On March 18, 2008, we received an order from the SEC granting exemptive relief with respect to our ability to issue restricted stock to our employees and non-employee directors pursuant to the terms of our Amended and Restated 2007 Equity Incentive Plan, or the Equity Incentive Plan. In connection with receiving the necessary exemptive relief, our Board of Directors approved the Equity Incentive Plan and our stockholders voted to approve the Equity Incentive Plan at our 2008 Annual Meeting of Stockholders. On February 22, 2017, both our Compensation Committee and our Board of Directors adopted the Company’s Omnibus Incentive Plan, or the Omnibus Plan, which was approved by our stockholders at the 2017 Annual Meeting of Stockholders. Prior to adoption of the Omnibus Plan, the Company compensated its professional through two separate plans; the Equity Incentive Plan and the 2012 Executive Cash Incentive Plan. The Omnibus Plan was created primarily for the purpose of combining the Equity Incentive Plan and the 2012 Executive Cash Incentive Plan in order to reduce the administrative burden of monitoring the terms and conditions of two separate plans. The terms of the Equity Incentive Plan and the 2012 Executive Cash Incentive Plan, as combined and reflected in the Omnibus Plan, are substantially similar to the respective terms of each standalone plan.
EXECUTIVE OFFICERS
We do not have any executive officers who are not directors of the Company. Our executive officers, Messrs. Poole, Burgess and Lilly, serve as directors and executive officers of the Company. Messrs. Poole, Burgess and Lilly also serve as directors, managers and/or officers of Triangle Mezzanine Fund.
CORPORATE GOVERNANCE
Director Independence
In accordance with the NYSE’s listing standards, our Board of Directors annually determines each director’s independence. We do not consider a director independent unless our Board of Directors has determined that he or she has no material relationship with us. We monitor the relationships of our directors through the activities of our Nominating and Corporate Governance Committee and through a questionnaire each director completes no less frequently than annually and updates periodically if information provided in the most recent questionnaire changes.
In order to evaluate the materiality of any such relationship, the Board of Directors uses the definition of director independence set forth in the listing standards promulgated by the NYSE. Rule 303A.00 provides that a director of a business development company shall be considered to be independent if he or she is not an “interested person” of the Company, as defined in Section 2(a)(19) of the 1940 Act.
In addition, our chief compliance officerChief Compliance Officer reviews a list of each director’s securities transactions and holdings in order to ensure that our directors have not entered into any transactions with, or own any interest in, companies that would cause one or more of them to be considered “interested persons” as defined in Section 2(a)(19) of the 1940 Act. For a more detailed description of these policies, please see “Certain Relationships and Related Party Transactions” herein.
The Board of Directors has determined that Messrs. Dunwoody, Gambill, Goldstein, RichMulhern and SmithRich are independent and have no relationship with us, except as directors and stockholders. All of the members of our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee are not "interested persons" as defined in Section 2(a)(19) of the 1940 Act.
Meetings of the Board of Directors and Committees
During 2015,2017, our Board of Directors held fiveten meetings. Our Board of Directors has established an Audit Committee, Compensation Committee and a Nominating and Corporate Governance Committee. Each of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee operates pursuant to a charter, each of which is available under “Corporate Governance” on the Investor Relations section of our website at the following URL: http://ir.tcap.com, and is also available in print to any stockholder who requests a copy. AllDuring 2017, none of our directors attended 100%less than 75% of the aggregate number of meetings of the Board of Directors and of the respective committees on which they served, with the exception of Mr. Dunwoody, who attended 56%. Mr. Dunwoody attended three out of five board meetings and two out of four compensation committee meetings.served.
Each of our directors makes a diligent effort to attend all board and committee meetings, as well as each Annual Meeting of Stockholders. Eight of our then nine directors attended our 20152017 Annual Meeting of Stockholders. Mr. Smith's term expired on the date of our 2017 Annual Meeting of Stockholders.
We have designated Simon B. Rich, Jr. as our lead independent director to preside over all executive sessions of non-employee directors. Executive sessions of non-employee directors are held at each board meeting. Interested parties, stockholders and holders of our senior notes, may communicate with Mr. Rich by writing to: Board of Directors, Triangle Capital Corporation, 3700 Glenwood Avenue, Suite 530, Raleigh, North Carolina 27612.
Audit Committee
We have a separately-designated standing Audit Committee, establishedas defined in accordance with Section 3(a)(58)(A) of the Exchange Act. The Audit Committee is responsible for compliance with applicable legal and regulatory requirements, selecting our independent registered public accounting firm, reviewing the plans, scope and results of the audit engagement with our independent registered public accounting firm, approving professional services provided by our independent registered public accounting firm, reviewing the independence of our independent registered public accounting firm, reviewing the integrity of the audits of the financial statements and reviewing the adequacy of our internal accounting controls.
Our Audit Committee Charter is publicly available under “Corporate Governance” on the Investor Relations section of our website at http://ir.tcap.com.
The members of our Audit Committee are Messrs. Goldstein, RichMulhern and Smith.Rich. Mr. Goldstein serves as the chairman of the Audit Committee. Our Board of Directors has determined that Mr. Goldstein is an “audit committee financial expert” as defined under Item 407(d)(5) of Regulation S-K of the Exchange Act and that all members of the Audit Committee are financially literate under NYSE listing standards. The Board also has determined that each of Messrs. Goldstein, RichMulhern and SmithRich meet the current independence requirements of Rule 10A-3 of the Exchange Act, NYSE listing standards, and, in addition, is not an “interested person” of the Company, as defined in Section 2(a)(19) of the 1940 Act. Our Audit Committee held five meetings during 20152017.
Compensation Committee
Our Compensation Committee is appointed by the Board of Directors to discharge its responsibilities relating to the compensation of our independent directors, executive officers and other key employees. The Compensation Committee has the responsibility for recommending appropriate compensation levels for our executive officers, evaluating and approving executive officer compensation plans, policies and programs, reviewing benefit plans for
executive officers and other employees and producing an annual report on executive compensation for inclusion in our proxy statement. The Compensation Committee has the authority to form and delegate any of its responsibilities to a subcommittee of the Compensation Committee so long as such subcommittee is solely composed of one or more members of the Compensation Committee. The Compensation Committee Charter is available under “Corporate Governance” on the Investor Relations section of our website at http://ir.tcap.com.
Our Compensation Committee has the authority to and is charged with performing the following:following, among other responsibilities:
review annually and approve goals and objectives relevant to our executive officers’ compensation, including annual performance objectives;
evaluate annually the performance of our chief executive officerChief Executive Officer and other executive officers, and recommend to the independent members of the Board of Directors the compensation level for each such person based on this evaluation;
review on a periodic basis our executive compensation programs to determine whether they are properly coordinated and achieve their intended purposes;
review and recommend to the Board of Directors for approval any changes in incentive compensation plans and equity-based compensation plans;
review and approve all equity-based compensation plans of Triangle, whether or not final approval rests with the Company’s stockholders, and review and recommend to the Board of Directors for approval, equity-based awards pursuant to such plans in compliance with the 1940 Act;
review and approve compensation packages, including any special supplemental benefits or perquisites for our executive officers; and
review employee compensation strategies, including salary levels and ranges and employee fringe benefits, as well as compensation consultants’ analyses and various industry comparables including both public and private investment funds that operate and invest in a manner similar to the Company.
In determining executive compensation levels for our executive officers, the Compensation Committee meets at least annually with our CEO,Chief Executive Officer, and may meet with independent compensation consultants, in order to determine whether current methods of executive compensation are effective in achieving Triangle’s short and long-term strategies. The Compensation Committee, in conjunction with a compensation consultant if necessary, will analyze the compensation of executive officers and directors of other BDCs and financial services companies in order to establish the compensation levels necessary to attract and retain quality executive officers and investment professionals. In 2015,2017, the Compensation Committee engaged McLagan, a compensation consultant, to advise the Compensation Committee on these matters. McLagan does no work for management, receives no compensation from the Company other than for its work in advising the Compensation Committee and maintains no other economic relationships with the Company or any of its affiliates. From time to time, McLagan receives input from the Company's Chief Executive Officer regarding the Company's strategic goals and the manner in which the executive compensation program should support these goals. For more information regarding the role of the Company's management in determining compensation, please see the discussion in “Compensation Discussion and Analysis — Establishing Compensation Levels — Role of the Compensation Committee and Management.”
