UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934
(Amendment (Amendment No. )
Filed by the Registrant ☒ Filed by a Party other than the Registrant ☐
Check the appropriate box:
Filed by the Registrant | Filed by a Party other than the Registrant |
Check the appropriate box: | ||
Preliminary Proxy Statement | ||
Definitive Proxy Statement | ||
Definitive Additional Materials | ||
Soliciting Material under §240.14a-12 |
GROUP 1 AUTOMOTIVE, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
Payment of Filing Fee (Check the appropriate box): | ||||||
No fee required. | ||||||
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | ||||||
(1) | Title of each class of securities to which transaction applies: | |||||
(2) | Aggregate number of securities to which transaction applies: | |||||
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 | |||||
(4) | Proposed maximum aggregate value of transaction: | |||||
(5) | Total fee paid: | |||||
Fee paid previously with preliminary materials. | ||||||
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | ||||||
(1) | Amount Previously Paid: | |||||
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(3) | Filing Party: | |||||
(4) | Date Filed: |
Cover photo courtesy of Barons Farnborough BMW
Farnborough, United Kingdom
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April 10, 2017
Dear Fellow Stockholder:
You are cordially invited to attend Group 1 Automotive’s 2017
April 11, 2019 Dear Fellow Stockholder: You are cordially invited to attend Group 1 Automotive’s 2019 Annual Meeting of Stockholders to be held at the Company’s Sterling McCall Lexus dealership, 10025 Southwest Freeway, Houston, Texas 77074, on Thursday, May 16, 2019, at 10:00 a.m. Central Daylight Savings Time. The Company achieved solid results in 2018, which included all-time record revenue of $11.6 billion. For 2019, the Company remains focused on delivering stockholder value by leveraging revenue growth, optimizing cost control, refining brand diversity, strengthening competitive components of our business model, enhancing digital marketing, and capitalizing on the experience and expertise within our overall management team. | ||||
The agenda for the 2019 Annual Meeting of Stockholders includes a vote to: (i) approve the nominees for our board of directors named in the proxy statement; (ii) approve, on a non-binding advisory basis, our executive compensation; and, (iii) approve Ernst & Young LLP as our independent registered public accountants for 2019. Management will also be available to review the Company’s business and financial performance. Regardless of the number of shares you own, your vote matters. We hope you are able to join us at the Annual Meeting, but if you cannot, we look forward to hearing your voice via your participation in voting on the business items set forth in the attached notice. We encourage you to sign and return your proxy card, or use telephone or internet voting prior to the meeting, to assure that your shares are represented and voted at the meeting. Thank you for your continued dedication of time and interest in Group 1. Our core values of integrity, transparency, professionalism, and teamwork promote success amongst our team, which includes our customers, our 14,000+ employees worldwide, and you, our stockholders. Sincerely, | ||||
Stephen D. Quinn Chairman of the Board | Earl J. Hesterberg President & Chief Executive Officer | |||
Notice of Annual Meeting of Stockholders |
Thursday, May 16, 2019
10:00 a.m.Central Daylight Savings Time
Sterling McCall Lexus, 10025 Southwest Freeway, Houston, Texas 77074 on Friday, May 12, 2017, at 10:00 a.m. Central Daylight Time.
2016 delivered record revenue of $10.9 billion, diluted earnings per share of $6.67 and record adjusted diluted earnings per share of $7.42. As the Company celebrates its 20th anniversary in business and as a leader in the industry in 2017, the Company remains focused on delivering stockholder value by leveraging revenue growth, optimizing brand diversity, strategically expanding presence while continuing to manage capital deployment, and capitalizing on the experience and expertise within our overall management team.
This year’s meeting agenda includes a vote to: (i) approve the nominees for our board of directors named in the proxy statement; (ii) approve, on anon-binding advisory basis, our executive compensation; (iii) approve, on anon-binding advisory basis, the frequency of our executive compensation vote; and, (iv) approve Ernst & Young LLP as our independent registered public accountants for 2017. Management will also review the Company’s business and financial performance.
Regardless of the number of shares you own, your vote matters. We hope you are able to join us at the Annual Meeting, but if you cannot, we look forward to hearing your voice via your participation in voting on the business items set forth in the attached notice. We encourage you to sign and return your proxy card, or use telephone or internet voting prior to the meeting, to assure that your shares are represented and voted at the meeting.
Thank you for your continued dedication of time and interest in Group 1. Our core values of integrity, transparency, professionalism, and teamwork promote success amongst our team, which includes our customers, our 13,000 employees worldwide, and you, our stockholders.
Sincerely,
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF GROUP 1 AUTOMOTIVE, INC.
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Matters to be voted on:
1. | To elect the nine director nominees named in the proxy statement, each for a term expiring at the |
2. | To approve, on anon-binding advisory basis, our executive compensation; |
3. |
To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for |
To transact such other business as may be properly brought before the meeting. |
Stockholders of record at the close of business on March 15, 2017,19, 2019, will be entitled to notice of and to vote at the Annual Meeting and at any adjournments or postponements thereof. A list of stockholders will be available and may be inspected during normal business hours for a period of at least 10 days prior to the Annual Meeting at theour offices of Group 1,at 800 Gessner, Suite 500, Houston, Texas 77024. The list of stockholders will also be available for your review at the Annual Meeting. In the event there are not sufficient votes for a quorum or to approve the foregoing proposals at the time of the Annual Meeting, the Annual Meeting may be adjourned in order to permit further solicitation of proxies.
The proxy materials, including this Notice of Annual Meeting, the proxy statement, a proxy card, and our Annual Report to Stockholders on Form10-K for the fiscal year ended December 31, 20162018 are being distributed and made available beginning on or about April 10, 2017.11, 2019.
Your vote is important. We urge you to review the accompanying materials carefully and to vote by telephone or internet as promptly as possible. Alternatively, you may complete, sign and return the proxy card, by mail.
