “Investor Relations — Corporate Governance Highlights.“Investors - Governance.”
Compensation Committee Interlocks and Insider Participation
During 2018,2020, no executive officer of our company (i) served as a member of the compensation committeeCompensation Committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served on our Compensation Committee, (ii) served as a director of another entity, one of whose executive officers served on our Compensation Committee, or (iii) served as a member of the compensation committeeCompensation Committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served as a director of our company.
Director Compensation
The following table presents compensation information for our non-employee directors for 2018.2020. Mr. Clark'sClark’s compensation is presented in the Summary Compensation Table below and the related explanatory tables. Mr. Clark doesdid not receive any additional compensation for his services as a director.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name | | Fees Earned or Paid in Cash ($) | | | | Stock Awards ($)(1) | | Total ($) |
Teresa Carroll | | 60,000 | | | | | | | 41,180 | | | | 101,180 | |
Michael Cole | | 82,500 | | | | | | | 41,180 | | | | 123,680 | |
Ryan Craig | | 95,000 | | | | | | | 41,180 | | | | 136,180 | |
| | | | | | | | | | | |
Michael Horn | | 55,000 | | | | | | | 41,180 | | | | 96,180 | |
Ron Huberman | | — | | | | | | | — | | | | — | |
John Kiely | | 74,375 | | | | | | | 41,180 | | | | 115,555 | |
Kirsten Marriner | | 57,500 | | | | | | | 41,180 | | | | 98,680 | |
Victor Nichols | | 102,500 | | | | | | | 41,180 | | | | 143,680 | |
George Pernsteiner | | 132,500 | | | | | | | 41,180 | | | | 173,680 | |
John Wilson | | — | | | | | | | — | | | | — | |
|
| | | | | | | | | | | | | | | |
Name | | Fees Earned or Paid in Cash ($) | | Option Awards ($) | | Stock Awards ($)(1) | | Total ($) |
Teresa S. Carroll | | 45,000 |
| | | — |
| | | 82,565 |
| | | 127,565 |
|
L. Dale Crandall | | 82,500 |
| | | — |
| | | 82,565 |
| | | 165,065 |
|
Ryan D. Craig | | 70,000 |
| | | — |
| | | 82,565 |
| | | 152,565 |
|
Robert D. Hartman (2) | | 65,000 |
| | | — |
| | | 82,565 |
| | | 147,565 |
|
Michael B. Horn | | 55,000 |
| | | — |
| | | 82,565 |
| | | 137,565 |
|
Kirsten M. Marriner | | 43,125 |
| | | — |
| | | 82,565 |
| | | 125,690 |
|
Victor K. Nichols | | 75,000 |
| | | — |
| | | 82,565 |
| | | 157,565 |
|
George P. Pernsteiner | | 95,000 |
| | | — |
| | | 82,565 |
| | | 177,565 |
|
(1) Represents the grant date fair value of the restricted stock unit award, computed in accordance with FASB ASC Topic 718. The valuation methodology used to calculate this amount is discussed in Note 17, “Stock-Based Compensation,” to our annual consolidated financial statements for the year ended December 31, 2020, which are included in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 24, 2021.
| |
(1) | Represents the grant date fair value of the restricted stock unit award, computed in accordance with FASB ASC Topic 718. The valuation methodology used to calculate this amount is discussed in Note 16, “Stock-Based Compensation,” to our annual consolidated financial statements for the year ended December 31, 2018, which are included in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 12, 2019. |
| |
(2) | In connection with the Annual Meeting, Robert D. Hartman will retire from our Board and is not standing for re-election. |
The following table presents the total number of shares subject to either options outstanding or unreleased RSUs, as well as the number of shares subject to vested exercisable options, for each non-employee director as of December 31, 2018.2020.
|
| | | | | | |
Director | | Total Number of Options Outstanding or Unreleased RSU's | | Number of Vested Exercisable Options |
Teresa S. Carroll | | 12,250 |
| | — |
|
Ryan D. Craig | | 53,464 |
| | 41,214 |
|
L. Dale Crandall | | 53,464 |
| | 41,214 |
|
Robert D. Hartman (1) | | 53,464 |
| | 41,214 |
|
Michael B. Horn | | 19,337 |
| | — |
|
Kirsten M. Marriner | | 12,250 |
| | — |
|
Victor K. Nichols | | 40,284 |
| | 28,034 |
|
George P. Pernsteiner | | 19,337 |
| | — |
|
(1) In connection with the Annual Meeting, Robert D. Hartman will retire from our Board and is not standing for re-election. | | | | | | | | | | | | | | | |
Director | | Number of Unreleased RSUs | | | Number of Vested Exercisable Options |
Teresa Carroll | | 25,014 | | | | — | |
Michael Cole | | 18,890 | | | | — | |
Ryan Craig | | 18,890 | | | | 37,874 | |
Michael Horn | | 21,252 | | | | — | |
Ron Huberman | | — | | | | — | |
John Kiely | | 45,455 | | | | — | |
Kirsten Marriner | | 25,014 | | | | — | |
Victor Nichols | | 18,890 | | | | 28,034 | |
George Pernsteiner | | 21,252 | | | | — | |
John Wilson | | — | | | | — | |
The following table presents our non-employee director compensation program effective beginning in November 2017.program. The Compensation Committee reviews director compensation annually, including fees, retainers and equity compensation, as well as total compensation, and makes recommendations to the Board regarding the compensation program. In 2018,2020, the Compensation Committee worked with Mercer,both Pay Governance, LLC Korn Ferry Hay Group(“Pay Governance”) and Pearl Meyer & Partners, LLC (“Pearl Meyer”), compensation consultants, in determining appropriate changes to director compensation.
| | | | | | | | | | | | | | | | | | | | | | |
Position | | Annual Cash Retainer ($) | | | Annual Equity Award ($) | | |
Continuing Director | | 50,000 | | | | 85,000 | | (3) | | |
Board of Directors Chair | | 50,000 | | (1) | | — | | | | |
Audit Committee Chair | | 15,000 | | (2) | | — | | | | |
Compensation Committee Chair | | 10,000 | | (2) | | — | | | | |
Nominating and Governance Committee Chair | | 5,000 | | (2) | | — | | | | |
Audit Committee Member | | 10,000 | | | | — | | | | |
Compensation Committee Member | | 7,500 | | | | — | | | | |
Nominating and Governance Committee Member | | 5,000 | | | | — | | | | |
M&A Oversight Committee Member | | 25,000 | | | | — | | | | |
|
| | | | | | | | |
Position | | Annual Cash Retainer ($) | | | Annual Equity Award ($) | |
Continuing Director | | 50,000 |
| | | 85,000 |
| (3) |
Board of Directors Chair | | 50,000 |
| (1) | | — |
| |
Audit Committee Chair | | 15,000 |
| (2) | | — |
| |
Compensation Committee Chair | | 10,000 |
| (2) | | — |
| |
Nominating and Governance Committee Chair | | 5,000 |
| (2) | | — |
| |
Audit Committee Member | | 10,000 |
| | | — |
| |
Compensation Committee Member | | 7,500 |
| | | — |
| |
Nominating and Governance Committee Member | | 5,000 |
| | | — |
| |
(1) The annual cash retainer for serving as board chair is to be paid in addition to the annual cash retainer for board membership.(2) The annual cash retainer for serving as committee chair is to be paid in addition to the annual cash retainer for committee membership.
(3) The annual equity award was comprised of restricted stock unit awards. The annual restricted stock units vest in full on the first anniversary of the date of grant, subject to the continuing service of the director. Upon initial election to the Board, directors receive an initial grant of $85,000 of restricted stock units that vest over four years on the anniversary date of the grant, subject to the continuing service of the director.
| |
(1) | The annual cash retainer for serving as board chair was paid in addition to the annual cash retainer for board membership. |
| |
(2) | The annual cash retainer for serving as committee chair was paid in addition to the annual cash retainer for committee membership. |
| |
(3) | The annual equity award could be comprised of a combination of stock option awards and restricted stock unit awards. The annual stock option award has a 10-year term and an exercise price equal to the fair market value of our common stock on the date of grant, and will vest in full on the first anniversary of the date of grant, subject to the continuing service of the director. The annual stock option may vest in full or in part in connection with a Change of Control (as defined in the 2009 Plan). The annual restricted stock units vest in full on the first anniversary of the date of grant, subject to the continuing service of the director. Directors receive an initial grant of restricted stock units with vest over four years on the anniversary date of the grant, subject to the continuing service of the director. |
EXECUTIVE OFFICERS
Our executive officers are appointed by, and serve at the discretion of, the Board. Each executive officer is a full-time employee of Zovio. The names of our current executive officers, and their ages as of December 31, 2020, titles and biographies are set forth below:
|
| | | | | | | | | | | | | |
Name | | Age | | Position |
Andrew S. Clark | | 53 | | Founder, President and CEO and Director |
Kevin S. Royal | | 5456 | | Executive Vice President/Chief Financial Officer |
Joseph L. D'Amico | | 69 | | Senior Advisor to the CEO |
Steven R. Burkholder | | 4042 | | Vice President, Chief Accounting Officer and Corporate Controller |
Christopher L. Spohn | | 60 | | Executive Vice President of Operations (serving on an interim basis as a member of the Office of the Chief Executive Officer) |
Diane L. Thompson | | 6365 | | Executive Vice President, Secretary and General Counsel (serving on an interim basis as a member of the Office of the Chief Executive Officer) |
Vickie L. Schray | | 5960 | | Executive Vice President and Chief External Affairs Officer |
Gregory J. Finkelstein | | 50 | | Executive Vice President/Chief Operating Officer |
John W. Semel | | 4950 | | Executive Vice President/Chief Strategy Officer |
Marcus B. Brown | | 5153 | | Executive Vice President/Chief People Officer |
Thomas J. McCarty | | 5456 | | SeniorExecutive Vice President/Chief Marketing Officer |
Umang Jain | | 4445 | | Executive Vice President/Chief Technology Officer |
Anurag S. Malik | | 43 | | President and CEO of Learn@Forbes |
Andrew S. Clark is the Founder of our company and has served as our Chief Executive Officer and as a director of our company since November 2003 and as our President since February 2009. Mr. Clark also served from March 2005 to December 2008 on the Board of Trustees for Ashford University and served on the University of the Rockies Board of Trustees from September 2007 to August 2010. Prior to joining us in November 2003, Mr. Clark consulted with several private equity firms examining the postsecondary education sector. Prior to 2003, Mr. Clark worked for Career Education Corporation as Divisional Vice President of Operations and Chief Operating Officer for American InterContinental University in 2002. From 1992 to 2001, Mr. Clark worked for Apollo Group, Inc. (University of Phoenix), where he served in various management roles, culminating in his position as Regional Vice President for the Mid-West region from 1999 to 2001. Mr. Clark earned an M.B.A. from the University of Phoenix and a B.A. from Pacific Lutheran University.
Kevin S. Royal joined us in October 2015 and serves as our Executive Vice President/Chief Financial Officer. Mr. Royal resigned from his position in October 2017 for personal reasons unrelated to the Company, and resumed service in the same position in April 2018. Prior to joining us, Mr. Royal was Senior Vice President, Chief Financial Officer, Treasurer and Secretary of Maxwell Technologies, Inc., a developer, manufacturer and marketer of energy storage and power delivery solutions from April 2009 to May 2015. From May 2005 until April 2009, Mr. Royal was Senior Vice President and Chief Financial Officer of Blue Coat Systems, Inc., a previously Nasdaq-listed developer and provider of application delivery network technology. From December 1996 until May 2005, Mr. Royal held a series of senior finance positions, culminating with his appointment as vice president and chief financial officer of Novellus Systems, Inc., an S&P 500 company that manufactures, markets and services semiconductor capital equipment. Before Mr. Royal joined Novellus, he spent 10 years with Ernst & Young LLP, where he became a certified public accountant. Mr. Royal currently serves as a director of one private company. Mr. Royal received his Bachelor of Business Administration from Harding University.
Joseph L. D'Amico joined us in October 2017 and currently serves as the Senior Advisor to the CEO. He served as our interim Chief Financial Officer from October 2017 to April 2018. Prior to joining us, Mr. D’Amico previously served as the President of Apollo Education Group, Inc. (“Apollo”) from December 2011 to March 2013, and Executive Vice President and Advisor to Apollo’s Chief Executive Officer from March 2013 until September 2013. Mr. D’Amico served as a consultant to Apollo beginning in September 2013 for a number of months. Mr. D’Amico subsequently returned to Apollo to serve as interim Chief Financial Officer from April 2015 until October 2015. Since August 2016, Mr. D’Amico is also a Senior Advisor to the Chairman of Vocado, LLC, a real-time student data platform that improves higher education funding, enrollment and performance through AI-enabled student finance management and actionable analytics.
Steven R. Burkholder has served as our Vice President, Chief Accounting Officer and Corporate Controller since June 1, 2017. Mr. Burkholder previously served as our Associate Vice President, Assistant Controller from September 2012. Prior to joining us, Mr. Burkholder served in various roles at PricewaterhouseCoopers LLP, a public accounting firm, from September 2001 to September 2012, culminating in his appointment as Senior Manager in June 2011. As Senior Manager, he led engagement teams including audit, information technology, valuation and tax professionals. Mr. Burkholder received his Bachelor of Science in Business Accounting with honors from the University of Minnesota - Carlson School of Management, his Masters in Business Administration from Ashford University, and is a certified public accountant.