The members of the Compensation Committee are Messrs. Dunwoody, Goldstein and Smith,Mulhern, each of whom is not an "interested person" for purposes of Section 2(a)(19) of the 1940 Act and is independent under the applicable NYSE corporate governance listing standards. Mr. SmithMulhern serves as the chairman of the Compensation Committee. Our Compensation Committee held four meetings during 2015.2017.
Nominating and Corporate Governance Committee
Our Nominating and Corporate Governance Committee is responsible for identifying, researching and nominating directors for election by our stockholders, selecting nominees to fill vacancies on our Board of Directors or a committee of the Board of Directors, developing and recommending to the Board of Directors a set of corporate governance principles and overseeing the evaluation of the Board of Directors and our management. The Nominating and Corporate Governance Committee’s policy is to consider nominees properly recommended by our
stockholders in accordance with our charter, Bylaws and applicable law. For more information on how our stockholders may recommend a nominee for a seat on our Board of Directors, see our answer to the question “How and when may I submit a stockholder proposal for Triangle’s 20172019 Annual Meeting?” under the section “Additional Information” in this proxy statement.
In considering possible candidates for nomination, the Nominating and Corporate Governance Committee will consider certain factors including the Board's current composition of the Board of Directors, overall business expertise, gender, cultural and racial diversity, whether the composition of the Board of Directors contains a majority of independent directors as determined under the NYSE listing standards and the 1940 Act, the candidate’s character and integrity, whether the candidate possesses an inquiring mind, vision and the ability to work well with others, conflicts of interest interfering with the proper performance of the responsibilities of a director, a candidate’s overall business experience, what type of diversity he or she brings to the Board of Directors, whether the candidate has sufficient time to devote to the affairs of Triangle, including consistent attendance at Board of Directors and committee meetings and advance review of materials and whether each candidate can be trusted to act in the best interests of us and all of our stockholders.
The Nominating and Corporate Governance Committee Charter is publicly available under “Corporate Governance” on the Investor Relations section of our website at http://ir.tcap.com.
The members of the Nominating and Corporate Governance Committee are Messrs. Gambill, RichMulhern and Smith,Rich, each of whom is not an "interested person" for purposes of Section 2(a)(19) of the 1940 Act and is independent under the NYSE corporate governance listing standards. Each nominee for election under Proposal No. 1 at the2016 Annual Meeting was recommended by the members of the Nominating and Corporate Governance Committee to our Board of Directors, which approved such nominees. Mr. Rich serves as the chairman of the Nominating and Corporate Governance Committee. Our Nominating and Corporate Governance Committee held one meeting during 20152017.
Communication with the Board of Directors
Stockholders with questions about Triangle Capital Corporation are encouraged to contact Steven C. Lilly, at 3700 Glenwood Avenue, Suite 530, Raleigh, North Carolina 27612, (919) 719-4770. However, if stockholders feel their questions have not been addressed, they may communicate with our Board of Directors directly by sending their communications to: Triangle Capital Corporation Board of Directors, c/o Simon B. Rich, Jr., 3700 Glenwood Avenue, Suite 530, Raleigh, North Carolina 27612. In addition, stockholders may communicate with us by clicking “Contact IR” on the Investor Relations section of our website at http://ir.tcap.com. All stockholder communications received by our corporate secretary in this manner will be delivered to one or more members of the Board of Directors.
Corporate Leadership Structure
Mr. Tucker servesPoole was appointed as the Chairman of our Board of Directors on May 3, 2017 and prior to February 3, 2016, servedwas named as our Chief Executive Officer. Beginning inOfficer on February 2016, Mr. Poole serves as our Chief Executive Officer.3, 2016. In addition, we have designated Mr. Rich as our lead independent director to preside over all executive sessions of non-employee directors.directors and to lead the decision-making processes of our independent directors with respect to the Strategic Review. We believe that consolidating our leadership structure without an independent chairman provides an efficient and effective management model which fosters direct accountability, effective decision making and alignment of corporate strategy between our Board of Directors and management. Mr. TuckerPoole is, and Mr. Rich is not, an “interested person” as defined in Section 2(a)(19) of the 1940 Act.
Oversight of Risk Management
On behalf of the Board of Directors, the Audit Committee oversees our enterprise risk management function. To this end, the Audit Committee meets at least annually (i) as a committee to discuss the Company’s risk management guidelines, policies and exposures and (ii) with our independent auditors to review our internal control environment and other risk exposures. Additionally, on behalf of the Board of Directors, the Compensation Committee oversees the management of risks relating to our executive compensation program and other employee benefit plans. In fulfillment of its duties, the Compensation Committee reviews at least annually our executive
compensation program and meets regularly with our chief executive officerChief Executive Officer to understand the financial, human resources and stockholder implications of all compensation decisions. The Audit Committee and the Compensation Committee each report to the Board of Directors on a regular basis to apprise the Board of Directors regarding the status of remediation efforts of known risks and of any new risks that may have arisen since the previous report.
Compliance Policies and Procedures
In accordance with the 1940 Act, we have adopted and implemented written policies and procedures reasonably designed to prevent violation of the U.S. federal securities laws, and we review these compliance policies and procedures annually for their adequacy and the effectiveness of their implementation. In addition, we have designated Mr. Lilly as our Chief Compliance Officer. As such, Mr. Lilly is responsible for administering our compliance program and meeting with our Board of Directors at least annually to assess its effectiveness.
Code of Business Conduct and Ethics and Corporate Governance Guidelines
We have adopted a code of business conduct and ethics and corporate governance guidelines covering ethics and business conduct. These documents apply to our directors, officers and employees. Our code of business conduct and ethics and corporate governance guidelines are available on the Investor Relations section of our website at http://ir.tcap.com.ir.tcap.com/corporate-governance. We will report any material amendments to or waivers of a required provision of our code of conduct and/or corporate governance guidelines on our website and/or in a Current Report on Form 8-K.
EXECUTIVE OFFICERS
Our executive officers serve at the discretion of our Board of Directors. The following persons serve as our executive officers in the following capacities:
|
| | | | |
Name | | Age | | Position(s) Held |
E. Ashton Poole | | 51 | | Chairman, President and Chief Executive Officer |
Steven C. Lilly | | 48 | | Chief Financial Officer, Secretary and Chief Compliance Officer |
Jeffrey A. Dombcik | | 51 | | Senior Managing Director and Chief Credit Officer |
Cary B. Nordan | | 42 | | Senior Managing Director and Chief Origination Officer |
Douglas A. Vaughn | | 48 | | Senior Managing Director and Chief Administrative Officer |
All of our executive officers are members of our Investment Committee. The Investment Committee is responsible for all aspects of our investment process, including approval of such investments. All of our executive officers also serve as directors, managers and/or officers of Triangle Mezzanine Fund.
For more information on Messrs. Poole and Lilly, see the biographical information under "Proposal No. 1 Election of Directors" above.
Messrs. Dombcik, Nordan and Vaughn joined Mr. Poole and Mr. Lilly on the Company’s Management Committee and became Executive Officers of the Company on October 2, 2016. The biographical information for Messrs. Dombcik, Nordan and Vaughn are as follows:
Jeffrey A. Dombcik joined the Company in 2007 and currently serves as Senior Managing Director and Chief Credit Officer and is a member of the Company’s Management Committee and Investment Committee. Prior to joining the Company, Mr. Dombcik was a Managing Director of South Franklin Street Partners, a Small Business Investment Company (SBIC) focused on providing junior capital to middle-market companies. Prior to joining South Franklin Street Partners, Mr. Dombcik served as Executive Vice President and Partner of Edgewater Capital Partners, L.P., a private equity investment firm focused on the acquisition of middle market companies. Mr. Dombcik also served as a Senior Vice President of investment banking for McDonald Investments, Inc. (a wholly owned subsidiary of Key Corp) and Vice President of Brown, Gibbons, Lang & Company L.P., a middle market investment bank with offices in Chicago and Cleveland. Mr. Dombcik began his career as a commercial banking officer with Bank One. Mr. Dombcik has over 20 years of experience in a variety of corporate finance transactions including initial public offerings, mergers and acquisitions, preferred stock underwritings, senior and subordinated debt placements, recapitalizations, leveraged ESOPs and restructurings. He is a graduate of Miami University and John Carroll University.