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Houston, Texas
April 10, 201711, 2019
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE STOCKHOLDER MEETING TO BE HELD ON MAY 12, 2017By Order of the Board of Directors,
The Notice of Annual Meeting of Stockholders, our Proxy Statement for the Annual Meeting and our Annual Report to Stockholders on Form10-K for the fiscal year ended December 31, 2016 are available at http://www.proxyvote.com.
Beth Sibley
Corporate Secretary
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be held on May 16, 2019. The Notice of Annual Meeting of Stockholders, our Proxy Statement and form proxy card for the Annual Meeting and our Annual Report to Stockholders on Form 10-K for the fiscal year ended December 31, 2018 are available at http://www.proxyvote.com. |
2019 PROXY SUMMARY | 8 | ||||
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ELECTION OF DIRECTORS | 28 | ||||
ADVISORY VOTE ON EXECUTIVE COMPENSATION | 35 | ||||
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 36 | ||||
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Role of the Compensation Committee, its Consultant and Management | 41 | ||||
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Employment Agreements, Severance Benefits and Change in Control Provisions | 48 | ||||
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Risk Assessment | 50 | ||||
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Table of Contents
This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting.
This proxy statement is being distributed and made available beginning on April 10, 201711, 2019 in connection with the solicitation of proxies by the Board of Directors of Group 1 Automotive, Inc. for use at our 20172019 Annual Meeting of Stockholders.
Annual Meeting of Stockholders:
ANNUAL MEETING OF STOCKHOLDERS
PLACE | ||
May 16, 2019, 10:00 a.m., Central Daylight Savings Time | ||
Sterling McCall Lexus,
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March | ||
Compensation
VOTING
Stockholders as of the record date are entitled to vote. Each share of common stock is entitled to one vote for each director nominee and Corporate Governance Highlights:one vote for each of the proposals to be voted on. All elections of directors shall be decided by a majority of votes cast by stockholders entitled to vote in the election of directors. All other matters submitted to the stockholders shall be decided by the affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote on the matter.
COMPENSATION AND CORPORATE GOVERNANCE HIGHLIGHTS
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| Clawback Provisions for Certain Restatements | ||
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| Average Board Attendance of | ||
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| No Stockholder Rights Plan (Poison Pill) | ||
Annual Board and Committee Performance Evaluations | Annual Election of our Board of Directors | |||
| Annual Review for Board and Committee Refreshment | Independent Compensation Consultant | ||
Robust Stock Ownership Guidelines for our Officers and Directors |
| Company Policy Prohibits Directors and Employees from Pledging | ||
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| Four of the Independent |
Voting Matters and Board Recommendations:
VOTING MATTERS AND BOARD RECOMMENDATIONS
Management Proposals: | Board’s Recommendation | Page (for more detail) | ||
Election of Nine Director Nominees | FOR Each Director Nominee | |||
Approval, on aNon-Binding Advisory Basis, of our Executive Compensation | FOR | |||
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Ratification of Ernst & Young LLP as Independent Registered Public Accounting Firm | FOR |
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2019 PROXY STATEMENT ● | 8 |
Election of Directors (Proposal 1)
The following table provides summary information about our nominees for election to the Board of Directors.(1)Additional information for all of our directors may be found beginning on page 14.28.
Nominee(1) | Age | Director Since | Occupation | Committee Memberships(2) | Other Public Company Boards | |||||
John L. Adams | 72 | 1999 | Retired Vice Chairman, Trinity Industries | I, AC, CC FRM NGC (Chair) | Trinity Industries, Inc. | |||||
Carin M. Barth | 54 | 2017 | President, LB Capital, Inc. | I, AC | Enterprise Products Holdings LLC, Black Stone Minerals, L.P. | |||||
Earl J. Hesterberg | 63 | 2005 | President & Chief Executive Officer, Group 1 Automotive | FRM | Stage Stores, Inc. | |||||
Lincoln Pereira | 57 | 2013 | Regional Vice President, Brazil, Group 1 Automotive, Inc. and Chairman, UAB Motors Participações, Ltda. | FRM | ||||||
Stephen D. Quinn | 61 | 2002 | Retired General Partner & Managing Director, Goldman Sachs & Co. | I, AC, CC FRM (Chair) | Zions Bancorporation | |||||
J. Terry Strange | 73 | 2003 | Retired Vice Chairman, KPMG LLP | I, AC (Chair) CC, FRM | New Jersey Resources Corporation Newfield Exploration Company BBVA Compass | |||||
Charles L. Szews | 60 | 2016 | Retired Chief Executive Officer, Oshkosh Corporation | I, AC, CC | Commercial Metals Company Rowan Companies plc | |||||
Max P. Watson, Jr. | 71 | 2001 | Retired Chairman of the Board, President and CEO, BMC Software | I, CC (Chair) FRM, NGC | ||||||
MaryAnn Wright | 55 | 2014 | Group Vice President, Johnson Controls Power Solutions | I, AC NGC | Maxim Integrated Products, Inc. |
(1) |
AC — Audit Committee
CC — Compensation Committee
FRM — Finance/Risk Management Committee
NGC — Nominating/Governance Committee
Our Board of Directors Recommends a Vote“FORFOR”” the Election of each of the Nominees for Director.
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2019 PROXY STATEMENT ● | 9 |
Advisory Vote on Executive Compensation (Proposal 2)
We are asking our stockholders to approve, on anon-binding advisory basis, the compensation of our named executive officers. We believe that our compensation policies and practices are effective in achieving our Company’s goals of rewarding sustainedsignificant financial and operating performance, leadership excellence and aligning the executives’long-term interests with those of our stockholders. Our compensation philosophy is to set the fixed compensation of our named executive officers competitively for their demonstrated skills and industry experience. Our variable compensation, both annual andlong-term, reflects the results of performance against a combination of quantitative and subjective measures. The Compensation Committee targets the median of the market for all elements of pay, including base salary, annual incentive,long-term incentives and appropriate perquisites. At last year’s Annual Meeting of Stockholders, our stockholders approved the compensation of our named executive officers with a substantial majority of our stockholders (97%(96% of votes cast) voting in favor.