Christopher L. Spohn has served as our Executive Vice President of Operations since April 2020. Since March 2021, Mr. Spohn is also serving on an interim basis as a member of the Office of the Chief Executive Officer. Mr. Spohn has over 20 years of leadership and operations experience in the online higher education and technology services industries. Mr. Spohn was most recently the President of Rocky Mountain College of Art & Design, a for-profit art and design school, since 2017. At Rocky Mountain, Mr. Spohn drove the re-engineering of all operations related to the institution, while planning and directing all programs and services of the institution. From 2015 to 2016, Mr. Spohn served as Chief Executive Officer (Acting Campus Director) of Gnomon School for Visual Effects, Animation & Game Design, overseeing all school operations. Mr. Spohn also served as a member of the board of directors for Gnomon School from 2013 to 2016. From 2012 to 2015, Mr. Spohn served as President of WebWise Education, LLC, an online tutoring company, facilitating all business operations for the company. From 2011 to 2012, Mr. Spohn served as Chief Executive Officer of Higher Education Online, a United Kingdom-based education company, overseeing the start-up operations for the company. From 2004 to 2010, Mr. Spohn served as our Chief Admissions Officer, focusing on all operations related to recruiting, business development, and quality assurance. Mr. Spohn received his Bachelor of Arts from Azusa Pacific University and has completed the CORO Public Affairs Executive Leadership Program.
Diane L. Thompson joined us in December 2008 and currently serves as our Executive Vice President, Secretary and General Counsel. Since March 2021, Ms. Thompson is also serving on an interim basis as a member of the Office of the Chief Executive Officer. Prior to her appointment as Executive Vice President, Secretary and General Counsel in October 2015, Ms. Thompson served as our Senior Vice President, Secretary and General Counsel. From September 1997 to November 2008, Ms. Thompson served in various management roles for Apollo Group, Inc. (University of Phoenix). From November 2000 to
February 2006, Ms. Thompson served as Vice President/Counsel for Apollo Group, Inc. (University of Phoenix) and from March 2006 to November 2008, Ms. Thompson served as Chief Human Resources Officer. From October 1992 to July 1996, Ms. Thompson served as an attorney in the Pima County Attorney'sAttorney’s Office in Tucson Arizona. Ms. Thompson earned a B.A. from St. Cloud University, an M.A. from Antioch University and a J.D. from the University of Arizona College of Law.
Vickie L. Schray joined us in January 2011 and currently serves as our Executive Vice President, Chief External Affairs Officer. Prior to Ms. Schray'sSchray’s current appointment in September 2018, Ms. Schray also served as Executive Vice President, Regulatory Affairs and Public Policy since October 2016, as well as our Senior Vice President, Regulatory Affairs and Public Policy and also as our Vice President Regulatory Affairs. Ms. Schray has over 20 years of experience in postsecondary education and has worked at the federal, state and institutional level. From 1998 to 2010, Ms. Schray served in various leadership positions with the U.S. Department of Education, including Acting Deputy Assistant Secretary in the Office of Postsecondary Education, Senior Policy Analyst in the Office of the Under Secretary, and as the Deputy Director for the Secretary of Education'sEducation’s Commission on the Future of Higher Education. Before her work with the Department of Education, Ms. Schray consulted for the National School-to-Work Opportunities Office and was Deputy Director of the National Skill Standards Board. Ms. Schray earned an M.S. at Portland State University and a B.S. at Oregon State University.
Gregory J. Finkelstein joined us in December 2018 and serves as our Executive Vice President, Chief Operating Officer. Mr. Finkelstein previously served as an Executive in Residence for the Education Opportunity Fund within Sterling Partners, a 35-year-old private equity firm with a broad set of industry foci including education and healthcare. Prior to joining Sterling, Mr. Finkelstein was a founder of Deltak, one of the first online program management (OPM) partnership businesses in the education sector, and after Deltak’s acquisition by John Wiley and Sons in 2012, he served as its Managing Director and Senior Vice President until early 2018. Mr. Finkelstein also previously worked with the investment group that funded Deltak and oversaw its Marketing and Human Capital expansion efforts in conjunction with his responsibilities at Deltak. Early in his career, Mr. Finkelstein was one of the lead operators of The Beacon Institute for Learning, a business similar to Deltak, managing many partnerships with public and private universities providing a suite of marketing, recruitment, retention and academic services that underpinned educational programs in the fields of technology and health sciences management. Mr. Finkelstein started his career in the technology industry as a network consultant/engineer with USConnect, a consortium of network integration and technology education companies. Mr. Finkelstein received his B.S. in Mechanical Engineering from Tulane University.
John W. Semel joined us in March 2019 and has served as our Executive Vice President, Chief Strategy Officer since that time. Mr. Semel was most recently interim Chief Strategy Officer of Mood Media, an international in-store customer engagement company, since 2018. At Mood Media, Mr. Semel drove strategic planning, strategic partnerships, and product development for new revenue sources. Prior to joining Mood Media, Mr. Semel served as the Chief Strategy Officer of John Wiley and Sons, a global leader in research and education, focusing on publishing, platforms and services for researchers, learners, universities, and corporations, from 2009 to 2017. At John Wiley and Sons, Mr. Semel helped build Wiley Solutions, its online education business. Over his career, Mr. Semel has held senior strategy and principal investment roles at MTV Networks, The Hearst Corporation, Everger Investment Associates, and PRIMEDIA. Mr. Semel began his career at J.P. Morgan and Company as an analyst and then an associate in Equity Capital Markets and Syndicate before moving on to High Yield Capital Markets and Syndicate. Mr. Semel received his B.A. from Brown University and his M.B.S. from Harvard Business School.
Marcus B. Brown joined us in July 2014 and currently serves as our Executive Vice President/Chief People Officer. Prior to joining us, Mr. Brown served as the Vice President of Human Resources and Corporate Communications for Provide Commerce, an e-commerce retailer, from June 2011 to July 2014. From 2003 to 2011, Mr. Brown held various Vice President positions at PETCO Animal Supplies, Inc. and Encore Capital Group in San Diego, most recently serving as VP, HR for PETCO, a retailer of animal products and services, from May 2007 to July 2011. For the 20 years prior, Mr. Brown held various human resources, training and organizational development roles in large companies, including UnitedHealthcare, Best Buy, Honeywell, The Williams Companies and Bell Atlantic. Mr. Brown holds an M.S. from American University and a B.S. from Virginia Tech.
Thomas J. McCarty joined us in January 2017 and has servedcurrently serves as our SeniorExecutive Vice President/Chief Marketing Officer since that time.Officer. Prior to joining us, from January 2013 to December 2016, Mr. McCarty led his own marketing and management consulting firm, where his clients ranged from institutions of higher education to medium-sized businesses and non-profits. From October 2007 to November 2013, Mr. McCarty served in several roles at Apollo Education Group, a private education provider, including Senior Vice President of University Strategy for the University of Phoenix and Senior Vice President Product Marketing for Apollo Group Marketing. Prior to his employment with Apollo Education Group, Mr. McCarty led
Aptimus, Inc., an online advertising network, as the General Manager of the education business from 2005 to 2007. Mr. McCarty holds an M.B.A. in marketing from San Francisco State University and a bachelor’s degree from University of California, Berkeley.
Umang Jain joined us in March 2019 and has served as our Executive Vice President/Chief Technology Officer since that time. Mr. Jain was most recently Chief Information Officer at Hills Physicians Medical Group, the largest network of independent physicians in northern California, since 2016. Prior to joining Hill Physicians, Mr. Jain served in various roles at Blue Shield of California from 2007-2016, culminating in his position as Senior Director of Core Business Applications and Integration in 2015. Mr. Jain was also a Manager at Deloitte Consulting from 2000-2007. Mr. Jain holds an M.B.A. from University of California at Berkeley - Walter A. Haas School of Business, and a Bachelor of Technology from the Indian Institute of Technology.
Anurag S. Malik joined us in August 2016 and served as our Senior Vice President/Chief Information Officer through March 2019. Mr. Malik currently serves as President and CEO of Learn@Forbes, a Zovio business, a position to which he was appointed in August 2018. Prior to joining us, Mr. Malik served as Senior Vice President of Information Systems at SolarCity, a provider of full-service solar power systems, from April 2014 to August 2016. At SolarCity, he was responsible for new product development, quality assurance, IT and development operations, database administration, downstream analytics and business intelligence. From June 2012 to April 2014, Mr. Malik held the position of Vice President of Data Management for State Compensation Insurance Fund, a workers’ compensation insurance provider, where he led the development of the enterprise data warehouse and set up a big data solution. From September 2011 to June 2012, Mr. Malik served as Vice President of Data Management & Technical Operations for SendMe, Inc., a provider of direct to consumer mobile entertainment services, and prior to that he held the position of Senior Manager Business Intelligence for Esurance, Inc., a multi-line insurance company offering vehicle and property coverage. Mr. Malik holds an M.B.A. with a major in Finance from the Wharton School of the University of Pennsylvania and a Bachelor of Technology degree from the Indian Institute of Technology.
None of our executive officers has any family relationships with any of our other executive officers or directors. There currently are no legal proceedings, and during the past ten years there have been no legal proceedings, that are material to the evaluation of the ability or integrity of any of our executive officers.
EXECUTIVE COMPENSATION
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COMPENSATION COMMITTEE LETTER TO SHAREHOLDERS |
Dear Fellow Stockholders:
At our 2020 annual meeting of stockholders, 47% of votes were cast in favor of our “Say-on-Pay.” This number was in stark contrast to the previous 99% support during the last vote.
In response to this disappointing Say-on-Pay outcome, the Chair of the Compensation Committee, independent directors from the Compensation Committee, and members of our senior management team engaged in shareholder outreach. Based on shareholder feedback, the unfavorable Say-on-Pay outcome was primarily driven by a lack of disclosure on compensation-related decisions as a Small Reporting Company, coupled with a perception that the equity mix was predominantly time-based. At the same time, these discussions provided valuable insight confirming what is important to our investors, affirming planned changes, and offering suggestions moving forward.
As a result of the feedback, and input from the Compensation Committee’s new independent compensation consultant, we have made several modifications to our executive compensation program in 2020 and 2021, including:
◦a rebalance of the long-term incentive award mix with an increase in the percentage of performance-based equity (now 60% of long-term incentives) for Named Executive Officers (“NEOs”) and other executive officers;
◦an update to the peer group to better reflect our size, scope, and complexity;
◦no increase to Chief Executive Officer cash compensation in 2020;
◦a change in the performance stock unit award program to use a three-year cumulative goal modified by a 3-year relative TSR metric for 2021; and
◦a decision to voluntarily hold a Say-on-Pay vote at the upcoming Annual Meeting.
Also, given the volatility in our stock price during 2020, the Compensation Committee determined to use a premium stock price when converting market long-term incentive values into a number of restricted stock units and performance stock units granted. This decision resulted in a significant reduction in the number of shares granted and a 58% reduction in the award values made to our NEOs and other executive officers compared to 2019.
We want to extend our gratitude to the shareholders with whom we spoke for their insights and candor. We look forward to continuing the dialogue and hope the increased amount of detail we have provided this year will lead to your support on Say-on-Pay at our Annual Meeting.
Sincerely,
Compensation Committee
Victor Nichols, Chair
Michael Cole
Kirsten Marriner
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COMPENSATION DISCUSSION AND ANALYSIS |
This section of the proxy statement explains how the Compensation Committee (“Compensation Committee”) of the Board of Directors oversees our executive compensation programs and discusses the compensation earned by Zovio’s named executive officers (“NEOs”), as presented in the tables below under “Executive Compensation.”
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Named Executive Officers | | |
Andrew Clark | This Compensation Discussion and Analysis is composed of these sections: |
|
Former President and Chief Executive Officer ("Former CEO") | | |
| 1. | Executive Summary |
Kevin Royal | 2. | Compensation Program Highlights |
Executive Vice President, Chief Financial Officer (“CFO”) | 3. | Compensation Framework |
| 4. | Plan Design and Award Decisions |
Christopher Spohn | 5. | Compensation Risk Management, Policies & Practices |
Executive Vice President, Operations |
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John Semel | Detailed compensation tables that quantify and further explain our NEOs’ compensation follow this Compensation Discussion and Analysis. |
Executive Vice President, Chief Strategy Officer |
|
Thomas McCarty | | |
Executive Vice President, Chief Marketing Officer | | |
EXECUTIVE COMPENSATION
Compensation Committee Report
The following Compensation Committee Report shall not be deemed to be “soliciting material” or to otherwise be considered “filed” withZovio is going through one of the SEC, nor shall such information be deemed incorporated by reference into any filing of ours under the Securities Act or the Exchange Act except to the extent we specifically incorporate it by reference into such filing.
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the section entitled “Compensation Discussion and Analysis” be included in this proxy statement and incorporated by referencemost significant transformations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
COMPENSATION COMMITTEE:
L. Dale Crandall
Kirsten M. Marriner
Victor K. Nichols (Chair)
George P. Pernsteiner
Compensation Discussion and Analysis
company history. This Compensation Discussion and Analysis provides information about the material elements of compensation that are paid or awarded to, or earned by, our named executive officers (“NEOs”CD&A”), which includes our principal executive officer, our principal financial officer, and our three other most highly compensated executive officers, as well as the strategic objectives that drive the design contains a retrospective discussion of our program. We had two principal financial officers serving at different times during fiscal year 2018. Therefore, for fiscal year 2018 we had six instead of five NEOs, who were:
Andrew S. Clark, Founder, President and Chief Executive Officer (“CEO”);
Kevin S. Royal, Executive Vice President/Chief Financial Officer (“CFO”);
Joseph L. D'Amico, Senior Advisor to the CEO/ Former Interim CFO;
Diane L. Thompson, Executive Vice President, Secretary and General Counsel;
Anurag S. Malik, Senior Vice President/Chief Information Officer (currently President and CEO, Learn@Forbes); and
Thomas J. McCarty, Senior Vice President/Chief Marketing Officer.