Cary B. Nordan joined the Company in 2004 and currently serves as Senior Managing Director and Chief Origination Officer and is a member of the Company’s Management Committee and Investment Committee.
Prior to joining the Company, Mr. Nordan served as Vice President with BB&T Asset Management (BB&T Funds), a $14 billion mutual fund complex. Preceding his employment with BB&T Asset Management, he worked in corporate finance with Stanford Keene, Inc., an investment bank specializing in the technology industry, and Nuance Capital Group, LLC, an advisory firm to private companies. Prior to that, Mr. Nordan served as an Analyst and Associate in the corporate finance group of Trident Securities, a subsidiary of McDonald Investments, where he specialized in investment banking and advisory services to lower- and middle-market financial institutions throughout the United States. Mr. Nordan has over 10 years of experience investing in private equity transactions and public equity securities as well as corporate finance transactions including IPOs, M&As, senior and subordinated debt placements, recapitalizations, and restructurings. He holds a BSBA, magna cum laude, from Appalachian State University and an MBA from Duke University. Mr. Nordan is a Chartered Financial Analyst and former member of the Board of Directors for the Chartered Financial Analyst North Carolina Society.
Douglas A. Vaughn joined the Company in 2008 and currently serves as Senior Managing Director and Chief Administrative Officer and is a member of the Company’s Management Committee and Investment Committee.
Mr. Vaughn has extensive management experience operating businesses and has served in investment and advisory roles for middle-market companies, portfolio businesses, and divisions of large multinational corporations. Prior to joining the Company, Mr. Vaughn was President and a Director of VIETRI, Inc., America’s largest importer, distributor and marketer of handmade Italian ceramic and home décor items. Immediately prior to his eight years at VIETRI, Inc., Mr. Vaughn advised business owners and managers, including private equity funds, on strategic initiatives including acquisitions and corporate finance — first as a Senior Consultant at Deloitte Consulting and later as a Partner at Chatham Partners. Prior to Deloitte Consulting, Mr. Vaughn served in management roles for Sara Lee Corporation, specifically for Sara Lee Personal Products Europe, where he was an original member of the team that established and managed the company’s first division in Eastern Europe including manufacturing, distribution, marketing, and sales operations. Mr. Vaughn holds a BA from the University of Virginia and an MBA from The University of North Carolina’s Kenan-Flagler School of Business. He is a member of the Young Presidents’ Organization, a Chartered Financial Analyst, and has served on a variety of for-profit and non-profit boards.
COMPENSATION DISCUSSION AND ANALYSIS
General
In 2015, our executive officer group consistedThe following Compensation Discussion and Analysis, or CD&A, provides information relating to the 2017 compensation of Messrs. Tucker, Poole, Burgess and Lilly. We refer to these four officers as ourthe Company's named executive officers, or NEOs. NEOs, for 2017, who were:
E. Ashton Poole, Chairman, President & Chief Executive Officer;
Steven C. Lilly, Chief Financial Officer, Secretary and Chief Compliance Officer;
Jeffrey A. Dombcik, Senior Managing Director and Chief Credit Officer;
Cary B. Nordan, Senior Managing Director and Chief Origination Officer; and
Douglas A. Vaughn, Senior Managing Director and Chief Administrative Officer.
Our executive compensation program is designed to encourage our executive officers to think and act like stockholders of the Company. The structure of the NEOs’ compensation programs was designed to encourage and reward the following factors, among others:
sourcing and pursuing attractively priced investment opportunities in lower middle market companies;
achievement of the Company’s dividend objectives (which focuses on stability and potential growth);objectives;
maintaining credit quality, monitoring financial performance and ultimately managing a successful exit of the Company’s investment portfolio; and
development of management team and employees.
We completed our initial public offering, or IPO, in February 2007. As ourOur first nineeleven years of operation as a publicly traded BDC have represented a period of constant development and growth for us,growth. As a result, our Compensation Committee focusescontinues to focus on creating an executive compensation program that will effectively achieveachieves our desired objectives stated above.
In May 2014,2017, we held a stockholder advisory vote on the compensation of our NEOs, commonly referred to as a say-on-pay vote. Our stockholders approved the compensation of our NEOs, with over 82%86% of stockholder votes cast in favor of our say-on-pay resolution. Subsequently, the Compensation Committee considered the results of the advisory vote, which affected the Company’s executive compensation decisions and policies by reaffirming the Company’s compensation philosophies. The Compensation Committee will continue to use these philosophies and past practice in determining future compensation decisions. In addition, in May 2011,2017, our stockholders approved,voted, on an advisory basis, thatto conduct an advisory vote on executive compensation would be considered every three years.annually. In accordance with the results of this vote, the Board of Directors determined to implement an advisory vote on executive compensation annually until the next required vote on the frequency of stockholder votes on the compensation of executives, which is scheduled to occur at the 2023 Annual Meeting of Stockholders. The next advisory (non-binding) say-on-pay vote and advisory frequency of say-on-pay vote proposalsproposal will be considered by our stockholders at the Company’s 2017 Annual Meeting of Stockholders.Meeting.
Executive Compensation Policy
The compensation programs of the Company adopted by our Compensation Committee are designed with the goal of providing compensation that is fair, reasonable and competitive. These programs are intended to align the compensation paid to our NEOs with both our short-term and long-term objectives and the interests of stockholders, which we believe will contribute to the achievement of long-term sustainable investment returns. The key elements of our compensation philosophy include: (i) designing compensation programs that enable us to attract and retain the
best talent in the financial industries in which we compete; (ii) aligning executive compensation packages with the Company’s performance; and (iii) using long-term equity awards to align employee and stockholder interests.
As a BDC, we must comply with the requirements of the 1940 Act. The 1940 Act imposes certain limitations on the structure of our compensation programs, including limitations on our ability to issue certain equity-based
compensation to our employees and directors. Triangle hasWe have received exemptive relief from the SEC that permits the companyus to grant restricted stock in exchange for or in recognition of services by itsour executive officers and employees. Pursuant to the EquityOmnibus Incentive Plan, the Board of Directors may award shares of restricted stock to plan participants in such amounts and on such terms as the Board of Directors determines in its sole discretion, provided that such awards are consistent with the conditions set forth in the SEC’s exemptive order.
Overview
Our performance-driven compensation policy consists primarily of the following three components:
base salary;
annual cash bonus; and
long-term compensation pursuant to the EquityOmnibus Incentive Plan.
Other compensation components may include contributions to our 401(k) and deferred compensation plans, and health, life and disability insurance premiums paid by the Company.
The compensation packages for our NEOs are structured to reflect what we believe to be appropriate practices in corporate governance and executive compensation. We designed each NEO’s compensation package to appropriately reward the NEO for his contribution to the Company. Our compensation philosophy has not historically been, and going forward will not be, a mechanical process, and our Compensation Committee will continue to use its judgment and experience, working in conjunction with our chief executive officerChief Executive Officer and, potentially, an independent compensation consultant, to determine the appropriate mix of compensation for each individual.NEO. Cash compensation consisting of base salary and discretionary cash bonuses tied to achievement of performance goals set by the Compensation Committee, such as the surpassing of certain operating thresholds related to investment performance, are intended to incentivize NEOs to remain with us in their roles and work hard to achieve our goals. Stock-based compensation in the form of restricted stock is awarded based on individual and Company performance expectations set by the Compensation Committee.