Compensation Components
COMPENSATION COMPONENTS
Type | Form | Terms | ||
Cash | Salary | Set annually based on market conditions, peer data and other factors | ||
Cash | Annual Incentive Bonus | Linked tofinancial-based andmission-based goals. Discretionary factors are considered when appropriate | ||
Equity | Long-Term Incentive Awards | Restricted stock with restrictions lapsing over afive-year period:
0%-40%-20%-20%-20%, to reward performance and promote retention of certain key employees | ||
Performance Shares (implemented in 2019) | ||||
Other | Employment Agreements and Severance and Change of Control Arrangements | Change of Control payment equal to 30 months base salary for our President/CEO and our Senior Vice President/CFO, | ||
Other | Deferred Compensation Plan | Allows deferral of up to 50% base salary and 100% of incentive bonus | ||
Other | Perquisites | Demonstrator vehicle(s) and/or vehicle allowance | ||
Our CEO may use our Company aircraft for up to 40 hours of personal use, provided he reimburses us based on the published standard industry fare level valuation method; we pay for club membership privileges that are used for business and personal purposes by our CEO | ||||
Other | Benefits | On same terms as other employees, including our employee stock purchase plan | ||
Other | Indemnification Agreements | Indemnification for our | ||
Other | Compensation Consultant | Independent Compensation Consultant engaged by our Compensation Committee |
In evaluating this year’s“say-on-pay” “say-on-pay” proposal, we recommend that you review the section entitled “2016“2018 Compensation Discussion and Analysis” (“CD&A”) beginning on page 28,41, which explains how and why the Compensation Committee arrived at its executive compensation actions and decisions for 2016.
2019 PROXY STATEMENT ● | 10 |
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2016 Summary Compensation2018 SUMMARY COMPENSATION
Set forth below is the 20162018 compensation for each named executive officer:
Name and Principal Position | Salary ($) | Bonus ($) | Stock Awards(1) ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings(2) ($) | All Other Compensation(3) ($) | Total ($) | |||||||||||||||||||||
Earl J. Hesterberg | 1,100,000 | — | 1,813,700 | 1,210,000 | 237,057 | 213,565 | 4,574,322 | |||||||||||||||||||||
John C. Rickel | 583,500 | — | 747,763 | 671,025 | 282,877 | 26,740 | 2,311,905 | |||||||||||||||||||||
Frank Grese, Jr. | 540,000 | — | 414,560 | 621,000 | 129,632 | 32,511 | 1,737,703 | |||||||||||||||||||||
Darryl M. Burman | 440,300 | — | 473,635 | 330,225 | 26,253 | 30,770 | 1,301,182 | |||||||||||||||||||||
Peter C. DeLongchamps | 456,300 | — | 518,200 | 342,225 | 66,367 | 18,759 | 1,401,851 |
Name and Principal Position | Salary ($) | Stock Awards(1) ($) | Non-Equity Incentive Plan Compensation(2) ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings(3) ($) | All Other Compensation(4) ($) | Total ($) | ||||||||||||||||||
Earl J. Hesterberg President and Chief Executive Officer | 1,150,000 | 3,599,959 | 1,437,500 | 337,607 | 378,588 | 6,903,654 | ||||||||||||||||||
Daryl A. Kenningham President, U.S. Operations | 624,000 | 987,935 | 780,000 | 181,560 | 26,745 | 2,600,240 | ||||||||||||||||||
John C. Rickel Senior Vice President and Chief Financial Officer | 599,700 | 873,943 | 689,655 | 395,460 | 26,210 | 2,584,968 | ||||||||||||||||||
Frank Grese, Jr. Senior Vice President, Human Resources, Training and Operations Support | 572,500 | 683,955 | 658,375 | 193,206 | 31,914 | 2,139,950 | ||||||||||||||||||
Peter C. DeLongchamps Senior Vice President, Manufacturer Relations, Financial Services and Public Affairs | 478,300 | 645,958 | 550,045 | 82,345 | 24,952 | 1,781,600 |
(1) | The amounts in the “Stock Awards” column reflect the required accounting expense for these awards and do not correspond to the actual value that may be recognized. These amounts represent the grant date fair value of awards computed in accordance with Financial Accounting Standards Board |
(2) | Annual cash incentive awards based upon the achievement of financial and mission-based goals. This is discussed further under “2018 Compensation Discussion and Analysis — Annual Incentive Compensation Plan”. |
(3) | Amounts reflectabove-market earnings on the Deferred Compensation Plan. Amounts are reflective of earnings in excess of 120% of the applicable federallong-term rate, with compounding, of |
Includes 401(k) savings plan matching contribution, automobile allowance, use of demonstrator vehicle, airplane use and club membership and dues. |
Our Board of Directors Recommends a Vote “FOR” the
Non-Binding Advisory Approval of our Executive Compensation.
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Advisory Vote on Frequency of Executive Compensation Advisory Votes (Proposal 3)
As described in Proposal No. 2, in accordance with the requirements of Section 14A of the Exchange Act and the related rules of the SEC, our stockholders have the opportunity to cast an advisory vote to approve the compensation of our named executive officers. This Proposal No. 3 affords stockholders the opportunity to cast an advisory vote on how often we should include asay-on-pay proposal in our proxy materials for future annual stockholder meetings. In 2011, our stockholders indicated a preference for an annualsay-on-pay vote. We continue to believe thatsay-on-pay votes should be conducted every year so that our stockholders may annually express their views on our executive compensation program. Under this Proposal No. 3, stockholders may vote to have thesay-on-pay vote:
✓One Year (Annually)
Every Two Years
Every Three Years
Abstain
As an advisory vote, this proposal is not binding on Group 1, the Board, or the Compensation Committee. Although the advisory vote isnon-binding, our Compensation Committee and the Board of Directors will review the results and give serious consideration to the outcome of the vote. The option that receives the highest number of votes cast by stockholders will be the frequency of future advisory votes on executive compensation.