This Compensation Discussion and Analysis describes the compensation practices that were followed in fiscal year 2018, the numericalfor 2020 under our previous business model and other information contained in the Summary Compensation Table and related tables presented below, and actions taken regarding executiveprospectively comments on highlights of our compensation before January 1, 2018 and after December 31, 2018 thatplans for 2021 as we believe are necessarytransition to understand our NEOs' compensation during fiscal year 2018.
Backgrounda new business model.
On April 2, 2019, we changed our name from Bridgepoint Education, Inc. to Zovio Inc.Inc as part of our strategy to transform from providing postsecondary education services through one academic institution to being an education technology services provider to many third parties. This transformation is reflected in our recent acquisitions ofuniversity partners. In 2019, we also acquired Fullstack Academy, Inc., an immersive coding boot camp, and TutorMe.com, Inc., a provider of instant online tutoring services. This shift
On December 1, 2020, the Company finalized a definitive Asset Purchase and Sale Agreement with the Arizona Board of Regents on behalf of the University of Arizona and the University of Arizona Global Campus, a newly formed Arizona nonprofit corporation. The University of Arizona Global Campus now owns and operates Ashford University in strategy is also reflected in our recent hiringaffiliation with the University of Arizona, focusing on expanding access to education for non-traditional adult learners. Zovio will provide services to the University of Arizona Global Campus under a long-term Strategic Services Agreement.
On March 21, 2021, the Company and Mr. Clark entered into a Separation Agreement and Release (the “Separation Agreement”) pursuant to which, among other things, the Company and Mr. Clark agreed that Mr. Clark would separate from service with the Company, resigning as Chief Executive Officer and all other offices of the Company, effective as of March 31, 2021. The Company has commenced a search for a new Chief Operating Officer, Chief Strategy Officer and Chief TechnologyExecutive Officer to assistlead its continuing transition in accomplishing our transformation.becoming an education technology services company. In the contextinterim, the Company will be led by an office of this transformation strategy, this Compensation Discussionthe Chief Executive Officer comprised of the Company’s Chairman of the Board George Pernsteiner, the Company’s Executive Vice President of Operations Christopher Spohn, and Analysis contains not only a retrospective discussionthe Company’s Executive Vice President and General Counsel Diane Thompson. Under the guidance of our compensation practices for fiscal year 2018 under our current business model but also prospective comments about our compensation plans for fiscal year 2019, as we transition to a new business model.the Board, the Office of the Chief Executive Officer will advance the Company’s strategic plan and ensure continued operations and provision of quality services.
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Performance and Shareholder Engagement Highlights |
2020 Financial and Total Shareholder Return (TSR) Highlights |
◦Improved adjusted EBITDA by 333% in 2020 ($16.8M in 2020 vs. a loss of $7.2M in 2019) ◦Delivered 2020 total shareholder return (“TSR”) of 130% |
Shareholder Outreach | ◦Contacted top shareholders representing 80% of outstanding shares and contacted 90% of the votes against our Say-on-Pay ◦Met with 7 shareholders representing 74% of our outstanding shares ◦Engagements were led by the Chair of the Committee and included the Board Chair, independent Directors from the Committee, and members of the management team (subject matter experts) ◦Chief Executive Officer (“CEO”) did not participate ◦Discussed rationale for the low support on last year’s Say-on-Pay vote and features of our executive compensation program ◦As a result, we significantly enhanced our CD&A disclosures from the 2020 proxy with a focus on compensation program details/changes, transparency, readability, and pay-for-performance linkage |
Compensation Philosophy and Objectives | | |
COMPENSATION PROGRAM HIGHLIGHTS |
The Compensation Committee is responsible for determiningdedicated to maintaining a structured and balanced compensation program designed to attract, motivate and retain highly skilled and talented executives to redefine the education services industry and drive Company performance. Our compensation programs’ continued evolution is a testament to the Compensation Committee’s consideration to align with market best practices, shareholders’ interests, and our business model’s ongoing transformation.
The chart below outlines key features of our executive officers, includingcompensation program:
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Compensation Program Highlights |
Incentive Plans | Our incentive plans are split between short-term incentives (“STI”) and long-term incentives (“LTI”) to balance short-term and long-term value creation. |
Equity Awards | We offer our executive officers a combination of performance stock units (“PSUs”) and time-based restricted stock units (“RSUs”) to align our executives’ interests with those of shareholders and reward the attainment of specific performance objectives. |
Vesting Periods | All performance-based equity vests on the third anniversary of the grant date. This vesting period was selected to align with the achievement of specific performance-based metrics. Our time-based equity awards vest annually in one-third increments over three years. |
Performance Measures | For executive officers, at least 60% of their LTI awards are performance-based and tied to performance metrics that support our strategic objectives and that we believe will drive shareholder value over the long-term. |
Stock Ownership Guidelines | We require our CEO, Executive Vice Presidents and Senior Vice Presidents to maintain minimum stock ownership levels (6x, 3x and 2x of base salary, respectively). These requirements reinforce our belief in the importance of aligning our executives’ interests with the interests of our shareholders. |
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Market-based Compensation | We regularly perform market-based compensation analysis to ensure that our executive officers’ total compensation packages remain competitive. |
Peer Group | We leverage a peer group that reflects the size, scope, and complexity of our business to stay informed of market trends and understand how our compensation programs and practices compare to similar companies. |
Recoupment (Clawback) Policy | We have adopted a clawback policy that covers all performance-based compensation. |
Compensation Philosophy and Design Principles
Our executive compensation programs support our NEOs. For fiscal year 2018,philosophy of attracting, motivating, and retaining talented executives required to redefine a fragmented, competitive industry while delivering strong results and long-term shareholder value. We aim to provide externally competitive and internally equitable compensation programs that support our transformation and align with our pay-for-performance philosophy. Our compensation program is anchored in four design principles:
◦Attract, motivate, and retain executive talent required to create industry-leading products and services;
◦Directly align the Compensation Committee had three primary objectives in setting executive compensation: (i) to incentivize and reward our executive officers for maintaining and enhancing the quality of our educational institutions, (ii) to align thefinancial interests of our executive officersexecutives with those of our stockholdersshareholders by encouragingproviding a significant portion of total compensation in the form of performance-based equity awards;
◦Establish a clear link between compensation outcomes and the achievement of our financial and operational objectives; and
◦Ensure fairness among our executives by recognizing each individual’s contributions, prior experience, and unique skills and abilities.
Key Program Design Components
Our balanced and structured compensation programs reflect the Compensation Committee’s belief that robust corporate governance is imperative for prudent compensation decision-making. Below are key elements of our compensation programs. We also identify certain pay practices that are not followed because we believe they do not serve our shareholders’ long-term interests.
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WHAT WE DO | WHAT WE DON’T DO |
ü Adhere to a disciplined pay-for-performance philosophy that informs our compensation design and target pay levels ü Maintain an independent Compensation Committee that has oversight of executive pay design ü Utilize an independent compensation consultant who is hired by and reports directly to the Compensation Committee ü Require minimum levels of stock ownership for our executives and directors ü Maintain a formal clawback policy applicable to all performance-based compensation that covers both financial restatements and certain detrimental conduct ü Deploy a multi-year vesting approach on equity ü Conduct an annual compensation risk assessment ü Utilize a rigorous target-setting process for our incentive plan metrics ü Impose limits on maximum incentive payouts | û No guaranteed salary increases û No guaranteed bonuses û No credit for unvested performance shares when determining compliance with stock ownership guidelines û No hedging or pledging of Zovio stock û No repricing underwater stock options û No excessive perquisites for senior leaders; all perquisites require specific business rationale û No perquisite-related tax gross-ups for executive officers (except for company-wide benefits such as relocation) û No special retirement plans exclusively for executive officers û No excise tax gross-ups related to change of control
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Our strong governance practices extend beyond our executive officerscompensation programs to increasecompensation plans for all employees. For our company-wide compensation and human capital management practices, we focus on building an inclusive culture and advancing fair pay. Annually, we assess the growth and profitabilitygap in average pay between employees of our company, particularly as measured by revenue, EBITDA and certain qualitative measures that we believe are leading indicators of financial success, and (iii) to ensure our compensation program is competitive relative to the total compensation paid to executivesdifferent genders in the same or similar positionsroles after accounting for legitimate business factors that can explain differences, such as performance, time in position, and tenure. Finally, we perform an annual review of our compensation programs to assess whether the programs’ provisions and operations create undesired or unintentional material risk.
Overview of Compensation Elements
The material components of our executive compensation program are base salary, short-term cash incentives, and long-term equity incentives. We believe that a combination of pay elements competitive with similar responsibilitiesthe market, emphasizing incentive-driven pay coupled with goals appropriately aligned with the business strategy, provides strong incentives to our NEOs to take actions that result in positive outcomes for our Company and shareholders.
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Pay Element | Purpose | Performance Period | Performance Metric |
Base Salary | Market competitive fixed compensation reflecting executive’s scope of responsibility | Annual | — |
Short-Term Cash Incentive | Cash-based incentive compensation to reward achievement of Zovio’s short-term financial and operational objectives | One-Year Period | ◦Revenue (35%) ◦EBITDA (35%) ◦Operational Goals (30%) |
Restricted Stock Units | Facilitates stock ownership, executive retention, and shareholder alignment | Three-Year Period with Annual Vesting | ◦Value of RSUs is tied to our stock price |
Performance Stock Units | Reward long-term profitability, long-term performance, and alignment with shareholders | One-Year Period (1) with a three-year cliff vest | ◦Free Cash Flow |
(1) As the business model was evolving, the Compensation Committee believed the Company needed to generate near-term cash to support investments in the transformation; future long-term incentives will be based on a three-year performance period, beginning with the 2021 PSUs.
CEO and NEO Pay Mix
In 2020, the majority of our executive compensation consisted of variable, at-risk compensation for the former CEO and other NEOs. As illustrated below, 72% of former CEO compensation was at-risk pay, and 44% of the former CEO’s overall compensation was delivered in equity with multi-year vesting. As described under the 2020 Long-Term Incentive (LTI) Plan, the Compensation Committee determined to use a premium stock price when converting market LTI values into a number of units granted. The overall award value was reduced to align with performance, impacting the pay mix in 2020.
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2020 Former CEO Pay Opportunity (1)(2) | 2020 NEOs Pay Opportunity (1)(2)(3) |
(1) Does not include Non-Qualified Deferred Compensation Earnings or All Other Compensation as reported in the 2020 Summary Compensation Table.
(2) Calculation reflects the accounting value of the equity awards. See details on 2020 equity awards under Long-Term Incentives.
(3) The average across the NEOs excluding the former CEO.
Total Realized Compensation
When evaluating our executive compensation program, the Compensation Committee compares NEO target total compensation for a year with realizable pay, as illustrated by the Total Realized Compensation figures below.
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Former CEO | | Other NEOs (Average) | |
Target | ___________________ | 100% | Target | ___________________ | 100% |
For 2020, our former CEO realized total compensation equal to 63% of his 2020 target compensation level, while total realized compensation for our NEOs ranged from 42% to 76%. This outcome demonstrates our ongoing commitment to compensating our leadership based on the Company’s performance and placing a significant portion of executive compensation “at risk.”
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2020 Pay Opportunity Comparison to Total Realized Compensation |
Named Executive Officer | 2020 Pay Opportunity | 2020 Total Realized Compensation | | % of Pay Opportunity Realized (2) |
Andrew Clark | $2,776,002 | $1,746,632 | | | 63% |
Kevin Royal | $994,949 | $683,855 | | | 69% |
Christopher Spohn | $1,659,176 (1) | $689,587 | | | 42% (3) |
John Semel | $1,093,000 | $833,757 | | | 76% |
Thomas McCarty | $790,312 | | $554,886 | | | 70% |
(1) Mr. Spohn was hired on April 30, 2020 and his 2020 Pay Opportunity is prorated.
(2) Total realized compensation includes the value from shares earned in 2020.
(3) Due to Mr. Spohn’s 2020 hire date, he has no realized stock award compensation reflected in his % of pay opportunity.
Pay Opportunity is calculated as follows:
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Base Salary | + | Target Bonus Opportunity | + | Grant date fair value of equity awards |
Total Realized Compensation is calculated as follows:
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Base Salary | + | Actual Bonus Earned | + | Value realized from shares earned |
Our executive compensation philosophy and practices reflect our strong commitment to pay for performance—both short- and long-term. We design our executive compensation program to attract and retain top management talent, reward financial and operational performance and recognize effective strategic leadership, key elements of driving shareholder value and sustainable growth. Zovio’s future Chief Executive Officer’s compensation will be anchored in our compensation philosophy and design principles, providing a well-balanced total rewards package that encourages decisions and behaviors that aligns executives’ interests with shareholders’ interests.
Inputs into Compensation Decisions
For 2020, the Compensation Committee received input from several sources and reference points to guide its design of the Company’s executive compensation programs and individual pay decisions. The Compensation Committee views this multi-perspective approach critical as it evaluates peer companies’ practices, investor viewpoints, changes in external market practices and input into each executive’s evolving role and performance.