Establishing Compensation Levels
Role of the Compensation Committee and Management
As set forth in the Compensation Committee Charter, our Compensation Committee’s primary responsibility is to evaluate the compensation of our executive officers and ensure that they are compensated effectively and in a manner consistent with our stated compensation objectives. The Compensation Committee also periodically reviews our corporate goals and objectives relevant to executive compensation, our executive compensation structure to ensure that it is designed to achieve the objectives of rewarding our executive officers appropriately for their contributions to corporate growth and profitability and our other goals and objectives. At least annually, the Compensation Committee will evaluate the compensation of our executive officers and determine the amounts and individual elements of total compensation for executive officers consistent with our corporate goals and objectives and will communicate to stockholders the factors and criteria on which the executive officers’ compensation is based, including the relationship of our performance to the executive officers’ compensation. Our executive officers are eligible for variable compensation based on individual, team, and overall corporate performance. With respect to the compensation of our executive officers other than the chief executive officer,Chief Executive Officer, the committee works with the chief executive officer to conduct these reviews. The committee will also periodically evaluate the terms and administration of our annual and long-term incentive plans, including equity compensation plans, to ensure that they are structured and administered in a manner consistent with our goals and objectives as to participation in such plans, target annual incentive awards, corporate financial goals, actual awards paid to executive officers and total funds allocated for payment under the compensation plans.
Role of Compensation Consultant
In 2015,2017, the Compensation Committee engaged McLagan, a compensation consultant, to assist the Compensation Committee in its analysis of the compensationreview of executive officers and directorsBoard of other BDCsDirector compensation and financial services companies in order to assist in establishing theopine on market-
competitive compensation levels and mix necessary to attract and retain quality executive officers and investment professionals. From time to time and in support of McLagan’sMcLagan's role as an adviser to the Compensation Committee, McLagan receives input regarding the Company's strategic goals and the manner in which the executive compensation program should support these goals. The Compensation Committee evaluated McLagan’sMcLagan's independence from the Company and determined that McLagan is independent primarily because it does no work for management, receives no compensation from the Company other than for its work in advising the Compensation Committee and maintains no other economic relationships with the Company or any of its affiliates.
Assessment of Market Data
ToFrom time to time, to assess the competitiveness of our executive compensation program, the Compensation Committee considers compensation information from a comparative group of internally managed BDCs (including Capital Southwest Corporation, Hercules Technology Growth Capital, Inc., KCAP Financial, Inc. and Main Street Capital Corporation) as well as groups of other financial services companies, such as asset managers, specialty lenders and banks and real estate investment trusts. The Compensation Committee performs comprehensive analyses of competitive performance and compensation levels. However, the Compensation Committee does not specifically benchmark the compensation of our NEOs against that paid by other companies with publicly traded securities. This is because the Compensation Committee believes that our primary competitors in both our business and for recruiting executives are investment banks, private equity firms, mezzanineprivate debt lenders, hedge funds and other specialty finance companies, including certain specialized commercial banks. Many of these entities do not publicly report the compensation of their executive officers nor do they typically report publicly information on their corporate performance. While various salary surveys from other private sources may become available to the Compensation Committee with regard to these private equity firms, the Compensation Committee believes that without accurate, publicly disclosed information on these private entities that would serve as benchmarks, it is inappropriate for the Compensation Committee to set formal benchmarking procedures.
The Compensation Committee's analysis centeredanalyses center around key elements of compensation practices within financial services industries in general and, more specifically, compensation practices at companies closer in asset size, typical investment size, typical investment type, market capitalization, and general business scope to our Company. Items the Compensation Committee reviewed included,reviews from time to time include, but wereare not necessarily limited to, base compensation, bonus compensation and restricted stock awards. In addition to actual levels of compensation, the Compensation Committee also analyzedanalyzes the approach other companies were takingtake with regard to their compensation practices. Items the Compensation Committee reviewed included,reviews from time to time include, but wereare not necessarily limited to, certain corporate and executive performance measures established to achieve total returns for stockholders and our “efficiency ratio” compared to the BDCs in our comparative group (which is calculated by taking total general and administrative expenses and dividing it by the company’s total revenue).
The Compensation Committee believes that the companies utilized wereit utilizes are the most relevant comparable companies available with disclosed executive compensation data, and they provide a good representation of competitive compensation levels for our executives.
Chief Executive Officer Pay Ratio
Mr. Poole's total compensation for 2017 was $2,009,260 as reflected in the Summary Compensation Table included in this proxy statement. The total compensation of our median employee, excluding Mr. Poole, for 2017 was $353,029. As a result, Mr. Poole's total compensation was approximately 5.7 times that of our median employee in 2017.
We selected December 31, 2017 as the date used to identify our “median employee” whose annual total compensation was the median of the annual total compensation of all our employees (other than our Chief Executive Officer) for 2017. As of December 31, 2017, our employee population consisted of 26 individuals (excluding Mr. Poole), all located in our Raleigh, North Carolina office. To identify our median employee, we compared the annual total compensation for each of our employees, as determined in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, which included salary, bonus, restricted stock awards, employer contributions to employee accounts in our 401(k) plan, employer contributions to employee accounts in our deferred compensation plan and earnings thereon, and company-paid life insurance premiums. In making this determination, we annualized the compensation of three employees who were hired in 2017 but did not work for us the entire fiscal year. Given that
21we had an even number of employees (excluding Mr. Poole) in the employee population for 2017, the calculation of the compensation of the median employee was the average compensation of our 13th and 14th highest paid employees.
Assessment of Company Performance
In determining annual compensation for our NEOs, our Compensation Committee evaluates the individual performance of our NEOs as well as the Company’s overall operating performance. We believe that the alignment of (i) a company’s business plan, (ii) its stockholders' expectations and (iii) its employee compensation is essential to long-term business success in the interest of its stockholders and employees. We typically make three- to seven- year investments in privately held businesses. Our business plan involves taking on investment risk over an extended period of time, and a premium is placed on our ability to maintain stability of net asset values and continuity of earnings to pass through to stockholders in the form of recurring dividends. Our strategy is to generate income and capital gains from our investments in the debt and equity securities of our portfolio companies. This income supports the payment of dividends to our stockholders. Therefore, a key element of our return to stockholders is current income through the payment of dividends. This recurring payout requires a methodical asset acquisition approach and active monitoring and management of our investment portfolio over time. A substantial part of our employee base is dedicated to the maintenance of asset values and generation of new investment opportunities to allow us to sustain and grow dividends.
In reviewing and approving the compensation packages for our executive officers and other key employees, our Compensation Committee considers the relative achievement of the Company’s strategic and corporate objectives, executive performance factors and the individual performance of each of our NEOs. For 20152017, some of the most significant company-specific performance factors considered by the Compensation Committee include:
total and net investment income;
realized and unrealized gains and losses;
overall credit performance of the investment portfolio;
liquidity;
operating efficiency performance;
growth and diversification of the overall investment portfolio;
sustaining and growing dividends and distributions to stockholders; and
return on average stockholders’ equity.
Given the Company's overall weaker financial and investment portfolio performance in 2017, as compared to 2016, the Compensation Committee awarded materially lower levels of incentive compensation for 2017 to our NEOs as compared to 2016.
Elements of Triangle’s Executive Compensation
In 20152017, our compensation program was comprised primarily of the following three elements: (i) base salary, (ii) annual cash bonus and (iii) long-term equity incentive compensation. At the time of our IPO, our initial compensation program consisted of only base salary and an annual cash bonus. Upon receipt in 2008 of exemptive relief from the SEC that permitted the company to grant restricted stock awards to our executive officers and employees, we began to include long-term equity incentive compensation as part of our compensation program. The company sought such exemptive relief because we believe that creating long-term value for our stockholders is achieved, in part, by retaining our executive officers in a competitive employment environment with a competitive compensation program. This allows us to align a component of our compensation program over a longer-term similar to our target investment period for our privately held business investments, and to more closely align the interests of our NEOs with those of our stockholders. The Compensation Committee does not allocate a fixed percentage of the NEO compensation packages to each of these elements. Instead, the Compensation Committee targets total compensation at levels comparable to other BDCs, investment banks, private equity firms, mezzanine lenders, hedge funds, specialized commercial banks and other specialty finance companies. In designing our compensation
program, the Compensation Committee seeks to achieve an appropriate balance among these elements to create a compensation program that incentivizes our NEOs to focus on financial and operating results in the near term and the creation of stockholder value over the long-term.