Our Board of Directors Recommends a Vote“FOR” the Non-Binding Advisory Approval of “ONE YEAR”
for this Proposal.
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2019 PROXY STATEMENT ● | 11 |
Ratification of Ernst & Young LLP as our Independent Registered Public Accounting Firm for 20172019 (Proposal 4)3)
As a matter of good corporate governance, we are asking our stockholders to ratify the selectionappointment of Ernst & Young LLP (“Ernst & Young”) as our independent registered public accounting firm for the year ending December 31, 2017.2019. Set forth below is summary information with respect to Ernst & Young’s fees for services provided in 20152017 and 2016.2018.
Type of Fees | 2015 | 2016 | 2018 | 2017 | |||||||||
Audit Fees | $ | 2,427,500 | $ | 2,116,000 | $ 2,594,000 | $ 2,526,000 | |||||||
Audit Related Fees | — | — | — | — | |||||||||
Tax Fees | 278,733 | 198,000 | 79,000 | 162,000 | |||||||||
All Other Fees | 2,200 | 2,200 | 2,200 | 2,200 | |||||||||
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Total | $ | 2,708,433 | $ | 2,316,200 | |||||||||
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TOTAL | $ 2,675,200 | $ 2,690,200 |
Our Board of Directors Recommends a Vote “FOR” Ratification of the Appointment of Ernst & Young LLP as our Independent Registered Public Accounting Firm for the Fiscal Year Ending December 31, 2017.2019.
2019 PROXY STATEMENT ● | 12 |
OUR CORE CORPORATE SOCIAL RESPONSIBILITY VALUES
viOur core values, integrity, transparency, professionalism and teamwork, underlie our commitment to conduct our business in ways that are principled and accountable to key stakeholders and the communities in which we do business. We are committed to responsible business practices and continuous improvement of our operations and our relationships with our employees and the communities we live and work in.
Community | Environment and Safety | ||
We believe that positively involving our employees and giving back to the communities in which we do business is central to our culture. Our charitable and philanthropic efforts include the Group 1 Foundation, employee volunteer opportunities, and partnerships with local food banks, homeless shelters, hospitals, school districts, animal rescue organizations and various other charitable organizations. | We are committed to appropriately monitoring and managing our environmental impact across our businesses, and to protecting the health and safety of our employees, customers and those with whom we do business. | ||
Workplace | Investor Outreach | ||
We strive to create workplaces of mutual trust and respect, and to provide a work environment that fosters inclusion and diversity, enabling our employees to achieve their full potential. We aim to maintain a collaborative, supportive, and opportunity-rich culture that enhances innovation and employee engagement. | We regularly interact with the investment community and prospective and existing stockholders through investor calls, conferences, meetings and occasional onsite visits. This interaction ensures that management and the Board understand and consider the views of our stockholders, perception of the investment community, and industry and economic outlook from the Company’s Wall Street covering analysts. |
Business and Financial Highlights
Group 1 operates in three regions – the U.S., the U.K. and Brazil. In 2018, Group 1 continued to deliver record setting financial results and increased operational effectiveness. Our 2018 results compared to 2017 included:
Record consolidated revenues of $11.6 billion, an increase of $477.6 million; | |
U.K. record revenues of $2.4 billion, an increase of 22.7%; | |
Actual (GAAP) EPS for 2018 was $7.83, a 22.3% decrease; Adjusted EPS for 2018 was $8.91, a 15.3% increase; | |
Actual (GAAP) net income for 2018 was $157.8M, a 26.1% decrease; Adjusted net income for 2018 was $179.6M, a 9.8% increase; | |
Achieved all-time U.S. Finance and Insurance (“F&I”) performance record of $1,710 per retail unit; |
Increased U.S. same store used vehicle retail unit sales by 8.8%; | |
2.8% same store parts and service revenue growth; | |
Total record sales of 318,516 new and used retail vehicles; | |
Repurchased over 2.8 million shares of common stock, or 14% of our outstanding shares; | |
Issued annual dividends of $1.04 per share; and | |
Acquired 17 franchises with estimated annual revenues of $615.0 million. |
See “Non-GAAP Financial Measures” in our Annual Report on Form 10-K for the year ended December 31, 2018, filed February 19, 2019 with the SEC, for a reconciliation of the non-GAAP measures to the comparable GAAP measures.
2019 PROXY STATEMENT ● | 13 |
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800 Gessner, Suite 500
Houston, TX 77024
Proxy Statement |
Proxy Statement
ThisThis proxy statement is being furnished to you in connection with the solicitation of proxies by the Board of Directors (the “Board”) of Group 1 Automotive, Inc. (“Group 1” or the “Company”) for use at our 20172019 Annual Meeting of Stockholders (the “Annual Meeting”) and at any adjournment or postponement thereof. Proxy materials were first sent to stockholders beginning on or about April 10, 2017.
2017 Annual Meeting Date and Location11, 2019.
2019 ANNUAL MEETING DATE AND LOCATION
Our Annual Meeting will be held at Sterling McCall Lexus, 10025 Southwest Freeway, Houston, TX 77074, on Wednesday,Thursday, May 12, 2017,16, 2019, at 10:00 a.m., Central Daylight Savings Time, or at such other time and place to which the meeting may be adjourned.
References in this proxy statement to the Annual Meeting also refer to any adjournments, postponements or changes in location of the meeting, to the extent applicable.
Delivery of Proxy MaterialsDELIVERY OF PROXY MATERIALS
The proxy materials, including this proxy statement, the Notice of Annual Meeting, athe form proxy card, and our Annual Report to Stockholders on Form10-K for the fiscal year ended December 31, 20162018 are being distributed and made available to stockholders beginning on April 10, 2017.11, 2019.