The Compensation Committee regularly reviews input and data provided by its independent compensation consultant, our shareholders, external market practice surveys, and individual performance to make informed compensation decisions. Also, the Compensation Committee reviews tally sheets that provide a comprehensive look at peer companies. total compensation for each NEO. The chart below further describes the process:
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Independent Compensation Consultant / Market Data | Shareholder Engagement / Say-on- Pay | Peer Group | Management |
–Evaluates comparative market data against peer group and survey data –Advises the Compensation Committee on compensation plan design, targets and pay mix –Provides the Compensation Committee with research on trends and best practices | –Engage with shareholders to understand their viewpoints and focus –Results of the advisory Say-on-Pay vote –More information can be found under Shareholder Engagement and Say-on-Pay in this CD&A | –Our peer group is reviewed annually and comprised of companies that are of similar revenue, market capitalization, and complexity where we may recruit talent –Provides a reference point to inform executive compensation decisions | –CEO provides input regarding the various roles and responsibilities of his direct reports and their overall performance –CEO provides recommendations to the Compensation Committee for the compensation of his direct reports and the rationale for those decisions |
Independent Compensation Consultant
For fiscal year 20192020, the independent compensation consultants for the Committee were Pearl Meyer and Pay Governance. The Compensation Committee decided to conduct a “request for proposal” (“RFP”) process to evaluate independent compensation consultants in 2020. In early 2020, the compensation consultant was Pearl Meyer and they participated in the RFP. After careful consideration, the Compensation Committee decided to hire Pay Governance, beginning in July 2020.
The compensation consultant reports directly to the Compensation Committee and interacts with Zovio management when necessary and appropriate. For all regularly scheduled Compensation Committee meetings, a representative from Pearl Meyer or Pay Governance attended at the invitation of the Compensation Committee. In accordance with the Compensation Committee’s Charter, the Compensation Committee has the sole authority to retain and terminate any compensation consultant to be used to assist it in the evaluation of CEO, executive officer, and non-employee director compensation. Compensation consultants provide services to the Compensation Committee as an independent consultant and do not have any other consulting engagements or provide any other services to Zovio. The independence of the compensation consultants has been assessed according to factors stipulated by the SEC. The Compensation Committee concluded that no conflict of interest exists that would prevent them from independently advising the Compensation Committee.
While the Compensation Committee considers its compensation consultant’s recommendations in making decisions regarding executive compensation, the Compensation Committee is evolvingnot obligated to follow its compensation philosophyconsultant’s advice. It may instead determine to reflectpay amounts and/or forms of compensation other than as recommended by its compensation consultant. The Compensation Committee intends to review its relationship with its compensation consultant periodically.
Shareholder Engagement and Say-on-Pay
The Compensation Committee and management team routinely review feedback from our shareholders—through formal engagements, shareholder voting results, and communication during the Company's newyear—creating ongoing dialogue and transparency about our Company plans, strategy, operations, and compensation practices.
During 2020, based on feedback received from investors following the voting results on our 2020 Say-on-Pay resolution and in connection with advice from Pay Governance, the Compensation Committee made significant changes to the design and structure of our executive compensation program.
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At our 2020 annual meeting of stockholders, our shareholders voted on a non-binding, advisory resolution to approve the compensation paid to our NEOs (the “Say-on-Pay resolution”). The percentage of votes cast in favor of the Say-on-Pay resolution decreased from 99% at our 2017 annual meeting of stockholders (when we last held a Say-on-Pay vote) to 47% at our 2020 annual meeting of stockholders. This level of support was less than expected and far below previous Say-on-Pay resolutions. | |
12 |
Invited Shareholders |
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74% |
| Outstanding Shares |
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As a result of the voting outcome, members of the Compensation Committee and management engaged with our larger institutional shareholders, some of whom voted against the Say-on-Pay resolution, to solicit feedback on our executive compensation philosophy, strategy, and practices. In total, we requested engagement with shareholders holding 23.8 million shares or 74% of the total outstanding shares and reached out to 90% of the total Say-on-Pay protest vote. | 7 |
Engagements Held |
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90% |
Say-on-Pay Protest Vote Contacted |
As part of the Compensation Committee’s commitment to engagement with shareholders, we evaluate and respond to the views voiced by our shareholders. The most recent dialogue has confirmed alignment with or helped inform enhancements to our compensation practices in 2020 and 2021.
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WHAT WE HEARD FROM INVESTORS | WHAT WE DID IN RESPONSE |
PAY CONSIDERATIONS |
◦Shareholders appreciated the opportunity to engage with members of the Compensation Committee ◦Generally supportive of the overall compensation design and metrics ◦Understood the one-time relocation benefit for the former CEO and believe the relocation of headquarters to Arizona will result in long-term shareholder value ◦Proxy compensation peer group included several substantially larger organizations ◦Not enough proxy disclosure around compensation considerations and decisions | ◦Will hold a voluntary Say-on-Pay vote at the upcoming Annual Meeting ◦An updated proxy compensation peer group that better aligns with our current size, industry, and evolving business model ◦Increased disclosure beyond what is required for a Small Reporting Company |
PAY MIX |
◦Overall the magnitude of CEO pay remains high relative to performance ◦The majority of the awards (more than 50%) should be performance-based | ◦Consistent with our commitment to pay-for-performance, no bonus was paid in 2020 as a result of financial performance in 2019 ◦No increase in CEO base pay and target bonus opportunity in 2020 ◦Change in 2020 LTI mix with an increase to 60% performance shares with a three-year cliff vest contingent on attainment of a Free Cash Flow target ◦Short-term incentives in 2021 with a target cash award tied to pre-determined Revenue, Net Income, and specific operational goals |
LONG-TERM INCENTIVE DESIGN |
◦Recommended the use of more than one metric for the LTI program ◦The percentage of long-term incentive awards tied to performance metrics is too low | ◦The LTI for 2020 was granted using a premium stock price to convert the award into shares resulting in a 58% reduction in the size of the grant value ◦For 2021, PSU awards have an EBITDA metric with a three-year cumulative performance period and a three year cliff vest ◦For 2021, PSU awards are modified by a three-year Russell 2000 relative TSR metric to determine the total PSU payout at the time of vesting (no upward adjustment if Zovio outperforms the Russell 2000 relative TSR but absolute TSR is negative) |
Peer Group
The Compensation Committee reviews our peer group and comparative market data annually to help determine our NEOs and other executive officers’ compensation. These references help determine base salary ranges, short-term incentive and long-term incentive awards, and the overall competitiveness of the total compensation package.
In collaboration with its independent compensation consultant, the Compensation Committee uses the framework below to select a broad group of potential peers. This framework yields multiple perspectives that enrich our understanding of competitive pay practices while also ensuring that our peer group is comprised of companies with whom we may compete for talent, whose revenues and market capitalization and business model asfocus are similar to our own. We believe it is vital to maintain peer-group stability, limiting changes only when warranted and improving market comparability or better aligning with selection criteria.
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Industry | Strategic Focus | Talent | Size / Growth | Customers |
Operates in a similar education or technology sector | Similar interests in education or technology | Compete for executive talent and experience | Similar revenue and market capitalization | Similar types of customers and/or product offerings |
The peer group that was used to inform our 2020 pay decisions was:
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American Public Education, Inc. | Grand Canyon Education, Inc. | Pluralsight, Inc. |
Box, Inc. | Instructure, Inc. (1) | Q2 Holdings, Inc. |
Chegg, Inc. | K12, Inc. | Rosetta Stone, Inc. |
Cornerstone OnDemand, Inc. | LivePearson, Inc. | 2U, Inc. |
8x8, Inc. | Perdoceo Education Corporation | Zendesk, Inc. |
(1) Instructure Inc. was acquired by Thoma Bravo, LLC in March 2020
In November 2020, Pay Governance reviewed market data from the peer group and data from national compensation surveys, providing a written report summarizing its findings to the Compensation Committee regarding executive and board compensation considerations for the Company’s transition to an education technology services provider.company. This data was not used to make any pay changes to base salary, annual incentive targets or long-term incentive targets in 2020 but may be used going forward as we transition to an education technology services company.
Executive Summary
Role of Comparative Market Data and Compensation Consultant. The Compensation Committee uses comparative market data to help determine the compensation of our executive officers, including our NEOs, and retained Mercer, LLC (“Mercer”), a compensation consultant, to formulate a report and adviseIn late 2020, the Compensation Committee regarding ourworked with Pay Governance to develop a new peer group that better reflected the company’s business model, revenues, market capitalization, revenue growth and EBITDA margins. This peer group, which was used for 2021 compensation programs and executive compensation levels for fiscal year 2018. To gain additional perspectives on compensation later indecisions, consists of the year as we begin transforming to our new business strategy, the Compensation Committee also retained Korn Ferry Hay Group (“Korn Ferry”) to advisefollowing companies:
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Benefitfocus, Inc. | K12 Inc. | Synacor, Inc. |
Ebix, Inc. | Perdoceo Education Corporation | Syncronoss Technologies, Inc. |
GreenSky, Inc. | QAD Inc. | Telenav, Inc. |
Houghton Mifflin Harcourt Comp | RealNetworks, Inc. | 2U, Inc. |
i3 Verticals, Inc. | Rimini Street, Inc. | Universal Technical Institute, Inc. |
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PLAN DESIGN AND AWARD DECISIONS |
2020 Base Salaries
On an annual basis, the Compensation Committee, in consultation with its independent compensation consultant, reviews the market data and current base salaries for a brief timeour executive officers, considering adjustments where deemed appropriate. Salary increases, if any, must receive advance approval from August 2018 to September 2018, andthe Compensation Committee. The Compensation Committee approved no increases in September 2018,2019, however in 2020, the Compensation Committee then retained Pearl Meyer & Partners, LLC (“Pearl Meyer”). On January 1, 2019, Pearl Meyer becamedid adjust the base salary of one NEO to maintain competitive market pay levels. This increase also took into consideration enterprise value along with the expansion of Mr. Semel’s responsibilities.
The table below presents the base salaries for 2020:
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Named Executive Officer | 2019 Base Salary | 2020 Base Salary | % Change 2019 vs. 2020 |
Andrew Clark | $776,620 | $776,620 | N/A |
Kevin Royal | $395,000 | $395,000 | N/A |
Christopher Spohn | N/A (1) | $525,000 | N/A |
John Semel | $450,000 | $500,000 | 11.1% |
Thomas McCarty | $329,600 | $329,600 | N/A |
(1) Mr. Spohn was hired on April 30, 2020.
2020 Short-Term Incentive Plan
In April 2020, the Compensation Committee's soleCommittee adopted the 2020 Short Term Incentive (“STI”) Plan in consultation with its independent compensation consultant. The 2020 STI Plan was designed to ensure alignment with our strategy and external market practices, and to maintain an appropriate balance of risk and reward to motivate, retain, and engage our executive officers. The evaluation included considerations of the following elements:
◦Align with creating near-term shareholder value and consistent use of metrics;
◦Balance financial targets with operational goals that are leading indicators of high performance;
◦Adopt practices used by top-performing companies in our peer group; and
◦Establish targets that demonstrate year-over-year improvement with over-performance resulting in additional payout opportunity.
Say-on-Pay Vote at 2017 Annual MeetingUnder the 2020 STI Plan, the payment of Stockholders. At our 2017 Annual Meeting of Stockholders, we held an advisory, non-binding vote to approve the compensation of our NEOs, referred to as the say-on-pay vote. Our stockholders approved the compensation of our NEOs, with over 99% of the votes cast voted in favor of the say-on-pay proposal. The Compensation Committee believes this result affirms our stockholders' support of our approach to executive compensation.
Elements of Executive Compensation. The compensation of our executive officers generally consists of an annual base salary, an annual performance-based cash bonus, annual grants of long-term incentive plan awards, such as stock options, restricted stock units (“RSUs”), market stock units (“MSUs”) and performance cash, and certain other benefits.The Compensation Committee believes that a substantial portion of the total compensation ofbonuses to our NEOs and other executive officers should be variablewas based on the achievement of key financial and tied to performance. Basedoperational objectives:
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For this purpose, EBITDA is a non-GAAP financial measure defined as net income plus other income (expense), including interest, income tax benefit, depreciation, and amortization plus certain extraordinary expenses as more fully described below. |
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The operational goal related to Quality required the achievement of metrics (collectively, the “2020 Quality Metrics”) on average Net Promoter Score (NPS) for students and employee engagement. |
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For the Revenue and EBITDA performance goals, payouts are earned between the target and maximum based on the attainment of performance goals. Similarly, reduced payouts are earned between the minimum threshold and target based on the achievement of performance goals. |
2020 Short-Term Incentive (STI) Plan Results
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| Annual STI Payout Percentage |
Named Executive Officers | Below Threshold | Threshold | Target | Maximum |
| 0% | 50% | 100% | 200% |
Award payouts were calculated using the following formula:
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Base Salary for Year Ending December 31, 2019 | x | Target Annual STI Percentage | x | Performance Attainment (0% - 200%) | = | Annual STI Payout |
For 2020, based on input from the compensation consultants and Mr. Clark, our CEO,performance, the Compensation Committee reviewedapproved a payout of 84.3% of target for the NEOs and set our NEOs' annual base salariesother executive officers as follows:
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Performance Targets (in millions) | Weighting | Threshold (50%) | Target (100%) | Maximum (200%) | Performance Attainment | Total Payout |
Revenue | 35% | $346.1 | $407.2 | $468.3 | $397.1 | 32.1% |
EBITDA | 35% | $14.3 | $23.8 | $33.3 | $16.8 | 22.2% |
Quality Metrics | 30% | Please see below for more details. | 100% | 30.0% |
Total | | | | | | 84.3% |
Interpolation is used to determine the payout percentages that fall between threshold and target and between target and maximum.