Since our IPO, our Compensation Committee has determined to make annual changes in each element of our compensation program in order to account for cost of living changes, any changes in our company’s continued asset and revenue growth and positive financial performance, and to retain our NEOs in a competitive environment for such
executives. Our Compensation Committee considers our NEOs’ individual performance, each executive position’s responsibility for and ability to impact company performance, and individual expertise in connection with decisions under our compensation program each year. Because of the broad range of individual responsibilities of each of our NEOs, our Compensation Committee does not set specific or individualized performance metrics for any of our NEOs. The Compensation Committee instead considers the performance of each of our NEOs, and, based upon the evaluation and analysis of our Compensation Committee members, the performance of the Company relative to the general performance of other companies in the comparative group noted above.
Annual Base Salary
The annual base salary is designed to provide a minimum, fixed level of cash compensation to our NEOs in order to attract and retain experienced executive officers who can drive the achievement of our goals and objectives. The Compensation Committee annually reviews the base salary for each of our executive officers and determines whether to adjust it in its sole discretion. Increases to base salary are awarded to recognize levels of responsibilities and related individual performance, and to address changes in the external competitive market for a given position.
In establishing the 20152017 base salaries of the NEOs, the Compensation Committee and management considered a number of factors including the seniority of the individual, the functional role of the position, the level of the individual’s responsibility, the ability to replace the individual and the base salary of the individual from the previous year. In addition, the Compensation Committee considered the base salaries paid to comparably situated executive officers in other internally-managed BDCs and other competitive market practices. Finally, the Compensation Committee used a compensation consultant in order to obtain an objective third-party expert’s insight into our NEOs’ base salaries.
Mr. TuckerPoole was paid an annual base salary of $435,000$445,000 as of December 31, 2015.2017. Mr. Tucker’sPoole’s base salary recognizes his role as President and Chief Executive Officer, including his overall responsibility for the Companyour Company’s strategic direction and performance and his continued leadership which has enabled us to achieve our historical operational and financial objectives. Mr. Poole’s base salary also reflects his role as a member of our Investment Committee and Management Committee.
Mr. PooleLilly was paid an annual base salary of $410,000$340,000 as of December 31, 2015. Mr. Poole’s base salary recognizes his responsibility for oversight of the Company's operations, including the investment origination process, and his role as Chief Operating Officer.
Mr. Burgess was paid an annual base salary of $370,000 as of December 31, 2015. Mr. Burgess’ base salary recognizes his leadership role in the investment decision-making process and his responsibility for the Company's investment portfolio.
Mr. Lilly was paid an annual base salary of $330,000 as of December 31, 2015.2017. Mr. Lilly’s base salary recognizes his lead role in managing all financial aspects of our Company, and his leadership in matters relating to our capital structure, the media and investor relations. Mr. Lilly’s base salary also reflected his service as our Company’s Chief Compliance Officer and Secretary.Secretary, and as a member of our Investment Committee and Management Committee.
Mr. Dombcik was paid an annual base salary of $320,000 as of December 31, 2017. Mr. Dombcik's base salary recognizes his role as Chief Credit Officer, as a member of our Investment Committee and our Management Committee, and his lead role in managing all aspects of our investment portfolio.
Mr. Nordan was paid an annual base salary of $320,000 as of December 31, 2017. Mr. Nordan's base salary recognizes his role as Chief Origination Officer, as a member of our Investment Committee and our Management Committee, and his lead role managing our origination activities.
Mr. Vaughn was paid an annual base salary of $320,000 as of December 31, 2017. Mr. Vaughn's base salary recognizes his role as Chief Administrative Officer, as a member of our Investment Committee and our Management Committee, and his lead role in managing all administrative matters relating to the Company's operations.
Annual Cash Bonuses
We pay annual cash bonuses to reward corporate and individual achievements for the prior fiscal year. Annual cash bonuses are based on the Compensation Committee’s discretionary assessment of the Company’s and the NEO’s performance, with recommendations from the chief executive officerChief Executive Officer for NEOs other than himself. While cash bonus awards are discretionary, the Compensation Committee will not award cash bonuses to our NEOs unless the Company achieves certain minimum operating thresholds during the year. The minimum operating threshold for the fiscal year ended December 31, 2017 set by the Compensation Committee in connection with the award of cash bonuses was approximately $28.1 million in net investment income before discretionary compensation. The Compensation Committee determined that the Company achieved this threshold for the fiscal year ended December 31, 2017.
On a quarterly basis, the Compensation Committee, together with input from our chief executive officer,Chief Executive Officer, approves an accrual for the annual potential cash bonus pool. The determination of the accrual amount is based upon the Company’s current financial forecast and executive performance contributing to achieving our corporate objectives, and is subject to the sole discretion of the Compensation Committee.
The Company paid cash bonuses to NEOs in recognition of both corporate and individual 20152017 performance. In particular, for the year ended December 31, 2015,2017, we achievedreported the following financial highlights:results:
total investment income of $121.3$123.0 million, representing an increase from $113.7 million of approximately 16.1% from 2014;
total investment income in 2016;net investment income of $71.6$72.2 million, representing an increase from $58.9 million of net investment income in 2016. (net investment income in 2016 was impacted by approximately 15.5%$7.0 million of one-time expenses related to the retirement of Mr. Tucker in 2016 and the resignation of our former Chief Investment Officer in 2016);
net investment income per share of $1.55, a decrease from 2014$1.62 of net investment income per share in 2016 (net investment income per share in 2016 was impacted by approximately $0.19 per share related to the one-time expenses related to the retirement of Mr. Tucker and the resignation of our former Chief Investment Officer);
operating efficiency ratio of 18.9%17.5%; and
consistent regular quarterly and supplemental dividends during 20152017 totaling $2.36$1.65 per share.share, a decrease from $1.89 in regular quarterly dividends during 2016. None of these dividends and distributions constituted a return of capital to stockholders.
Mr. Tucker was paid anDespite the Company achieving the minimum operating threshold in 2017 under our Omnibus Incentive Plan, given overall weaker financial and investment portfolio performance in 2017 versus 2016, the Compensation Committee reduced the total amount of annual 2017 cash bonus awards for all employees by 13% from 2016 levels. The reductions in annual cash bonus of $670,000 for 2015. Mr. Tucker’s cash bonus reflects his overall responsibilitybonuses for the strategic direction ofCompany's NEOs from 2016 to 2017 ranged from 20% to 25%, reductions that the Company and his continued leadership in 2015, which enabled us to achieveCompensation Committee believes are aligned with the majority of our operational and financial objectives.Company's 2017 results.
Mr. Poole was paid an annual cash bonus of $647,500$405,000 for 2015, which reflects2017, a decrease of 24% from his responsibility for the Company's operations and his role in guiding investments we made during 2015 to a successful closing on terms we believe will be favorable to the Company's stockholders.
Mr. Burgess was paid an2016 annual cash bonus of $570,000 for 2015.$535,000. Mr. Burgess’Poole’s cash bonus reflects an increase in responsibilities in 2017 in connection with his appointment as Chairman of the Board of Directors, his overall responsibility for the strategic direction of our Company and his leadership role in the investment decision-making process and his oversight of the portfolio management process, including our monitoring and restructuring activities.2017.
Mr. Lilly was paid an annual cash bonus of $580,000$375,000 for 2015.2017, a decrease of 23% from his 2016 annual cash bonus of $485,000. Mr. Lilly’s cash bonus reflects his lead role in managing all financial aspects of our Company, including his leadership in matters relating to our capital structure, liquidity, the mediaCompany's relationships with its lenders and investor relations. Mr. Lilly’s cash bonus also reflected his service as our Chief Compliance Officer and Secretary during 2017.
Mr. Dombcik2015 was paid an annual cash bonus of $330,000 for 2017, a decrease of 20% from his 2016 annual cash bonus of $415,000. Mr. Dombcik's cash bonus reflects his lead role in managing our investment portfolio, including our monitoring, valuation and restructuring activities.