The proxy card provides instructions on how to inform us to send future proxy materials to you electronically by email. If you choose to receive future proxy materials by email, you will receive an email next year
with instructions containing a link to those materials and a link to the proxy votingproxy-voting site. Your election to receive proxy materials by email or printed form will remain in effect until you terminate it.
Choosing to receive future proxy materials by email will allow us to provide you with the information you need in a timelier manner, save us the cost of printing and mailing documents to you, and conserve natural resources.
Questions and Answers about the Annual Meeting
What is the purpose of the meeting?
At our Annual Meeting, stockholders will act upon the matters outlined in the notice of meeting, including the election of nine director nominees, the advisory vote to approve executive compensation, advisory vote to approve the frequency of executive compensation advisory votes, the ratification of Ernst & Young LLP as
our independent registered public accounting firm for the fiscal year ending December 31, 2017, and the consideration of any other matters properly presented at the meeting. In addition, senior management will report on our business and financial performance during fiscal year 2016 and respond to your questions.
Who is entitled to vote at the meeting?
Only our stockholders as of 5:00 p.m., Central Daylight Time, on March 15, 2017 (the record date) are entitled to receive notice of the Annual Meeting and to vote at
the meeting. On March 15, 2017, there were 21,473,563 shares of Group 1 common stock issued and outstanding and entitled to vote at the meeting.
Questions and Answers about the Annual Meeting
How many votes may I cast?
You are entitled to one vote for each share of Group 1 common stock you owned at 5:00 p.m., Central
Daylight Time, on March 15, 2017, on all matters presented at the meeting.
What is the difference between a stockholder of record and a beneficial owner or “street name” holder?
If your shares are registered directly in your name with our registrar and transfer agent, American Stock Transfer & Trust Company, LLC, you are considered a stockholder of record with respect to those shares.
If your shares are held in a brokerage account or by a bank or other nominee, you are considered the
“beneficial owner” of those shares, and your shares are held in “street name.”
If you hold common stock inBOTH street name and as a stockholder of record,YOU MUST VOTE SEPARATELY for each position of common stock.
How do I vote my shares?
If you are a stockholder of record on the record date, you may vote in person at the Annual Meeting or by proxy using any of the following methods:
2019 PROXY STATEMENT ● | ||
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If you vote by internet or telephone, do not return your proxy card. The telephone and internet voting
procedures are designed to authenticate stockholders’ identities, to allow stockholders to give their voting instructions and to confirm that stockholders’ instructions have been recorded properly.
Submitting your proxy by internet or telephone will not affect your right to vote in person should you decide to attend the Annual Meeting.
If you want to vote in person at the meeting, you must request a ballot. For directions to the Annual Meeting visit www.sterlingmccalllexus.com and click on the Map and Directions box.
If you hold your shares in street name, you will receive instructions from your broker, bank or other nominee describing how to vote your shares. Beneficial owners voting by telephone or internet are subject to the same deadlines as described above for holders of record. If you want to vote in person, you must obtain a legal proxy from your broker, bank or other nominee and bring it to the meeting.
Can I change my vote or revoke my proxy?
If you are a stockholder of record on the record date, you can revoke your proxy prior to the completion of voting at the Annual Meeting by:
Only your latest dated proxy that we receive prior to the Annual Meeting will be counted. Further, your attendance at the Annual Meeting will not automatically revoke your proxy.
Questions and Answers about the Annual Meeting
If you are a street name stockholder you must follow the instructions of your broker, bank or other nominee to revoke your voting instructions. You may also vote in
person at the Annual Meeting if you obtain a legal proxy from your broker, bank or other nominee.
What is the effect of brokernon-votes and abstentions and what vote is required to approve each proposal?
If you hold your shares in “street name,” you will receive instructions from your broker, bank or other nominee describing how to vote your shares. If you do not instruct your broker, bank or other nominee how to vote your shares, they may vote your shares as they decide as to each routine matter under the rules of the New York Stock Exchange. Only Proposal No. 4 is considered a “routine” matter.
If you do not provide specific voting instructions to your broker onnon-routine matters, your broker may not cast a vote on the proposal, resulting in a brokernon-vote. Although any brokernon-vote would be
counted as present at the meeting for purposes of determining a quorum, it would be treated as not entitled to vote with respect to“non-routine” matters. If you are a beneficial owner holding shares through a broker, bank or other nominee and you do not provide voting instructions on certain matters, your broker may cast a vote on your behalf for Proposal No. 4, but may not cast a vote on Proposals No. 1, 2 or 3. Abstentions occur when stockholders are present at the Annual Meeting but fail to vote or voluntarily withhold their vote for any of the matters upon which the stockholders are voting.
The table below describes the vote required for approval of each matter to be brought before the meeting, as well as the treatment of abstentions and brokernon-votes as to each matter.
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The Company’s director resignation policy requires any director nominee in an uncontested election who receives a greater number of votes “against” than votes “for” his or her election to tender his or her resignation promptly following the certification of the election results. The Nominating/Governance Committee of the Board will consider all of the relevant facts and circumstances and make a recommendation to the Board with respect to whether to accept the resignation. Within 90 days, the Board is required to take action with respect to the recommendation and to promptly disclose its decision. The director resignation policy is more fully described in “Information about Our
Board of Directors and Its Committees — Director Resignation Policy.”
Our Board has appointed Earl J. Hesterberg, our President and Chief Executive Officer, and John C. Rickel, our Senior Vice President and Chief Financial Officer, as the management proxy holders for the Annual Meeting. If you are a stockholder of record, your shares will be voted by the management proxy holders in accordance with the instructions on the proxy card you submit by mail, or the instructions provided for any proxy submitted by telephone or internet, as applicable. For stockholders who have their
Questions and Answers about the Annual Meeting
shares voted by duly submitting a proxy by mail, telephone or internet, unless the stockholder appropriately specifies otherwise, the management
proxy holders will vote all shares represented by such valid proxies as our Board recommends.
How does the Board recommend I vote?