The Quality Metrics for 2020 focused on the average Net Promoter Score (“NPS”) for students and employee engagement. The student NPS improved 2.3 points or 4% year-over-year, a strong indicator that the Company positively impacted students’ perception of their academic experience. And, despite a challenging business climate during a global pandemic, the employee engagement score increased nearly 14 points year-over-year and outperformed Perceptyx benchmarks for companies of similar size (1). As a result, the Compensation Committee approved a 100% performance attainment for the 2020 Quality Metrics.
(1) As compared to the 50th percentile of companies with 1-5k employees.
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Named Executive Officer | 2020 Base Pay | 2020 STI Target | Payout (1) | Actual Payout |
Andrew Clark | $776,620 | 100% | 84.3% | $655,056 |
Kevin Royal | $395,000 | 55% | $183,244 |
Christopher Spohn | $525,000 | 115% | $342,279 (2) |
John Semel | $500,000 | 75% | $316,301 |
Thomas McCarty | $329,600 | 55% | $152,904 |
(1) The payout rate is rounded to 84.3% from 84.347%.
(2) Reflects proration due to his hire date 4/30/2020.
Any amount of performance-based cash bonus targets, and awarded stock options, RSUs, MSUs and performance cash to our NEOs. Each of these elementsthat each NEO earned is discussed in further detail below under the headings “2018 Annual Base Salaries,” “2018 Short Term Incentive Plan” and “2018 Long-Term Incentive Plan Awards,” as applicable.
The following chart sets forth the percentage breakdown of targeted total direct compensation for each of our NEOs for fiscal year 2018. Targeted total direct compensation consists of: (i) annual base salary, (ii) targeted annual performance-based cash bonus, (iii) long-term option awards (the fair value of stock options on the date of grant), (iv) long-term stock awards (the fair value of RSUs on the date of grant) and (v) long-term performance cash awards. The annual performance-based cash bonuses and the long-term performance cash awards reflected in the table below are targeted amounts (based on 100% achievement of the applicable performance goals), rather than actual bonus amounts or performance cash earned during fiscal year 2018. Actual performance-based cash bonus payouts and actual performance cash earned for achievement of the applicable fiscal year 2018 performance goals are reflectedshown in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table.
2018 Targeted Total Direct Compensation
Variable, at-risk compensationTable later in the form of targeted annualproxy statement.
2020 Long-Term Incentive (LTI) Plan
Long-term incentives provide a critical link between long-term shareholder value and long-term incentive compensation generally comprises the majority of targeted total direct compensation. This allocation is consistent with the Compensation Committee's compensation philosophy and objectives, specificallyfinancial rewards provided to incentivize and reward our executive officers for maintaining and enhancing the quality of our educational institutions and to further align the interests of our executive officers with the long-term objectives of our stockholders. Mr. D'Amico, our Interim Chief Financial Officer from October 2017 to April 2018 and who now serves as Senior Advisor to the CEO, was compensated through separate arrangements including a monthly salary and RSU grants.
2018 Short Term Incentive Plan. officers. In March 2018,May 2020, the Compensation Committee adoptedreaffirmed its commitment to performance-based compensation by approving the 2018 Short Term Incentive Plan (the “2018 STI Plan”)following mix of long-term incentive awards for our NEOs and other executive officers, which provides for an annual performance-based cash bonus based on the achievement of company-wide performance targets related to revenue, EBITDA and certain qualitative measures, weighted at 30%, 30% and 40%, respectively. officers.
The Compensation Committee believed this plan was appropriate to motivate our executive officers, including our NEOs, to achieve our strategic and operational objectives for fiscal year 2018.
2018 Long-Term Incentive Plan Awards. In March 2018, the Compensation Committee made potential awards, in the formapproved an award of RSUs and/or performance cash,and PSUs to our NEOs and other executive officers under the 2009 Stock Plan, increasing the percentage of performance shares to 60% in 2020 from 50% in 2019.
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The RSUs vest annually over three years and align the executive officers’ interests with shareholders by emphasizing long-term value creation and retaining top talent through our transition to an education technology services provider. |
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At the end of the three years, the PSUs vest only to the extent a minimum level of Free Cash Flow (“FCF”) is achieved. The number of PSUs eligible for vesting varies from 0% to 200% of target, depending on our FCF achievement. |
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Given the volatility in our stock price during 2020, the Compensation Committee determined to use a premium stock price when converting target LTI values into a number of RSUs and PSUs granted. This decision resulted in a significant reduction in the number of shares granted and a 58% reduction in the award values made to our NEOs and other executive officers compared to 2019. |
The Compensation Committee believes that the combination of RSUs and PSUs, with the majority being performance shares in 2020, is consistent with best practices and the feedback we received during our shareholder outreach, aligning our executives and shareholders’ interests.
The Compensation Committee, in consultation with its independent compensation consultant, determined the 2020 aggregate amounts and terms of equity compensation awards for each NEO and executive officer. The Compensation Committee reviewed the equity programs, peer companies’ practices, and the outstanding equity information for each executive officer.
The 2020 approved equity awards for the NEOs are:
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Named Executive Officer | PSUs 60% | RSUs 40% | Total 2020 LTI Award | % Change 2020 vs. 2019 |
Andrew Clark | $733,657 | $489,105 | $1,222,762 | (58)% |
Kevin Royal | $229,619 | $153,080 | $382,699 | (58)% |
Christopher Spohn | $419,650 | $480,858 | $900,508 | N/A (1) |
John Semel | $130,800 | $87,200 | $218,000 | (58)% |
Thomas McCarty | $167,664 | $111,769 | $279,432 | (58)% |
(1) Mr. Spohn was hired on April 30, 2020. This also also includes a sign-on award of 100% RSUs in 2020 with a grant date value of $201,099 that will vest at the rate of 25% a year for four years.
The number of shares underlying the RSUs and PSUs, as partwell as the vesting and other terms of its annual grant.the equity awards, are summarized under “Outstanding Equity Awards at Fiscal Year End” below.
2020 Long-Term Incentive (LTI) Plan Results
PSUs granted in 2020 had a one-year performance period and three-year cliff vesting subject to achievement of a Free Cash Flow (“FCF”) measure. In October2020, the business was preparing for the sale of Ashford University. The Compensation Committee believed a metric intended to generate near-term cash from operations to support investments in our strategic transformation was important to our shareholders. Future long-term incentives will be based on a three-year performance period, beginning with the 2021 PSUs.
FCF is calculated by subtracting capital expenditures from the cash flow from operations and is subject to adjustment to eliminate the financial impact of significant transactions, changes in legal or regulatory policy and other extraordinary items.
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Performance Target (in millions) | Weighting | Threshold (50%) | Target (100%) | Maximum (200%) | Attainment ($) | Attainment (%) |
Free Cash Flow | 100% | $15.6 | $26.1 | $36.5 | $19.2 | 73.6% |
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Named Executive Officer | Payout Calculation |
# of PSUs | Grant Date Value | Payout | Earned PSUs (shares) |
Andrew Clark | 336,540 | $733,657 | 67.01% | 225,515 |
Kevin Royal | 105,330 | $229,619 | 70,581 |
Christopher Spohn | 192,500 | $419,650 | 128,994 |
John Semel | 60,000 | $130,800 | 40,206 |
Thomas McCarty | 76,910 | $167,664 | 51,537 |
The 73.6% attainment percentage translates to 67.01% payout based upon the interpolation used to determine the payout percentages that fall between threshold and target and between target and maximum.
The Compensation Committee approved a $19.2M FCF attainment for the 2020 performance year. As a result of the sale of Ashford University to the University of Arizona Global Campus, Zovio anticipates receiving reimbursement for certain expenses outlined in the Asset Purchase Agreement, which is reflected in the $19.2M.
Legacy Awards
In 2018, the Compensation Committee made potential awards,awarded performance-based market stock units (“MSUs”) to executive officers as an incentive to complete by a specific deadline the sale of Ashford University as part of the Company’s strategic transformation. For any of these MSU shares to be earned, the sale had to be completed by September 1, 2020. Since the sale was not completed until December 1, 2020, none of these MSUs were earned.
Other Benefits and Perquisites
We operate in the form of RSUsa highly competitive, complex and MSUs,consolidating industry and offer certain benefits that we believe are critical to attract and retain talent. These benefits, which are generally offered to all eligible employees, include medical, dental and life insurance benefits, short-term disability pay, long-term disability insurance and flexible spending accounts for medical expense reimbursements. We also have a Senior Management Benefit Plan (the “Benefit Plan”) in which our NEOs and other executive officers underare eligible to participate. The Benefit Plan is a fully insured plan and provides an annual benefit of up to $100,000 per participant (including the 2009participant’s eligible dependents) for unreimbursed medical expenses during a calendar year that are not covered by our major medical plan. Additionally, the Benefit Plan as special retentionprovides worldwide medical assistance services, including locating the nearest medical facility, finding an attorney and performance-based awards in connection with the ongoing conversion of the Company's academic institution, Ashford University, tomaking arrangements for emergency medical evacuation.
We also offer our employees, including our NEOs, a not-for-profit California public benefit corporation, the related separation of Ashford University from the Company, and subsequent transformation of the Company to an education technology services provider401(k)-retirement savings plan (the “Proposed Transactions”“401(k) Plan”). The Compensation Committee believed these equity awards were appropriate401(k) Plan is a defined contribution plan established in accordance with Section 401(a) of the Code. Employees may make contributions (pre-tax or after-tax) into the 401(k) Plan up to motivate and retainannual limits prescribed by the Internal Revenue Service. We also make matching contributions under the 401(k) Plan up to certain limits, including for our NEOs who participate in the 401(k) Plan.
Our NEOs and other executive officers are also eligible to participate in the Zovio Non-Qualified Deferred Compensation Plan (the “Deferred Compensation Plan”), pursuant to which certain of our highly compensated employees are permitted to defer up to 80% of their annual base salary and up to incentivize them100% of their annual performance bonus and any performance-based compensation into such plan. We do not make any contributions to continue effortsthe Deferred Compensation Plan on behalf of any participant, including any NEO, other than to build long-term stockholder value.
contribute the matching contributions we would have made to the 401(k) Plan on such participant’s behalf in the event the participant’s contributions to the 401(k) Plan are required to be reduced pursuant to applicable 401(k) Plan contribution limitations. To the extent our NEOs elect to participate in the Deferred Compensation Plan, they may elect to receive distributions while they are still working for us or they may elect to receive distributions (i) at termination of employment or retirement, (ii) in the event of disability, death or financial hardship, or (iii) in the event we undergo a change of control. Investment gains or losses credited to a participant’s account in the Deferred Compensation Plan are based on investment elections made by the participant from prescribed mutual fund investment options. Each participant in the Deferred Compensation Plan makes his or her own individual investment elections and may change any such investment election at any time.Change of Control Arrangements
SeveranceThe Compensation Committee provides change of control benefits to our NEOs because it recognizes that, as is the case with many publicly held corporations, the possibility of a change of control exists and the uncertainty and questions that a potential change of control may raise could result in the departure or distraction of our executives to the detriment of the Company and our shareholders. The details of the potential payments and benefits to be received by our NEOs upon the consummation of a change of control are discussed under “Potential Payments upon Termination and Change of Control Arrangements. Control” below.
Our current severance benefits in connection with a change in control are “double-trigger” benefits, that is they require both a change in control and termination of employment within a limited period of time after the change of control. The only exception is the immediate vesting of company matching contributions under our deferred compensation plan and, historically, some of the benefits under Mr. Clark’s 2015 employment agreement.
The Compensation Committee believes change of control benefits are appropriate because (i) it helps retain key employees during change of control discussions, especially senior executive officers for whom long-term incentive plan awards represent a significant portion of their total compensation package, (ii) it is difficult to replicate underlying performance goals, where applicable to long-term incentive plan awards, after a change of control, and (iii) the possibility that the Company that made the original long-term incentive plan award will no longer exist after a change of control (and employees should not necessarily be required to have the fate of their outstanding long-term incentive plan awards tied to the new Company’s future success). Additionally, the “double trigger” treatment is appropriate because it prevents an unintended windfall to the executives in the event of a friendly change of control while still providing them with appropriate incentives to cooperate in negotiating any change of control in which they believe they may lose their employment.
The Deferred Compensation Plan provides that the matching contributions that we make to the Plan will fully vest upon the consummation of a change of control.
Mr. Clark’s employment agreement provided that upon a change of control, 50% of each of Mr. Clark’s unvested equity awards that vest based solely on the passage of time would have vested upon the change of control. In addition, the employment agreement provided that if Mr. Clark incurred a termination without cause or a termination for good reason during the 24 months following the consummation of a change of control, he would have been entitled to the additional severance benefits, including cash severance, discussed below under “Potential Payments upon Termination and Change of Control” below.
Our Executive Severance Plan and the related Severance Agreements provide Messrs. Royal, Semel and McCarty with certain benefits and payments if the executives are terminated without cause or terminate employment for good reason. The Executive Severance Plan and the related Severance Agreements provide Messrs. Royal, Semel, and McCarty with some additional benefits if they incur a termination without cause or termination for good reason during the 24-month period following the consummation of a change of control. The benefits and payments that could be made to the executives under the Executive Severance Plan and the Severance Agreement are described under “Potential Payments upon Termination and Change of Control” below.