Mr. Nordan. was paid an annual cash bonus of $330,000 for 2017, a decrease of 25% from his 2016 annual cash bonus of $440,000. Mr. Nordan's cash bonus reflects his role as a senior investment originator as well as his lead role in managing our origination activities, including sourcing and underwriting.
Mr. Vaughn was paid an annual cash bonus of $330,000 for 2017, a decrease of 25% from his 2016 annual cash bonus of $440,000. Mr. Vaughn's cash bonus reflects his role as a senior investment originator as well as his lead role in managing all administrative responsibilities for the Company, including recruiting, training, staffing, performance evaluation and other human resources-related initiatives.
The Compensation Committee believes that these cash bonus awards are individually appropriate based on the Company’s 20152017 performance and each individual’s contribution to the Company throughout 20152017 as stated above. Such bonuses comprise a key component of the Company’s overall compensation program.
Long-Term Incentive Compensation
General
Our Board of Directors adopted the EquityOmnibus Incentive Plan in order to provide stock-based awards as incentive compensation to our employees and non-employee directors. Since our IPO, our Board of Directors has chosen to utilize shares of our restricted stock, rather than stock options or other equity-based incentive compensation, as long-term incentive compensation.
We use restricted stock awards to (i) attract and retain key employees, (ii) motivate our employees by means of performance-related incentives to achieve long-range performance goals, (iii) enable our employees to participate in our long-term growth and (iv) link our employees’ compensation to the long-term interests of our stockholders. Each restricted stock award is for a fixed number of shares as set forth in an award agreement between the grantee and us. Award agreements set forth time and/or performance vesting schedules and other appropriate terms and/or restrictions with respect to awards, including rights to dividends and voting rights.
The Compensation Committee has been delegated responsibility by our Board of Directors to review the stock-based awards to employees. At the time of each award granted to each NEO, the Compensation Committee determines the terms of the award, including the performance period (or periods) and the performance objectives relating to the award. The Compensation Committee then recommends the approval of the award to the Board of Directors.
Restricted Stock Awards Awarded in 2017 for 2016 Performance
The Compensation Committee generally meets in February of each year to consider the amount of restricted stock that should be awarded to our executive officers with respect to the Company's performance for the prior year. Specific performance factors that the Compensation Committee considered in determining the granting of restricted stock in February 20152017 were the Company's achievement of financial and operational goals in 20142016 and individual
employee performance during 20142016 in such areas as work ethic, proficiency and overall contribution to the Company. On February 4, 2015,1, 2017, the Board of Directors, upon recommendation of the Compensation Committee, granted Messrs, Tucker, Poole, Burgess and Lilly awards of restricted stock for 52,000 shares, 45,000, shares, 38,000 shares, and 40,000 shares, respectively, that vest ratably over four years. the following awards:
|
| | | |
Name | | Number of Shares of Restricted Stock(1) |
E. Ashton Poole | | 53,500 |
|
Steven C. Lilly | | 45,000 |
|
Jeffrey A. Dombcik | | 39,000 |
|
Cary B. Nordan | | 42,000 |
|
Douglas A. Vaughn | | 39,000 |
|
| |
(1) | Consists of restricted stock which vests over four years from the date of grant. The shares of restricted stock granted to Messrs. Poole, Lilly, Dombcik, Nordan and Vaughn are expected to vest ratably in February of each year, beginning in February of 2018. |
Based on SEC rules requiring equity awards to be disclosed in the tables for the year during which they are granted, rather than earned, the executive compensation tables in this proxy statement include the restricted stock awards granted to our NEOs in February 2015,2017, even though such awards relate to 20142016 performance.
In February 2016, our Compensation Committee considered employee performance during fiscal 2015, using similar factors above, in determining the amount of restricted stock awards to recommend for each executive officer. In addition, the Compensation Committee considers each NEO's total cash compensation in relation to the proposed stock award and the effect of dilution of net asset value per share and earnings per share prior to awarding the stock grants. On February 3, 2016, the Board of Directors, upon recommendation of the Compensation Committee, approved restricted stock awards for the NEOs, as detailed below.
Restricted stock awards allow the companyCompany to account for our compensation program based on the price of our common stock, fixed at the grant date of such award, resulting in a known maximum cost of such award under our compensation program at the time of grant. In determining annual restricted stock awards for each of our NEOs, our Compensation Committee considers the grant-date fair value of previously granted restricted stock awards, without assigning value to any appreciation or depreciation subsequent to the grant date of such prior awards.
Restricted Stock Awards Awarded in 2018 for 2017 Performance
In February 2018, our Compensation Committee considered employee performance during fiscal 2017, using similar factors above, in determining the amount of restricted stock awards to recommend for each executive officer. In addition, the Compensation Committee considers each NEO's total cash compensation in relation to the proposed stock award and the effect of dilution of net asset value per share and earnings per share prior to awarding the stock grants. Consistent with the compensation philosophy employed in determining annual cash bonus awards for 2017, in light of the Company's overall weaker financial and investment portfolio performance in 2017 versus 2016, the aggregate value of restricted share awards granted in February 2018 were 35% less than the aggregate value of the awards granted in February 2017, as of the respective grant dates.
On February 8, 2018, the Board of Directors, upon recommendation of the Compensation Committee, approved restricted stock awards for the NEOs, as detailed below.
Mr. TuckerPoole was awarded 47,00063,000 shares of restricted stock in February 20162018 for his performance during 2015.2017. The aggregate grant date fair value of the February 2018 award was $672,840, a decrease of 35% from the grant date fair value of his 2016 award was $823,910.of $1,029,875. This award reflects an increase in Mr. Tucker’s leadership during 2015, which enabled us to achievePoole's responsibilities in 2017 in connection with his appointment as Chairman of the majorityBoard of Directors of the Company, his overall responsibility for the strategic direction of our operationalCompany, and financial objectives. Mr. Tucker’s performance during this time period was vital to our Company’s success.his leadership in 2017.
Mr. Poole Lillywas awarded 42,50053,000 shares of restricted stock in February 20162018 for his performance during 2015.2017. The aggregate grant date fair value of the February 2018 award was $566,040, a decrease of 35% from the grant date fair value of his 2016 award was $745,025.of $866,250. This award reflects Mr. Poole’s leadership and operational management during Lilly’s lead role in managing all financial2015, which enabled us to achieve the majority
aspects of our operationalCompany, including his leadership in matters relating to our capital structure, liquidity, the Company's relationships with its lenders and financial objectives. In addition, thisinvestor relations. Mr. Lilly’s restricted stock award reflects Mr. Poole's role in implementingalso reflected his service as our investment strategyChief Compliance Officer and Secretary during 2015, including the sourcing of certain portfolio investments and guidance of each investment through our internal investment process from inception to closing.2017.
Mr. BurgessDombcik was awarded 37,00046,000 shares of restricted stock in February 20162018 for his performance during 2015.2017. The aggregate grant date fair value of the February 2018 award was $491,280, a decrease of 35% from the grant date fair value of his 2016 award was $648,610.of $750,750. This award reflects Mr. Burgess’Dombcik's lead role in leadingmanaging our investment committee, his leadership role in executingportfolio, including our investment strategy, his expertise in structuring new investmentsmonitoring, valuation and his management of our investment monitoringrestructuring activities.
Mr. LillyNordan was awarded 37,00046,000 shares of restricted stock in February 20162018 for his performance during 2015.2017. The aggregate grant date fair value of the February 2018 award was $491,280, a decrease of 39% from the grant date fair value of his 2016 award was $648,610.of $808,500. This award reflects Mr. Lilly’sNordan's contributions as a senior investment originator as well as his lead role in our origination activities, from initial sourcing to the guidance of each investment through our internal investment process.
Mr. Vaughn was awarded 46,000 shares of restricted stock in February 2018 for his performance during 2017. The aggregate grant date fair value of the February 2018 award was $491,280, a decrease of 35% from the grant date fair value of his 2016 award of $750,750. This award reflects Mr. Vaughn's contributions as a senior investment originator and his lead role in managing all financialadministrative aspects of ourthe Company, including recruiting, training, staffing, performance evaluation and his leadership in matters relating to our capital structure, the media and investor relations. Mr. Lilly’s restricted stock awards also reflect his continued service as our Chief Compliance Officer and Secretary.other human resources-related initiatives.