Our Board of Directors recommends that you vote your shares “FOR” each of the director nominees; “FOR” the approval, on anon-binding advisory basis, of our executive compensation; for “ONE YEAR” for the
frequency of executive compensation advisory votes; and “FOR” the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2017.
What is a quorum?
We need a quorum with respect to each proposal being submitted for stockholder vote. A quorum will be present for purposes of proposals 1, 2, 3, and 4, if the holders of a majority of the shares of common stock entitled to vote are present in person or represented by proxy at the Annual Meeting. Our independent inspector of election, Broadridge Financial Solutions will determine whether or not a quorum is present. There must be a quorum for the Annual Meeting to be held. Proxies received but marked as abstentions or brokernon-votes will be included in the calculation of votes considered to be present at the Annual Meeting.
If less than a quorum is represented at the meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice, and the persons named as proxies will vote the proxies they have been authorized at the Annual Meeting in favor of such an adjournment.
In the event a quorum is present at the Annual Meeting but sufficient votes to approve any of the items proposed by our Board have not been received, the persons named as proxies may propose one or more adjournments of the meeting to permit further solicitation of proxies. A stockholder vote may be taken on one or more of the proposals in this proxy statement prior to such adjournment if sufficient proxies have been received and it is otherwise appropriate. Any adjournment will require the affirmative vote of the holders of a majority of those shares of common stock represented at the meeting in person or by proxy. If a quorum is present, the persons named as proxies will vote the proxies they have been authorized to vote on any other business properly before the meeting in favor of such an adjournment.
Who will bear the cost of soliciting votes for the Annual Meeting?
We have engaged Alliance Advisors to assist with the solicitation of proxies for a fee not to exceed $5,000, plus reimbursement for reasonableout-of-pocket expenses. We will bear all expenses of soliciting proxies. We may reimburse brokerage firms, custodians, nominees, fiduciaries and other persons representing beneficial owners of our common stock for their reasonable
expenses in forwarding solicitation material to such beneficial owners. Directors, officers and employees of Group 1 may also solicit proxies in person or by other means of communication. Such directors, officers and employees will not be additionally compensated but may be reimbursed for reasonableout-of-pocket expenses in connection with such solicitation.
Who will count the votes?
We have engaged Broadridge Financial Solutions to tabulate the votes and to serve as inspector of election at the Annual Meeting for a fee of approximately $3,500. Broadridge will separately tabulate For,
Against and Withhold votes, abstentions and brokernon-votes. Broadridge will also certify the election results and perform any other acts required by the Delaware General Corporation Law.
Questions and Answers about the Annual Meeting
May I propose actions for consideration at next year’s Annual Meeting of Stockholders or nominate individuals to serve as directors?
You may submit proposals for consideration at future stockholder meetings, including director nominations. Please read “Stockholder Proposals for 2018 Annual
Meeting” for information regarding the submission of stockholder proposals and director nominations for consideration at next year’s Annual Meeting.
Information about ourOur Board of Directors and its Committees
Meetings of the Board of Directors and its Committees
In 2016,2018, the Board held sixfive meetings, and acted by unanimous written consent six times. Committeescommittees of the Board held a combined total of 2123 meetings. Each incumbent director attended 95%75% or more of the aggregate of all meetings of the Board and the committees on which he or she served during the periods in which he or she served during fiscal 2016, and, except for one director who was2018. Two directors were unable to attend one Compensation Committee meeting, attendance at such meetings was 100% for all directors then currently serving.Board meeting. Under our Corporate Governance Guidelines, our directors are encouraged to attend the
Annual Meeting annual meeting of our stockholders. All of our then-current directors attended our 20162018 Annual Meeting of Stockholders. Ms. Taylor joined the Board in September 2018, and therefore was not present at the 2018 Annual Meeting. We currently expect all of our directors standing for electiondirector nominees to be present at the 20172019 Annual Meeting.
Our
Board Evaluation Process
As required by our Corporate Governance Guidelines, our Board and each of its committees annually conduct aself-evaluation to assess, and identify opportunities to improve their respective performance. The Nominating/Governance Committee leads ouris tasked with the oversight of the annual performance evaluation and to assist in designing and implementing such evaluations. The Nominating/Governance Committee has the authority to retain advisors or consultants and to provide for compensation to such consultants by the Company, as it shall deem appropriate. The 2018 board evaluations process is summarized below.
In 2018, the Nominating/Governance Committee reviewed and discussed the Board in its annualself-evaluation.and Committee evaluation format and process and also decided to include individual director performance evaluations. The Nominating/Governance Committee and the Board elected to conduct the 2018 performance assessments through the use of electronic, written questionnaires. A third party was selected to prepare the performance assessments for electronic delivery, compile the responses and aggregate the results.
Among other topics addressed, the Board and committee questionnaires solicited director opinions related to Board and committee effectiveness, director preparedness, strategic oversight, risk management, scope and content of presentations, access to management, and succession planning for the Board.
Following completion by the directors of the performance assessments, the results were reviewed and aggregated by an independent third party. The third party provided a memorandum to the Chair of the Nominating/Governance Committee summarizing the results of the Board, committee and individual director evaluations.
In early 2019, the Chair of the Nominating/Governance Committee met individually with each director and discussed the results of the director evaluations. The results of the committee evaluations were reviewed with each committee. The results of the Board evaluations were presented to the Board. Results requiring additional consideration will be addressed at subsequent Board and committee meetings and reported back to the Board, where appropriate.
2019 PROXY STATEMENT ● | 16 |
Corporate Governance
We are committed to good corporate governance which includes the highest standards of professional and personal conduct. Our Board has adopted several governance documents to guide the operation and direction of our Board and its committees, which include our Corporate Governance Guidelines, Code of Ethics, Code of Conduct and charters for the Audit Committee, Compensation Committee,
Nominating/Governance Committee and Finance/Risk Management Committee. Each of these documents is available on our website atwww.group1auto.comand stockholders may obtain a printed copy, free of charge, by sending a written request to Group 1 Automotive, Inc., 800 Gessner, Suite 500, Houston, TX 77024, Attn: Corporate Secretary.