The 2009 Plan also provides that, unless otherwise provided in an award agreement: (i) upon a change of control where outstanding awards are assumed or continued, no accelerated vesting shall occur; and (ii) upon a change of control where outstanding awards are not assumed or continued, all awards shall vest and become exercisable immediately before such change of control. In this regard, the MSUs that were granted to Messrs. Clark, Royal, Semel, and McCarty in March 2019 provide the treatment upon a change of control that if the price of one share as reflected in a corporate transaction equals or exceeds 200% of the base stock price, the Compensation Committee shall take all action necessary to provide for the immediate vesting of all of the MSUs subject to such award.
Termination of Employment
The Compensation Committee believes that reasonable severance benefits for our NEOs are necessary to attract and retain qualified executives and limit the ability of our competitors to hire away our best talent. These benefits are also important because it may be difficult for such executives to find comparable employment within a short period of time following certain qualifying terminations. For Mr. Spohn, severance benefits are set forth in his employment agreement; for Messrs. Royal, Semel, and McCarty these benefits are set forth in our Executive Severance Plan and the Severance Agreements executed by Messrs. Royal, Semel, and McCarty. The Compensation Committee has also determinedpayments and benefits to providebe received by our NEOs in the event of a termination without cause, resignation for good reason, termination for death or termination for disability are discussed under “Potential Payments upon Termination and Change of Control” below. The severance benefits for Mr. Clark, our former CEO, last longer than those provided to the other NEOs in recognition of the fact that it typically takes longer for a chief executive officer to find employment in a comparable position. Our NEOs may be eligible for additional severance benefits if there is a termination of employment or resignation for good reason within two years following the consummation of a change of control, benefits for our NEOs and other executive officers to reduce the uncertainty surrounding a potential change of control, which could result in the departure and as a result distraction of such executives to the detriment of the Company and our stockholders during a potential acquisition. None of our executive officers, including our NEOs, are entitled to any gross up for change of control excise taxes. For additional information, seediscussed under “Change of Control Arrangements” above.
As previously discussed, on March 21, 2021, the Company and “Other PaymentsMr. Clark entered into the Separation Agreement pursuant to which, among other things, the Company and Mr. Clark agreed that Mr. Clark would separate from service with the Company, resigning as Chief Executive Officer and all other offices of the Company, effective as of March 31, 2021. Mr. Clark’s separation from service with the Company is considered to be “without cause” as that term is defined in his employment agreement. Mr. Clark’s separation was not made in connection with a disagreement between Mr. Clark and the Company on any matter relating to the Company’s operations, policies or practices. Pursuant to the terms of his employment agreement, Mr. Clark is eligible to receive certain severance payments and benefits as described in his Employment Agreement, contingent upon Terminationhis release of Employment” below.
Risk Mitigation. The Board has adopted a Policyclaims against the Company. In addition, the Separation Agreement provides that, in consideration of, among other things, Mr. Clark’s entry into certain restrictive covenants regarding non-competition and non-solicitation and agreement to provide support and cooperation with certain matters, Mr. Clark vested in certain equity awards based on Recoupmentthe effective date of Compensation that requires our NEOshis separation and other executive officersreceived an extension of the exercise period of his option awards from one year to return performance-based compensation to us under certain circumstances, including in the eventthree years and reimbursement of certain restatements of our financial statements orlegal expenses in connection with the executive's intentional misconduct or gross negligence. We also have an Insider Trading Policy that restricts our NEOs and other employees from entering into
Separation Agreement.
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any speculative or hedging transactions with respect to our securities. For more information, see “Recoupment Policy” and “Transactions in Our Securities” below.
Stock Ownership Guidelines. In December 2011, the Board, upon the recommendation of the Compensation Committee, adopted our Stock Ownership Guidelines to help align the interests of our executive officers with those of our stockholders. The Stock Ownership Guidelines provide that our NEOs and other executive officers, within five years of becoming subject to the guidelines, shall achieve the requisite level of ownership of our common stock. The covered executives may not sell shares of our common stock unless they will satisfy the applicable ownership guidelines following the sale. In May 2013, the guidelines were expanded to cover non-employee directors. For additional information, see “Stock Ownership Guidelines” below.
Role of Compensation Consultant and Use of Comparative Market Data
The Compensation Committee reviews our peer group and comparative market data annually to help determine the compensation of our NEOs and other executive officers, and enlisted the assistance of its compensation consultants generally to (i) construct and propose to the Compensation Committee a list of peer group companies and appropriate compensation surveys, (ii) compare the compensation of each of our executive officers, including our NEOs, to the compensation of similarly situated executive officers at such peer group companies and compensation surveys, (iii) advise the Compensation Committee regarding the proper amount and mix of compensation to be paid, and (iv) advise the Compensation Committee regarding the design of the Company's Short Term Incentive Plan and Long-Term Incentive Plan.
To assist in determining fiscal year 2018 executive compensation, management engaged the compensation consultants to review and assess our executive compensation programs and practices and to develop observations and recommendations based on such analysis. The Compensation Committee, in consultation with its compensation consultants, selected a broad peer group of similarly-sized public companies in the private education sector to conduct its analysis, which group is shown below. We believe it is important to maintain peer group stability, limiting changes to when they would improve market comparability or better align with selection criteria. We revised our peer group as compared to last year to remove one company, Capella Education Company, given that it was acquired by Strategic Education, Inc. (formerly Strayer Education, Inc.). Mercer advised the Compensation Committee with respect to year over year trends in annual cash and equity compensation adjustments, which the committee considered for purposes of its compensation decisions.
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Career Education Corp | Universal Technical Institute, Inc. | Strategic Education, Inc. |
Adtelem Global Education, Inc. | 2U, Inc. | Lincoln Educational Services Corp. |
Chegg, Inc. | K12, Inc. | American Public Education, Inc. |
Grand Canyon Education, Inc. | | |
The Compensation Committee determined that the peer group selected by Mercer was appropriate based on the business model, revenues, market values, revenue growth and EBITDA margins of such companies as compared to our company, and as such approved the peer group for 2018.
In November 2018, Pearl Meyer provided a written report summarizing its findings to the Compensation Committee regarding executive and board compensation considerations for the Company's proposed transition to an education technology services company. Pearl Meyer supplemented the previous for-profit-post-secondary education company peer group data with data from education technology services companies, as well as data from national compensation surveys for comparison to education technology services companies, and data from broad, general industry surveys for companies between $161 million and $1.796 billion in revenue (which we believe were reasonable comparables based on our projected revenue for fiscal year 2018 at the time). In assessing such data, Pearl Meyer applied premiums or discounts to peer group and/or to survey matches to reflect differences in job responsibilities and/or revenue scope between our company and the peer group and/or survey data. This data was not used to make any permanent pay changes to base salary, annual incentive targets or long-term incentive targets in 2018, but may be used going forward as we transition to an education technology services company.
The Compensation Committee initially engaged Mercer to consult for us with respect to 2009 executive compensation, and Mercer continued to consult for us on compensation matters until December 31, 2018. The Compensation Committee reviewed its compensation consultant relationship and needs during fiscal year 2018 and decided to retain a new compensation consultant to deliver a different perspective in light of our ongoing transformation into an education technology services provider. The Compensation Committee engaged Korn Ferry for a brief time from August 2018 to September 2018. In September 2018, the Compensation Committee then retained Pearl Meyer, with Pearl Meyer becoming the Compensation Committee's sole compensation consultant on January 1, 2019. While the Compensation Committee takes its compensation consultant's recommendations into consideration in making decisions regarding executive compensation, the Compensation
Committee is not obligated to follow its compensation consultant's recommendations, and may instead determine to pay amounts and/or forms of compensation other than as recommended by its compensation consultant. The Compensation Committee intends to periodically review its relationship with its compensation consultant.
Role of Stockholder Say-on-Pay Votes in Determining Compensation
We provide our stockholders with the opportunity to cast an advisory, non-binding vote regarding the compensation of our NEOs once every three years, referred to as the say-on-pay vote. At our 2017 Annual Meeting of Stockholders, over 99% of the votes cast on the say-on-pay proposal were voted in favor of the proposal. The Compensation Committee believes this result affirms our stockholders' support of our approach to executive compensation, and did not change our approach in fiscal year 2018 based on such result. The Compensation Committee will continue to consider the outcome of any future say-on-pay votes when evaluating our executive compensation practices and making future compensation decisions for our NEOs.
Role of Executive Officers in Determining Compensation
Mr. Clark, our CEO, reviews the reports prepared by the Compensation Committee's compensation consultant, which reports are prepared in conjunction with, and based on prior input from, the Compensation Committee. Mr. Clark then makes recommendations to the Compensation Committee regarding the amount and form of compensation he believes should be paid to our executive officers, other than himself. While the Compensation Committee takes Mr. Clark's recommendations into consideration in making decisions regarding executive compensation, the Compensation Committee is not obligated to follow his recommendations and exercises its discretion in modifying, accepting, or rejecting any recommended adjustments or awards recommended by Mr. Clark. With respect to the amounts and forms of compensation that are paid to Mr. Clark, the Compensation Committee and Mr. Clark may engage in limited discussion regarding his compensation, but any final decisions regarding his compensation are made by the Compensation Committee when he is not present.
Elements of Executive Compensation
The compensation of our executive officers, including our NEOs, generally consists of four components (although the Compensation Committee may also utilize other forms of compensation, such as special retention grants):
annual base salary;
annual performance-based cash bonus;
annual grants of long-term incentive plan awards, such as stock options, RSUs, MSUs and performance cash; and
certain other benefits, including severance and change of control arrangements.
The Compensation Committee believes that a substantial portion of the total compensation of our NEOs and other executive officers should be variable and tied to performance (specifically, performance-based cash bonuses and long-term incentive plan awards) to align the executives' compensation with measures that correlate with our long-term business objectives and stock price performance.
Role of annual base salaries. Annual base salaries provide our NEOs and other executive officers with a base level of monthly income to compensate them for day-to-day services rendered during the fiscal year. The Compensation Committee annually reviews the annual base salaries of our NEOs and other executive officers, and may adjust annual base salaries based on its subjective evaluation of a variety of factors, including the nature and responsibility of the position, the impact, contribution, expertise and experience of the individual executive, competitive market information regarding salaries to the extent available and relevant, the importance of retaining the individual executive along with the competitiveness of the market for the individual executive's talent and services, and the recommendations of our CEO (except in the case of his own base salary).
Role of annual performance-based cash bonus. The Compensation Committee awards performance-based cash bonuses to motivate and reward our NEOs and other executive officers for achieving annual performance objectives that are established by the Compensation Committee in its sole discretion.
Role of long-term incentive plan awards. Long-term incentive plan awards, such as stock options, RSUs, MSUs and performance cash, create a substantial retention incentive and encourage our NEOs and other executive officers to focus on our long-term business objectives and build long-term stockholder value. The Compensation Committee's practice is to grant long-term incentive plan awards to each executive officer, including our NEOs, annually. In fiscal year 2018, annual grants were comprised of RSUs and performance cash. The annual long-term incentive plan awards generally vest over a period of years subject to the executive's continuing service with the Company in order to provide the intended retentive value. The performance cash also requires the achievement of certain performance goals as a condition to vesting in order to encourage an
increase in the growth and profitability of our company. In addition to annual awards, the Compensation Committee granted special retention and performance based awards in October 2018 consisting of RSUs and MSUs. The purpose of these awards is to retain and incentivize our NEOs, executive officers and other Company employees to remain at the Company through the closing of the Proposed Transactions (the “Closing”), as well as incentivize our NEOs to successfully complete key elements of our strategic transformation. The Compensation Committee believes the RSUs and MSUs align the interests of our NEOs and other executive officers with stockholders because the value of such equity securities increases or decreases with changes in our stock price.
Role of severance and change of control arrangements and certain other benefits. Arrangements regarding compensation upon termination of employment or a change of control are also an element of compensation for our NEOs and other executive officers. Severance benefits are intended to retain qualified executives and minimize distractions during their employment with us. Change of control benefits for our NEOs and other executive officers serve to minimize the disruption that would be caused by the departure or distraction of any of our executive officers to the detriment of our company and our stockholders in the event of a potential change of control. We also provide our NEOs and other executive officers with employee benefits, including health and welfare benefits and participation in a 401(k) retirement savings plan and nonqualified deferred compensation plan, and certain perquisites. For additional information regarding the roles of these elements in our overall compensation program, see “Change of Control Arrangements,” “Other Payments upon Termination of Employment” and “Employee Benefits and Perquisites” below.
CEO Compensation Relative to Other Named Executive Officers
The Compensation Committee believes that CEO compensation should be greater than that of the other NEOs because, as the CEO, the responsibilities for the management and strategic direction of the company are significantly greater and the CEO has substantial additional obligations. The difference between the CEO's and the other NEOs' compensation is due in large part to variable compensation, particularly the short term incentive plan which only provides value when certain performance objectives are met, stock option awards, which will only create value for the CEO if our share value appreciates, RSUs, which increase in value when our share value appreciates, MSUs, which appreciate in value if our share value increases and certain performance metrics are met, and performance cash, which vests only upon the achievement of certain performance goals. The Compensation Committee believes it is desirable to provide a significant amount of variable, performance-based compensation to the CEO to continue to motivate him toward the achievement of short-term and long-term business objectives and the creation of long-term stockholder value.