The amount of restricted stock awarded to each of our executive officers is unrelated to the number of shares we may sell below net asset value.
Options
Since our IPO, our Board of Directors has not utilized options to purchase our common stock as a form of compensation to our NEOs and other employees. As such, we did not grant any stock options to our employees in 20152017.
Our Board of Directors may, however, grant our employees options to purchase our common stock (including incentive stock options and non-qualified stock options). We expect that, if granted, options will represent a fixed number of shares of our common stock, will have an exercise, or strike, price equal to the fair market value of our
common stock on the date of such grant, and will be exercisable, or “vested,” at some later time after grant. Upon any stock option grant, its exercise price will not be changed absent specific SEC approval that we may do so. Some stock options granted by our Board of Directors may vest simply by the holder remaining with the Company for a period of time, and some may vest based on meeting certain performance goals. We anticipate that our options, if granted in the future, will be valued for financial reporting purposes using the Black Scholes valuation method, and charges to earnings will be taken over the relevant service period pursuant to FASB ASC Topic 718.
Other Compensation Matters
401(k) Plan
We maintain a 401(k) plan in which all full-time employees who are at least 21 years of age and have achieved 90 days of service are eligible to participate and receive certain employer contributions. Eligible employees have the opportunity to contribute their compensation on a pretax salary basis into the 401(k) plan up to $18,000 for the 20152017 plan year, and to direct the investment of these contributions. Plan participants who reach the age of 50 prior to or during the plan year are eligible to defer up to an additional $6,000 for the 20152017 plan year.
Deferred Compensation Plan
The Compensation Committee has adopted a nonqualified deferred compensation plan covering the Company’s executive officers and key employees. Any compensation deferred and the Company’s additional contributions, if any, will earn a return based on the returns on certain investments designated by the Compensation Committee. Participants will be 100% vested in any elective deferrals, and will vest in any Company contributions ratably over four years from the date of the relevant contribution.
Executive Retention Agreements
As part of the Strategic Review discussed above under "Director Fees,” our Board of Directors recognized that, in the event negotiations are commenced to bring about a strategic transaction, uncertainty and questions could arise that could result in the distraction or departure of our NEOs to our detriment and the detriment of our stockholders. As a result, in November 2017, we entered into Executive Retention Agreements (each, a “Retention Agreement,” and collectively, the “Retention Agreements”) with each of the NEOs to reinforce and encourage the continued attention and dedication of the NEOs to their assigned duties without regard to the potential outcomes of any strategic transaction which would be in the best interests of our stockholders.
Under the Retention Agreements, each NEO (or his designated beneficiary or estate) will be entitled to the following benefits if, (i) during the twenty-four month period following a "change in control" of the Company, as defined in the Retention Agreements, the NEO’s employment is terminated (A) by the Company (other than for death, disability or cause); or (B) by the NEO for Good Reason (as defined in the Retention Agreements), or (ii) the NEO terminates employment for any reason during the thirty-day period immediately following the first anniversary of the change in control; and provided the NEO releases the Company from any liabilities, known or unknown:
the NEO's full base salary through the date of termination, plus an amount equal to any accrued but unused vacation;
the amount of any Executive Incentive Compensation, as such term is used in the Retention Agreements (consisting of annual cash bonuses and the grant date fair market value of restricted stock and deferred compensation awards), (i) for any past completed fiscal year which has not yet been paid, and (ii) for any partially completed period, on a pro rata basis. If the prior year’s Executive Incentive Compensation has not been set, and in any case for the pro-rata calculation, the Executive Incentive Compensation will be calculated at the greater of: (A) the target level of the Executive Incentive Compensation Opportunity, as such term is used in the Retention Agreements, which may include annual cash incentives, as well as annual awards of equity interests, deferred compensation and other incentive pay (without application of any denial provisions based on unsatisfactory personal performance), and (B) the highest Executive Incentive Compensation amount paid to the NEO for the three full fiscal years which ended coincident with or immediately prior to the change in control;
an aggregate lump sum severance payment, paid within sixty days of the date of termination, equal to the product of a multiple (1.25 for each NEO) times the sum of: (i) the NEO’s annual salary calculated at the highest rate of salary in effect during the prior three fiscal years ; (ii) the highest regular annual cash bonus paid to the NEO as part of the Executive Incentive Compensation (excluding any associated restricted stock or deferred compensation awards) for the three full fiscal years which ended coincident with or immediately prior to the change in control; and (iii) an amount equal to the highest contribution paid by the Company to its 401(k) plan on behalf of the NEO for the three full fiscal years which ended coincident with or immediately prior to the change in control;
premiums for the NEO and the NEO's spouse and/or dependents related to Company-sponsored medical and dental benefits for eighteen months following the date of termination or such shorter period for which the NEO is legally eligible to receive such benefits;
for twenty-four months following the date of termination, premiums that may come due on the term life insurance policies on the NEO’s life, consistent with the Company’s practice as of the date of the Retention Agreement;
$25,000, within sixty days of the date of termination, for outplacement services, regardless of whether the NEO elects to use any outplacement services; and
full vesting of the NEO's account in the Company’s Executive Deferred Compensation Plan and in any plan of deferred compensation maintained by the Company or its successor.
In addition, under the Retention Agreements, upon the consummation of a change in control, the NEOs will be fully vested in their outstanding awards under the Company’s Omnibus Incentive Plan and under any equity incentive plan maintained by the Company or its successor, as of the date of the change in control.
The Retention Agreements have an indefinite term; however, the Company may terminate a Retention Agreement at any time by giving the NEO written notice thereof at least twenty-four months in advance of such termination date.
Tax and Accounting Considerations
The Compensation Committee annually reviews and considers the deductibility of the compensation paid to our executive officers, which includes each of the NEOs, under Section 162(m) of the Internal Revenue Code of 1986, or the Code. Pursuant to Section 162(m) of the Code, limits our deduction for U.S. federal income tax purposes to not more than $1 million of compensation paid to certain executive officers in a calendar year.excess of $1,000,000 generally is not deductible. However, before the effective date of the 2017 tax reform legislation, amounts in excess of $1,000,000 were deductible if they qualify as “performance-based compensation.” With respect to awards made before the 2017 tax reform legislation, the Compensation above $1 million mayCommittee endeavored to structure the executive compensation program so that each executive’s compensation will generally be deducted if it is “performance-based compensation” as defined in the Code and the Treasury Regulations thereunder. Tofully deductible. However, to maintain flexibility in compensating our executive officers in a manner designed to promote our objectives, the Compensation Committee has not adopted a policy that requires all compensation to be deductible. However,deductible and has retained the right to approve compensation that is not fully deductible under Section 162(m). The compensation paid pursuant to our cash-based annual and long-term incentive programs was intended to qualify as “performance-based compensation” for purposes of Section 162(m) for all years in which the “performance-based compensation” exception was in effect, including 2017. Base salaries did not qualify as “performance-based compensation” pursuant to the requirements of Section 162(m).
The 2017 tax reform legislation removed the “performance-based compensation” exception from Section 162(m). Accordingly, awards made after November 2, 2017, generally are not eligible for the “performance-based compensation” exception and will not be deductible to the extent that they cause the compensation of the affected executive officers to exceed $1,000,000 in any year. Awards that were made and subject to binding written contracts in effect on November 2, 2017, are “grandfathered” under prior law and can still qualify as deductible “performance-based compensation,” even if paid in future years. The Compensation Committee will continue to monitor these awards and Internal Revenue Service guidance to determine if they are deductible if and when paid. In addition, the Compensation Committee evaluateswill review the effects of2017 tax reform legislation and its impact on the Company’s executive compensation limits ofprogram; however, no assurance can be given that compensation intended to satisfy the requirements for exemption from Section 162(m) of the Code onwill do so.