Board Leadership Structure
The Nominating/Governance Committee’s charter provides that the committee will annually assess and approve the leadership structure of the Board and recommend a structure to the Board for approval.Board. In 2016,2018, the Nominating/Governance Committee conducted that assessment, and determined that having an independent director serve asnon-executive Chairman of the Board continues to be in the best interest of our stockholders at this time. Our Chief Executive Officer is responsible for setting our strategic direction and providingday-to-day leadership, while the Chairman of the Board
sets the agenda for Board meetings, presides over meetings of the full Board and provides guidance to our Chief Executive Officer. We believe this structure, at this time, ensures a greater role for the independent directors in the oversight of our Company and active participation of the independent directors in setting agendas and establishing priorities and procedures for the work of our Board. We discuss our directors’ qualifications and characteristics under “Proposal 1 — Election of Directors.”
Board Diversity
Our Nominating/Governance Committee is responsible for identifying and recommending to our Board
qualified individuals to be nominated to serve on our Board. Our Board’s objective is to select individuals
Information about our Board of Directors and its Committees
that have a demonstrated record of integrity, sound business judgment, leadership, objectivity, independence of mind, and commitment. In selecting potential Board candidates, our Board seeks independent directors who represent a mix of backgrounds and experiences that will enhance the quality of our Board’s deliberations and decisions. Board membership should reflect diversity in its
broadest sense, including persons diverse in perspectives, personal and professional experiences, geography, gender, and ethnicity. This process has resulted in a Board that is comprised of highly qualified directors that reflect diversity as we define it. The Nominating/Governance Committee assesses the effectiveness of this approach as part of our Board’s annual self-evaluation process.
Independence of the Members of ourOur Board
The Board has analyzed the independence of each director. It has affirmatively determined that Mses. Barth, Taylor and Wright and Messrs. Adams, Arnold, Quinn, Strange, Szews and Watson (all of ournon-employee directors) are independent directors under the listing standards of the New York Stock Exchange’s listing standards.Exchange (“NYSE”). As part of its analysis, the Board determined that none of these directors has a material
relationship with our Company. Mr. Hesterberg was determined not to be independent because he is our President and Chief Executive Officer, and Mr. Pereira, who was appointed to the Board following our acquisition of UAB Motors Participações, S.A. (“UAB”), in 2013, was determined not to be independent because he is our Regional Vice President, Brazil and the Chairman of UAB.
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Charitable Contributions
We have in the past, and may, in the future, make donations to various charitable organizations. From time to time, some of our directors, officers and employees have been, and in the future may be,
affiliated with such charities. During the annual independence review, our Nominating/Governance Committee determined that any such affiliations did not impact the independence of our directors. We did not make any charitable donations to any organizations affiliated with our directors or officers in 2018.
Director Resignation Policy
Under our director resignation policy, in an uncontested election of directors, any nominee who receives a greater number of votes “against” than votes “for” his or her election will, promptly following the certification of the stockholder vote, tender his or her written resignation to the Board for consideration by the Nominating/Governance Committee. The Nominating/Governance Committee will consider the resignation and will make a recommendation to the Board concerning whether to accept or reject it.
In determining its recommendation to the Board, the Nominating/Governance Committee will consider all factors it considers relevant, which may include:
• | the stated reason or reasons why stockholders who cast withhold votes for the director did so; |
• | the qualifications of the director; and |
• | the results of the most recent evaluation of the tendering director’s performance by the Nominating/Governance Committee and other members of the Board. |
Under our director resignation policy, the Board will take formal action on the recommendation no later than 90 days following the certification of the results of the stockholders’ meeting. In considering the recommendation, the Board will consider the information, factors and alternatives considered by the Nominating and Nominating/Governance Committee and any additional information that the Board considers relevant. The Company will promptly disclose to the public the Board’s decision whether to accept or reject the director’s tendered resignation. If applicable, the Board will also disclose the reason or reasons for rejecting the tendered resignation.
Executive Sessions of ourOur Board
The independent directors meet in executive session at each regularly scheduled meeting of our Board. Mr. Adams,Quinn, ournon-executive independent Chairman of the Board,
presides over these meetings and is responsible for preparing an agenda for the meetings of the independent directors in executive session.
Information about our Board of Directors and its Committees
2019 PROXY STATEMENT ● | 18 |
Risk Oversight
Our Board, as a whole and through its committees, has broad responsibility for the oversight of risk management with a focus on the most significant risks facing the Company, including strategic, operational, cyber, financial, and legal and compliance risk. In its risk management role, our Board has the responsibilityseeks to satisfy itself that our risk management processes and systems that have been put in place to identify and manage risks are reasonable and functioning as designed. Our Board also has specific risk management accountabilityoversight for governance, executive compensation and Chief Executive Officer succession planning.
Much of our Board’s oversight work is delegated to various committees, which meet regularly and report back to the full Board. All committees have significant roles in carrying out the risk oversight function. Each committee is comprised entirely of independent directors, except the Finance/Risk Management Committee, and is responsible for overseeing risks associated with its respective area of responsibility as further detailed below.
The Finance/Risk Management Committee is charged with oversight of our risk exposure related to our operations, including, among other things, cyber security and data protection and litigation management, enterprise risk management strategies, strategies for our insurance programs and our compliance with covenants of material debt instruments. The Finance/Risk Management Committee monitors ourfinance-related activities and provides guidance to management and the Board concerning ourlong-range financial policies and objectives.
The Audit Committee is responsible for oversight of Company risks relating to accounting matters, financial reporting (primarily internal control risks) and legal and regulatory compliance. In fulfilling these oversight responsibilities, the Audit Committee meets with our management and independent registered public accounting firm regarding the adequacy of our financial controls and our compliance with legal, tax and regulatory matters, as well as our significant financial and accounting policies. The Audit Committee also separately meets with our director of internal audit on a regular basis, and with other members of management, as deemed appropriate, to review, among other things, the identified risk areas and scope of the internal audit approach. The Audit Committee receives regular reports regarding the status and findings of audits being conducted by the internal auditors and independent registered public accounting firm, accounting changes that could affect our financial statements and proposed audit adjustments. Further, the Audit Committee chair routinely meets between formal Audit Committee meetings
2019 PROXY STATEMENT ● | 19 |
with our chief financial officer, corporate controller, director of internal audit and our independent registered public accounting firm.