2018 Annual Base Salaries
After reviewing and considering Mercer's 2018 advice, and after discussing compensation principles and philosophy, the Compensation Committee determined that annual base salaries of our NEOs for fiscal year 2018 should compare with annual base salaries for fiscal year 2017 as follows:
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Name | | 2017 Annual Base Salary ($) | | 2018 Annual Base Salary ($) |
Andrew S. Clark | | 754,000 |
| | 776,620 |
|
Kevin S. Royal | | 395,000 |
| | 395,000 |
|
Diane L. Thompson | | 410,000 |
| | 422,300 |
|
Anurag S. Malik | | 310,000 |
| | 319,300 |
|
Thomas J. McCarty | | 320,000 |
| | 329,600 |
|
Joseph L. D'Amico (1) | | 166,158 |
| | 879,239 |
|
(1) Mr. D’Amico, our former Interim CFO from October 2017 to April 2018, currently serves under an interim position as Senior Advisor to the CEO. Pursuant to his employment arrangement, Mr. D’Amico receives a base salary of $70,000 per month, but he does not receive other forms of compensation and benefits that are provided to our senior executives.
2018 Short Term Incentive Plan
In May 2018, the Compensation Committee adopted the 2018 STI Plan. Under the 2018 STI Plan, the payment of annual performance-based cash bonuses to our NEOs and other executive officers was based on the achievement of corresponding company-wide performance goals related to (i) EBITDA, as adjusted, (ii) revenue and (iii) quality (as described below), weighted 30%, 30% and 40%, respectively. For this purpose, “EBITDA, as adjusted” is a non-GAAP financial measure that is defined to mean net income plus other income (expense) including interest, income tax benefit, depreciation and amortization plus certain extraordinary expenses as more fully described below. There were no individual performance metrics in the 2018
STI Plan. The performance goal related to quality required the achievement by the company in fiscal year 2018 of certain quality metrics (collectively, the “2018 Quality Metrics”) based on:
•student retention;
•cohort default rate - the rate calculated by the U.S. Department of Education of student defaults over the three-year measuring period for Ashford University;
•90/10 ratio - a ratio based on the percentage of cash revenues an institution derives from Title IV programs;
•net promoter score - a loyalty metric; and
•employee engagement.
The target bonus amount for Mr. Clark for fiscal year 2018 was 100% of his annual base salary, as set forth in his employment agreement. See “Employment Agreements” below. The target bonus amounts for Ms. Thompson, and Messrs. Royal, Malik and McCarty for fiscal year 2018 were determined by the Compensation Committee to be equal to 35%, 50%, 45% and 40%, respectively, of their respective annual base salaries. In setting the target bonus amounts for Ms. Thompson, and Messrs. Royal, Malik and McCarty, the Compensation Committee considered the performance-based bonuses paid to similarly situated executives at the companies within our peer group, as well as each individual's level of responsibility, experience and expertise and what in the Compensation Committee's opinion would provide the desired amount of retention and incentive for each executive.
The Compensation Committee further determined that (i) the bonus amount for each executive for achieving the threshold performance would be 50% of the executive's target bonus amount (based on achievement of threshold performance for each performance goal), (ii) the bonus amount for each executive for achievement of the target performance goal related to the Quality Metrics would be 100% of that portion of the executive's target bonus amount and (iii) the bonus amount for each executive for achieving maximum performance with respect to the EBITDA and revenue performance goals would be 200% of that portion of the executive's target bonus amount. See “Grants of Plan-Based Awards” below for the specific threshold, target and maximum performance-based cash bonus amounts that each NEO was eligible to earn in fiscal year 2018.
For the EBITDA and revenue performance goals, the Compensation Committee had the discretion to award amounts that fell in between the target and maximum amounts for achievement of performance goals between the target and maximum levels. Similarly, the Compensation Committee had discretion to award a lesser amount than the target amount for achievement of performance goals below the target level but above the threshold. The Compensation Committee determined that both the threshold revenue goal and the threshold EBITDA goal was achieved, on an as-adjusted basis. The Compensation Committee used an EBITDA, as adjusted for bonus calculations, in determining the achievement of the EBITDA goal under the 2018 STI Plan because in setting the threshold, target and maximum EBITDA goals for fiscal year 2018, the Compensation Committee understood EBITDA to exclude certain extraordinary charges such as restructuring and impairment costs, legal settlement expenses, certain income tax impacts, and changes in GAAP after the 2018 budget had been established and the exclusion of these charges is reflected in the calculation of adjusted EBITDA for bonus calculations as shown below.
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Performance Target (in millions) | | Threshold Amount for 2018 | | Target Amount for 2018 | | Maximum Amount for 2018 | | Actual 2018 | |
| |
| |
| |
| |
| |
Revenue | | $ | 429.9 |
| | $ | 452.6 |
| | $ | 475.2 |
| | $ | 450.0 |
| |
As Adjusted EBITDA | | $ | 15.0 |
| | $ | 18.8 |
| | $ | 22.5 |
| | $ | 18.8 |
| (1 | ) |
| |
(1) | EBITDA calculated on an as-adjusted basis for bonus calculation purposes, as reconciled to GAAP as shown below (in millions): |
|
| | | | |
GAAP to Non-GAAP Reconciliation: | | Actual 2018 |
GAAP net income | | $ | 4.6 |
|
Income tax benefit | | (7.6 | ) |
Interest income (expense) | | (1.3 | ) |
Depreciation and amortization | | 6.8 |
|
Legal settlement expense | | 0.1 |
|
Restructuring and impairment charges | | 7.8 |
|
Separation transaction costs | | 8.1 |
|
ASC 605 to ASC 606 adjustments | | 0.3 |
|
As Adjusted EBITDA | | $ | 18.8 |
|
In determining whether and the extent to which the company achieved the 2018 Quality Metrics, the Compensation Committee evaluated certain criteria including Ashford University's three-year cohort default rate for the 2015 federal fiscal year, its 90/10 ratio for 2018, as well as the related student retention rate, net promoter score and employee engagement for fiscal year 2018. Assessing the quality metric information presented by management as a whole, the Compensation Committee determined that three out of the five 2018 Quality Metrics were achieved at or above the target level.
Based on its assessment, the Compensation Committee approved a cash bonus for each NEO equal to 82% of such executive's target bonus amount, comprised of (i) 28% of the target bonus amount as a result of the achievement of the revenue goal above the threshold level (as compared to 30% had target revenue been attained), (ii) 30% of the target bonus amount as a result of the achievement of the EBITDA, as adjusted, goal above the threshold level (as compared to 30% of the target), and (iii) 24% of the target bonus amount as a result of the achievement of three-fifths of the 2018 Quality Metrics at or above the target level multiplied by the 40% weighting of the 2018 Quality Metrics component of the annual bonus. The amount of the performance-based cash bonus earned by each NEO is shown in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table later in the proxy statement.
2018 Long-Term Incentive Plan Awards
In May 2018, the Compensation Committee, with input from Mercer, approved the award of RSUs and performance cash to our NEOs and other executive officers pursuant to the 2009 Plan. The number of shares underlying the RSUs, as well as the vesting and other terms of the equity awards, are summarized under “Outstanding Equity Awards at Fiscal Year End” below. The dollar amount subject to the performance cash awards, as well as the vesting and other terms of the performance cash awards, are summarized under “Grants of Plan-Based Awards” below. Achievement of the EBITDA, as adjusted, and revenue performance goals applicable to the performance cash awards was determined in the same manner as described with respect to the 2018 STI Plan under “2018 Short Term Incentive Plan” above.
In October 2018, the Compensation Committee, with input from Pearl Meyer, awarded RSUs and MSUs to our NEOs and other executive officers under the 2009 Plan. The MSUs are intended by the Compensation Committee to be performance-based awards, not time-based awards. In addition to the requirement that the Closing occurs prior to April 11, 2020, the vesting of the MSUs is subject to a threshold (decline by no more than 40% of share price), a 10% discount and a cap. The RSUs vest on April 11, 2020, subject to an executive’s continuing service with the Company. The MSUs vest on the day immediately following the 12-month anniversary of the occurrence of the Closing, subject to certain vesting conditions. The number of shares subject to the underlying the RSUs and MSUs, as well as the vesting and other terms of the equity awards, are summarized under “Outstanding Equity Awards at Fiscal Year End” below. These awards were given as an inducement to retain the NEOs and incentivize them during a critical juncture for the business to help close the Proposed Transactions, and for the subsequent transformation of the Company to an education technology services company.
The Compensation Committee determined that the number of shares underlying the RSUs, the target amount of the MSUs and the dollar amount subject to the performance cash awards granted to each of our NEOs and other executive officers were in each case appropriate given the outstanding equity awards held by each executive and the long-term incentive plan awards granted annually to similarly situated executives at the companies in our peer group. In addition, the Compensation Committee considered the retentive value of the long-term incentive plan awards, as well as the importance of aligning the interests of our NEOs and other executive officers with those of our stockholders.
Further, the Compensation Committee structured the MSU grant to be performance-based due to the following factors: (i) the Closing must occur on or before April 11, 2020 in order for any vesting to occur, (ii) the MSUs are subject to a 10% discount (for example, if there is no change in our share price, the number of MSUs that vest is 90% of the target number of MSUs, and if our share price increases 200%, the number of MSUs that vest is 190% of the target number of MSUs granted), (iii) a decline in our share price by 40% or more would result in no MSUs vesting, and (iv) variable numbers of MSUs can vest at greater than or less than the grant price based on our share price at the date of vesting, to incentivize management to drive shareholder value. In addition to incentivizing shareholder value creation, the MSUs also provide some additional retention benefit while we are transforming our business. If the Closing occurs by April 11, 2020, and the share price stays flat or decreases during the vesting period, they will vest in smaller increments and at a lower price than stock options would, and there is a price at which no MSUs would vest.
Policy Regarding Deductibility of Compensation
On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the “Act”), was signed into law, which significantly changeschanged the executive compensation deduction rules in Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).
Prior to the Act, Section 162(m) of the Code limited the amount of compensation the Company could deduct in any one year for federal income tax purposes to $1 million for compensation paid to the CEO and our next three highest paidcertain officers, serving on the last day of the year (but not including the CFO) unless the compensation qualified as “performance-based compensation” for purposes of Section 162(m). The Act repeals the “performance-based compensation” exception and, as a result, starting with tax years beginning after December 31, 2017, compensation paid to any individual serving as a named executive officer (including the CFO) at any time during the year in excess of $1 million will not be deductible unless it qualifies for the Act’s transition relief applicable to binding written agreements that were in effect on November 2, 2017 and not materially modified thereafter.
The Compensation Committee intendedwill continue to structuremonitor the performance-based portion of our executive compensation, when feasible, to comply with the “performance-based compensation” exemption to Section 162(m) soimpact that the Act will have on the Company’s compensation was deductible to us. Despite these efforts, due to the ambiguitiesprograms and uncertainties as to the application and interpretation of Section 162(m), including the uncertain scope of the transition relief under the Act, no assurance can be given that compensation originally intended to satisfy the “performance-based compensation” exception will, in fact, satisfy such requirements.
As in prior years,contracts. However, the Compensation Committee continues to believe that, in certain circumstances, factors other than tax deductibility take precedence when determining the forms and levels of executive compensation most appropriate and in the best interests of our companyCompany and our stockholders. Given the difficult regulatory and legislative environment we face and the competitive market for outstanding executive talent, the Compensation Committee believes it is important to retain the flexibility to design compensation programs consistent with its overall executive compensation philosophy even if some executive compensation is not fully tax deductible to us. Accordingly, the Compensation Committee may from time to time deem it appropriate to approve elements of compensation for certain executive officers that are not fully tax deductible which might include the approval of amendments to agreements that were initially intended to qualify as “performance-based compensation” if the Compensation Committee determines such amendments are in the best interests of our companyCompany and our stockholders.
In the future, the Compensation Committee will continue to monitor the impactRecoupment Policy
The Company has a Recoupment Policy that the Act will have on the Company’s compensation programs and contracts, including whether and to what extent our existing contracts and programs qualifyprovides for the transition relief described above.clawback or cancellation of performance-based compensation from any NEO or executive officer in the following two situations:
Change◦Misconduct
◦Financial Restatements Outside of Control ArrangementsMisconduct
The Compensation Committee provides change of control benefits totable outlines our NEOs because it recognizes that, as is the case with many publicly held corporations, the possibility of a change of control exists and the uncertainty and questions that a potential change of control may raise could result in the departure or distraction of our executives to the detriment of the Company and our stockholders. The details of the potential payments and benefits to be received by our NEOs upon the consummation of a change of control are discussed under “Potential Payments upon Termination and Change of Control” below.