In 2017, all compensation it proposespaid to grant, and the Compensation Committee intends to provide allour executive compensation in a manner consistent with our best interests and those of our stockholders. In 2015, Mr. Tucker and Mr. Burgess received compensation of $239,137 and $35,106, respectively, that exceeded the $1 million limit on deductibility under Section 162(m) of the Code.officers was deductible for U.S. federal income tax purposes.
In awarding restricted stock awards for performance in 2015,2017, we accounted for share-based awards under the provisions of FASB ASC Topic 718. FASB ASC Topic 718 establishes accounting for stock-based awards exchanged for goods or services. Accordingly, stock-based compensation cost is measured at grant date, based on the fair value of the awards, and is recognized as an expense ratably over the requisite service period. Accounting rules also require us to record cash compensation as an expense at the time the obligation is incurred.
Conclusion
OurWe believe that our compensation policies are designed to fairly compensate, retain and motivate our NEOs. The retention and motivation of our NEOs should enable us to grow strategically and position ourselves competitively in the market in which we operate.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All members of our Compensation Committee (Messrs. Dunwoody, Goldstein and Smith)Mulhern) are independent directors, and none of the members are present or past employees of the Company. No member of the Compensation Committee: (i)Committee has had any relationship with the Company requiring disclosure under Item 404 of Regulation S-K under the Exchange Act; (ii) isAct. In addition, no interlocking relationship, as defined by the rules adopted by the SEC, existed during the year ended December 31, 2017 between any member of our Board of Directors or the Compensation Committee and an executive officer of another entity, at which one of our executive officers serves on the Compensation Committee; or (iii) is an executive officer of another entity, at which one of our executive officers serves on the Board of Directors.Company.
COMPENSATION COMMITTEE REPORT
The Compensation Committee determines the compensation for our executive officers and the amount of salary and bonus to be included in the compensation package for each of our executive officers. The Compensation Committee currently consists of Messrs. Dunwoody, Goldstein and Smith,Mulhern, all of whom are considered independent in accordance with NYSE listing standards, SEC rules and our Corporate Governance Guidelines, and are not “interested persons” of the Company, as defined in Section 2(a)(19) of the 1940 Act.
The Compensation Committee of our Board of Directors has reviewed and discussed with management the information contained in the Compensation Discussion and Analysis section of this proxy statement and, based on theirits review and discussion, has recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement to be filed with the SEC.
The Compensation Committee:
Sherwood H. Smith, Jr.,Mark F. Mulhern, Chair
W. McComb Dunwoody
Benjamin S. Goldstein
The information contained in the report above shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Act, or the Exchange Act, except to the extent specifically incorporated by reference therein.
EXECUTIVE OFFICER COMPENSATION
20152017 Summary Compensation
The following table sets forth certain summary information for the years 2015, 20142017, 2016 and 20132015 with respect to the compensation awarded to and earned by our NEOs.
Summary Compensation Table for 20152017
| | Name | | Principal Position | | Year | | Base Salary | | Bonus | | Restricted Stock Awards(1) | | All Other Compensation(2) | | Total | Principal Position | Year | | Base Salary | | Bonus | | Restricted Stock Awards(1) | | All Other Compensation(2) | | Total |
Garland S. Tucker, III | | CEO | | 2015 | | $ | 432,500 |
| | $ | 670,000 |
| | $ | 1,132,560 |
| | $ | 412,287 |
| | $ | 2,647,347 |
| |
| | 2014 | | $ | 425,000 |
| | $ | 725,000 |
| | $ | 1,226,230 |
| | $ | 446,208 |
| | $ | 2,822,438 |
| |
| | 2013 | | $ | 413,750 |
| | $ | 1,025,000 |
| | $ | 1,379,258 |
| | $ | 382,574 |
| | $ | 3,200,582 |
| |
E. Ashton Poole | | COO | | 2015 | | $ | 407,500 |
| | $ | 647,500 |
| | $ | 980,100 |
| | $ | 326,971 |
| | $ | 2,362,071 |
| CEO | 2017 | | $ | 443,750 |
| | $ | 405,000 |
| | $ | 1,029,875 |
| | $ | 130,635 |
| | $ | 2,009,260 |
|
| | 2014 | | $ | 400,000 |
| | $ | 700,000 |
| | $ | 573,980 |
| | $ | 254,716 |
| | $ | 1,928,696 |
| |
| | 2013 | | $ | 178,975 |
| | $ | 475,000 |
| | $ | 1,499,988 |
| | $ | 107,218 |
| | $ | 2,261,181 |
| |
Brent P.W. Burgess | | CIO(3) | | 2015 | | $ | 367,500 |
| | $ | 570,000 |
| | $ | 827,640 |
| | $ | 308,909 |
| | $ | 2,074,049 |
| |
| | 2014 | | $ | 360,000 |
| | $ | 575,000 |
| | $ | 913,150 |
| | $ | 348,113 |
| | $ | 2,196,263 |
| | 2016 | | $ | 432,500 |
| | $ | 535,000 |
| | $ | 745,025 |
| | $ | 115,829 |
| | $ | 1,828,354 |
|
| | 2013 | | $ | 353,750 |
| | $ | 800,000 |
| | $ | 1,171,057 |
| | $ | 315,286 |
| | $ | 2,640,093 |
| | 2015 | | $ | 407,500 |
| | $ | 647,500 |
| | $ | 980,100 |
| | $ | 97,546 |
| | $ | 2,132,646 |
|
Steven C. Lilly | | CFO | | 2015 | | $ | 325,000 |
| | $ | 580,000 |
| | $ | 871,200 |
| | $ | 295,385 |
| | $ | 2,071,585 |
| CFO | 2017 | | $ | 338,750 |
| | $ | 375,000 |
| | $ | 866,250 |
| | $ | 153,429 |
| | $ | 1,733,429 |
|
| | 2014 | | $ | 310,000 |
| | $ | 625,000 |
| | $ | 860,970 |
| | $ | 307,847 |
| | $ | 2,103,817 |
| | 2016 | | $ | 333,750 |
| | $ | 485,000 |
| | $ | 648,610 |
| | $ | 117,084 |
| | $ | 1,584,444 |
|
| | 2013 | | $ | 305,000 |
| | $ | 750,000 |
| | $ | 975,895 |
| | $ | 262,886 |
| | $ | 2,293,781 |
| | 2015 | | $ | 325,000 |
| | $ | 580,000 |
| | $ | 871,200 |
| | $ | 84,427 |
| | $ | 1,860,627 |
|
Jeffrey A. Dombcik | | CCO(3) | 2017 | | $ | 313,750 |
| | $ | 330,000 |
| | $ | 750,750 |
| | $ | 138,922 |
| | $ | 1,533,422 |
|
| | | 2016 | | $ | 294,375 |
| | $ | 415,000 |
| | $ | 508,370 |
| | $ | 107,180 |
| | $ | 1,324,925 |
|
| | | 2015 | | $ | 290,000 |
| | $ | 512,000 |
| | $ | 653,400 |
| | $ | 78,890 |
| | $ | 1,534,290 |
|
Cary B. Nordan | | COO(4) | 2017 | | $ | 313,750 |
| | $ | 330,000 |
| | $ | 808,500 |
| | $ | 140,215 |
| | $ | 1,592,465 |
|
| | | 2016 | | $ | 294,375 |
| | $ | 440,000 |
| | $ | 604,785 |
| | $ | 108,100 |
| | $ | 1,447,260 |
|
| | | 2015 | | $ | 290,000 |
| | $ | 555,000 |
| | $ | 696,960 |
| | $ | 78,992 |
| | $ | 1,620,952 |
|
Douglas A. Vaughn | | CAO(5) | 2017 | | $ | 313,750 |
| | $ | 330,000 |
| | $ | 750,750 |
| | $ | 139,316 |
| | $ | 1,533,816 |
|
| | | 2016 | | $ | 294,375 |
| | $ | 440,000 |
| | $ | 473,310 |
| | $ | 107,367 |
| | $ | 1,315,052 |
|
| | | 2015 | | $ | 290,000 |
| | $ | 457,500 |
| | $ | 609,840 |
| | $ | 78,771 |
| | $ | 1,436,111 |
|