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| Misconduct | Financial Restatements Outside of Misconduct |
WHO | ◦NEOs and other executive officers | ◦NEOs and other executive officers |
WHEN | ◦Intentional misconduct, gross negligence or failure to report intentional misconduct or gross negligence ◦Contributing factor in having to restate our financial statements ◦Fraud, bribery or any other illegal act | ◦Restatement of any of our financial statements (excluding changes due to account principles) ◦Restated financial results would have resulted in a lesser amount of paid performance-based compensation |
WHAT | ◦Company may seek to recover incentive compensation ◦Cancel outstanding equity awards ◦Reimbursement of realized equity gains ◦Possible adjustment of future compensation ◦Disciplinary actions, up to and including termination |
Some benefits described below are “single trigger” benefits and some are “double trigger” benefits. “Single trigger” benefits accelerate based on a single, specified, event, such as a change of control, while “double trigger” benefits require a NEO’s termination of employment without cause, or the NEO resigning for good reason following the consummation of a change of control for the NEO to receive the benefit. With respect to the compensatory arrangements described below for which “single trigger” treatment exists, limited to the Deferred Compensation Plan and Mr. Clark’s employment agreement, the Compensation Committee believes this treatment is appropriate because (i) it helps retain key employees during change of control discussions, especially senior executive officers for whom long-term incentive plan awards represent a significant portion of their total compensation package, (ii) it is difficult to replicate underlying performance goals, where applicable to long-term incentive plan awards, after a change of control, (iii) the company that made the original long-term incentive plan award will no longer exist after a change of control (and employees should not necessarily be required to have the fate of their outstanding long-term incentive plan awards tied to the new company's future success), and (iv) it ensures ongoing employees are treated similarly to terminated employees with respect to outstanding long-term incentive plan awards. With respect to the compensatory arrangements described below for which “double trigger” treatment exists, the Compensation Committee believes this treatment is appropriate because it prevents an unintended windfall to the executives in the event of a friendly change of control while still providing them with appropriate incentives to cooperate in negotiating any change of control in which they believe they may lose their employment.
The Deferred Compensation Plan (as defined below) provides that the matching contributions that we make to the Plan will fully vest upon the consummation of a change of control.
Mr. Clark’s employment agreement calls for certain benefits and payments upon the consummation of a change of control. His employment agreement provides that upon a change of control, 50% of each of Mr. Clark’s unvested equity awards that vest based solely on the passage of time will become vested upon the change of control. In addition, the employment agreement provides that if Mr. Clark incurs a termination without cause or a termination for good reason during the 24 months following the consummation of a change of control, he will be entitled to the additional severance benefits, including cash severance, discussed below under “Potential Payments upon Termination and Change of Control” below.
Our Executive Severance Plan and the related Severance Agreements provide Ms. Thompson, and Messrs. Royal, Malik and McCarty with certain benefits and payments if the executives are terminated without cause or terminate employment for good reason. The Executive Severance Plan and the related Severance Agreement provide Ms. Thompson, and Messrs. Royal, Malik and McCarty with some additional benefits if they incur a termination without cause or termination for good reason during the 24-month period following the consummation of a change of control. The benefits and payments that could be made to the executives under the Executive Severance Plan and the Severance Agreement are described under “Potential Payments upon Termination and Change of Control” below.
The following provisions are neither single trigger nor double trigger. In addition to single and double trigger acceleration, the 2009 Plan also provides that, unless otherwise provided in an award agreement: (i) upon a change of control where outstanding awards are assumed or continued, no accelerated vesting shall occur; and (ii) upon a change of control where outstanding awards are not assumed or continued, all awards shall vest and become exercisable immediately before such change of control. In this regard, the following award agreements provide for the following treatment upon a change of control:
the MSUs that were granted to Messrs. Clark, Royal, Malik and McCarty and Ms. Thompson in October of 2018, provide that if the price of one share as reflected in a corporate transaction equals or exceeds 200% of the base stock price, the Compensation Committee shall take all action necessary to provide for the immediate vesting of all of the Market Share Units subject to such award;
the Performance Stock Units (“PSUs”) that were granted in December 2014, provide that if the price of one share as reflected in a corporate transaction equals or exceeds the stock price performance goal for any one or more December 31s occurring after the closing of the corporate transaction, the Compensation Committee shall take all action necessary to provide for the immediate vesting of any PSUs that are subject to earning based on the achievement of that or those particular stock price performance goal or goals; and
the PSUs that were granted in March 2015, provide that if the price of one share as reflected in a corporate transaction equals or exceeds the total shareholder return performance goal for any one or more March 28s occurring after the closing of the corporate transaction, the Compensation Committee shall take all action necessary to provide for the immediate vesting of any PSUs that are subject to earning based on the achievement of that or those particular stock price performance goal or goals.
Other Payments upon Termination of Employment
The Compensation Committee believes that reasonable severance benefits for our NEOs are necessary to attract and retain qualified executives and limit the ability of our competitors to hire away our best talent, and are important because it may be difficult for such executives to find comparable employment within a short period of time following certain qualifying terminations. For Mr. Clark, severance benefits are set forth in his employment agreement; for Ms. Thompson, and Messrs. Royal, Malik and McCarty, these benefits are set forth in our Executive Severance Plan and the Severance Agreements executed by Ms. Thompson, and Messrs. Royal, Malik and McCarty thereunder. The payments and benefits to be received by our NEOs in the event of a termination without cause, resignation for good reason, termination for death or termination for disability are discussed under “Potential Payments upon Termination and Change of Control” below. The severance benefits for Mr. Clark, our CEO, last longer than those provided to the other NEOs in recognition of the fact that it typically takes longer for a chief executive officer to find employment in a comparable position. Our NEOs may be eligible for additional severance benefits if there is a termination of employment or resignation for good reason within two years following the consummation of a change of control, as discussed under “Change of Control Arrangements” above.
Employee Benefits and Perquisites
Health and Welfare Benefits. We offer employee benefits to our NEOs and other executive officers for the purpose of meeting the current and future health and security needs for themselves and their families. These benefits, which are generally offered to all eligible employees, include medical, dental and life insurance benefits, short-term disability pay, long-term disability insurance and flexible spending accounts for medical expense reimbursements. We also have a Senior Management Benefit Plan (the “Benefit Plan”) in which our NEOs and other executive officers are eligible to participate. The Benefit Plan is a fully insured plan and provides an annual benefit of up to $100,000 per participant (including the participant's eligible dependents) for unreimbursed medical expenses during a calendar year that are not covered by our major medical plan. Additionally, the Benefit Plan provides worldwide medical assistance services, including locating the nearest medical facility, finding an attorney and making arrangements for emergency medical evacuation.
401(k) Retirement Savings Plan. We also offer our employees a 401(k) retirement savings plan (the “401(k) Plan”) in which our NEOs and other executive officers are eligible to participate. The 401(k) Plan is a defined contribution plan established in accordance with Section 401(a) of the Code. Employees may make contributions (pre-tax or after-tax) into the 401(k) Plan up to annual limits prescribed by the Internal Revenue Service. We also make matching contributions under the 401(k) Plan up to certain limits, including for our NEOs who participate in the 401(k) Plan.
Nonqualified Deferred Compensation Plan. Our NEOs and other executive officers are also eligible to participate in the Zovio Nonqualified Deferred Compensation Plan (the “Deferred Compensation Plan”), pursuant to which certain of our highly compensated employees are permitted to defer up to 80% of their annual base salary and up to 100% of their annual performance bonus and any performance-based compensation into such plan. We do not make any contributions to the Deferred Compensation Plan on behalf of any participant, including any NEO, other than to contribute the matching contributions we would have made to the 401(k) Plan on such participant's behalf in the event the participant's contributions to the 401(k) Plan are required to be reduced pursuant to applicable 401(k) Plan contribution limitations. To the extent our NEOs elect to participate in the Deferred Compensation Plan, they may elect to receive distributions while they are still working for us or they may elect to receive distributions (i) at termination of employment or retirement, (ii) in the event of disability, death or financial hardship, or (iii) in the event we undergo a change of control. Investment gains or losses credited to a participant's account in the Deferred Compensation Plan are based on investment elections made by the participant from prescribed mutual fund investment options. Each participant in the Deferred Compensation Plan makes his or her own individual investment elections and may change any such investment election at any time.
Perquisites. Perquisites do not comprise a material element of our executive compensation program. With respect to executive attendance at sporting and entertainment events, we believe there is no incremental cost to us associated with the personal use by our NEOs and their guests and family members of tickets to various sporting and entertainment events that we have acquired at no additional cost in connection with our corporate sponsorships of various organizations. Accordingly, no amounts related to these items are included in the compensation of our NEOs in the Summary Compensation Table below.
Recoupment Policy
The Board has adopted a Policy on Recoupment of Compensation (the “Recoupment Policy”) which requires our NEOs and other executive officers to return performance-based compensation to us if:
there is a restatement of any of our financial statements previously filed with the SEC (regardless of whether there was any misconduct), other than those due to changes in accounting principles, and the restated financial results would have resulted in a lesser amount of performance-based compensation being paid to the executive; or
the executive's intentional misconduct, gross negligence or failure to report intentional misconduct or gross negligence by one of our employees (or service providers) either (i) was a contributing factor or partial factor to us having to restate any of our financial statements previously filed with the SEC or (ii) constituted fraud, bribery or any other illegal act (or contributed to another person's fraud, bribery or other illegal act), which in each case adversely impacted our finances, business and/or reputation.
In adopting the Recoupment Policy, the Board felt that the potential requirement to repay certain performance-based compensation upon events such as those described above would provide the requisite level of deterrent to curtail both risky and unethical behavior on the part of our NEOs and other executive officers. We believe the Recoupment Policy is appropriate given the types and amounts of performance-based compensation we pay our NEOs and other executive officers, and that suchour policy incentivizes them to only take only those risks that they determine are calculated to reward our stockholdersshareholders without material adverse risk to our company.Company.
Stock Ownership Guidelines
To help alignWe maintain the following robust stock ownership guidelines for our executive officers, including the NEOs. These guidelines are designed to further link these executives’ interests with the interests of our executive officers with those of our stockholders, in December 2011 the Board, upon the recommendation of the Compensation Committee, adopted Stock Ownership Guidelines applicable to our NEOs and other executive officers. The Stock Ownership Guidelines provide that our executives, withinshareholders:
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Chief Executive Officer | | | | | | | | | | | | | 6x Annual Base Salary |
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Executive Vice Presidents | | | | | | | | | | | | | 3x Annual Base Salary |
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Senior Vice Presidents | | | | | | | | | | | | | 2x Annual Base Salary |
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Non-Employee Directors | | | | | | | | | | | | | 3x Annual Cash Retainer |
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Within five years of becoming subject to the Stock Ownership Guidelines, our executives must achieve thetheir requisite level of stock ownership as set forth below. In May 2013, the Stock Ownership Guidelines were expanded to also cover stock ownership by our non-employee directors. The stock ownership thresholds in effect under the Stock Ownership Guidelines are as follows:
CEO - A number of shares equal to the quotient of (i) an amount equal to six times base salary, divided by (ii) the stock price at the date of calculation.
Executive Vice Presidents - A number of shares equal to the quotient of (i) an amount equal to three times base salary, divided by (ii) the stock price at the date of calculation.
Senior Vice Presidents - A number of shares equal to the quotient of (i) an amount equal to two times base salary, divided by (ii) the stock price at the date of calculation.
Non-Employee Directors - A number of shares equal to the quotient of (i) an amount equal to three times the annual retainer for service on the Board (excluding retainers for committee or chair service), divided by (ii) the stock price at the date of calculation.level.
The applicable date of calculation is the date of grant of annual equity awards or the date of a contemplated sale by the executive or director, whichever is later. The covered executives and directors may not sell shares of our common stock unless they will satisfy the applicable ownership guidelines following the sale.
TransactionsThe Company does not consider the value of unvested MSUs or PSUs in Ourdetermining whether the required level of equity ownership meets the guidelines. As of December 31, 2020, all NEOs exceeded our stock ownership guidelines except those within the five years of becoming subject to the guidelines.
Trading in Company Securities
We have an Insider Trading Policya policy that among other things, prevents employees,prohibits directors, executive officers, and directors from engaging in speculative or hedging transactions in our securities (such asemployees from:
◦Using financial instruments (including prepaid variable forwards,forward contracts, equity swaps, collars, and exchange funds), that are designed to hedge or from holdingoffset any decreases in the market value of our securities;
◦Holding our securities in a margin accountaccounts or otherwise pledging our securities as collateral for a loan, except in each case as may be specifically permitted by the Insider Trading Policy compliance officer in advance. Transactions in publicly traded options such as put options, call options or other derivative securities on an exchange or in any other organized market are expressly prohibited. Additionally, no employee, including our NEOs, or directors may engage inloan; and
◦Executing short sales of our securities and derivative or speculative transactions in our securities.
Process for Granting Equity Awards
All stockWe do not grant any equity compensation, in anticipation of the release of material non-public information. Similarly, we do not time the release of material non-public information based on equity award grant dates. Any options granted to our NEOs and other executive officers are granted with an exercise price equal to or above the fair market value of the underlying stock on the date of grant. We do not grant stock options, or any other form of equity compensation, in anticipation of the release of material non-public information. Similarly, we do not time the release of material non-public information based on stock option or other equity award grant dates.
The Board has adopted an Equity Award Grant Policy under which management, in conjunction with the Company's compensation consultant and in line with the compensation philosophy submits recommendations of equity awards to the Compensation Committee. As with base pay and bonus, the Compensation Committee meets independent of Mr. Clark to determine his equity award. Such recommendations include the type of award proposed to be granted, the recipient, and the size and special terms or conditions of any such award. Any equity awards approved by the Compensation Committee are granted as of the date of sucha quarterly meeting, unless a future effective date of grant is specifically authorized. Typically, equity awards are granted by the Compensation Committee pursuant to either a live or telephonic meeting. However, the Compensation Committee may also authorize the grant of equity awards pursuant to a unanimous written consent. If equity awards are authorized by unanimous written consent, the effective date of the grant (and the date upon which any stock option
will have its exercise price determined) is the date on which our Secretary has received all signatures to the unanimous written consent, unless a future effective date of grant is specifically authorized.
Tax and Accounting Considerations
While the Compensation Committee generally considered the financial accounting and tax implications of its executive compensation decisions, neither element was a material consideration in the compensation awarded to our NEOs and other executive officers during fiscal year 2020.
2018.