The Compensation Committee is responsible for overseeing risks relating to employment policies, our compensation policies and programs and our benefits systems. To assist it in satisfying these oversight responsibilities, from time to time the Compensation Committee has retained its own compensation consultant and meets regularly with management to understand the financial, human resources and stockholder implications of compensation decisions being made. A separate discussion regarding the risk considerations in our compensation programs, including the processes that are put in place by the Compensation Committee and management to identify, manage and mitigate potential risks in compensation, can be found beginning on page 39 of this proxy statement.
The Nominating/Governance Committee is responsible for oversight of risks relating to succession planning for our Chief Executive Officer and other key officers, our corporate governance guidelines and practices and our corporate compliance program. To satisfy these oversight responsibilities, the Committee receives regular reports from our officers that are responsible for each of these areas on matters such as progress against succession planning programs and goals that could affect our operations. In addition, on an annual basis, the Nominating/Governance Committee conducts a review of the performance of the Board and its committees and reviews and reassesses the adequacy of the corporate governance guidelines and recommends any proposed changes to the Board.
Back to Contents |
In addition to reports from its committees, our Board receives regular reports directly from the officers responsible for oversight of particular risks within our Company. Specifically, our officers report to our Board regarding the Enterprise Risk Management Program that management has implemented to assess, manage and monitor areas of risk that are significant to our business, including market and automotive technology risk, safety and property damage risk, strategic planning and operational risk, financial and accounting risk, information technology and cybersecurity risk, and governance, regulatory and legislative risk. Risk profiles are updated annually to ensure that all risks continue to be identified. Our officers also report to our Board on which risks management has assessed as the most significant, together with management’s plans to mitigate those risks. Further, outside counsel reports in person to our Board periodically on anas-needed basis to keep our directors informed concerning legal risks and other legal matters involving our Company. Finally, we have robust internal audit systems in place
Information about our Board of Directors and its Committees
to review adherence to policies and procedures, which are supported by a separate internal audit department.
Corporate Social Responsibility Oversight
At Group 1, we work to conduct our business in ways that are principled and accountable to key stakeholders and the communities in which we do business. Our Board and members of management recognize the importance of establishing an effective “tone at the top” with respect to giving back, and are actively involved in supporting various charitable organizations through their time and donations.
Cybersecurity and Information Security Risk Oversight
Our Board recognizes the importance of maintaining the trust and confidence of our customers, vendors, stockholders and employees, and devotes significant time and attention to oversight of cybersecurity and information security risk. The Board and Finance/ Risk Management Committee regularly receive presentations from our VP, Information Technology, on cybersecurity and information security risk, and on our cybersecurity initiatives. We also engage cybersecurity experts to audit and provide recommendations on our cybersecurity program. Additionally, members of our internal audit department conduct unscheduled visits to our dealerships to ensure that our customer’s personal information is protected and secured appropriately. The results of those dealership audits are reported to the Audit Committee. In 2018, our Board, the Finance/ Risk Management Committee and the Audit Committee received cybersecurity and information security risk reports at least quarterly.
2019 PROXY STATEMENT ● | 20 |
Committees of ourOur Board
Our Board has established four standing committees to assist it in discharging its responsibilities: the Audit Committee, the Compensation Committee, the Nominating/Governance Committee and the Finance/Risk Management Committee. The following chart reflects the current membership of each committee:committee:
Name | Board | Audit Committee | Compensation Committee | Finance/Risk Management Committee | Nominating/ Governance Committee |
John L. Adams(1) | |||||
Carin M. Barth(2) | |||||
Earl J. Hesterberg | |||||
Lincoln Pereira | |||||
Stephen D. Quinn | |||||
J. Terry Strange(3) | |||||
Charles L. Szews | |||||
Anne Taylor(4) | |||||
Max P. Watson, Jr. | |||||
MaryAnn Wright(5) | |||||
MEETINGS HELD IN 2018 | 5 | 9 | 5 | 5 | 4 |
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(1) | Mr. |
(2) | Ms. Barth was appointed Chairman of the Audit Committee in mid-May following the 2018 Annual Meeting. |
(3) | Mr. Strange served as the Chairman of the Audit Committee until mid-May 2018. Effective as of the 2019 Annual Meeting, the Board size will be reduced to nine members as Mr. Strange has reached the Company’s mandatory retirement age for |
(4) | Ms. Taylor joined the Audit Committee and the Compensation Committee in November 2018. |
(5) | Ms. Wright rolled off the Audit Committee following the 2018 Annual Meeting. |
M — Member
C — Chairman
Each of the committee charters is available on our website atwww.group1auto.comand stockholders may obtain printed copies, free of charge, by sending a written request to Group 1 Automotive, Inc., 800 Gessner, Suite 500, Houston, TX 77024, Attn: Corporate Secretary.
Audit Committee
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AUDIT COMMITTEE
Pursuant to its charter, the purposes and responsibilities of our Audit Committee are to:
• | oversee the quality, integrity and reliability of the financial statements and other financial information we provide to any governmental body or the public; |
• | oversee our compliance with legal and regulatory requirements; |
• | oversee the qualifications, performance and independence of our independent registered public accounting firm; |
• | oversee the performance of our internal audit function; |
• | produce the Audit Committee Report for inclusion in the proxy statement, in accordance with applicable rules and regulations; |
• | oversee our systems of internal controls regarding finance, accounting, legal compliance and ethics that our management and our Board have established; |
• | provide an open avenue of communication among our independent registered public accounting firm, financial and senior management, the internal audit department, and our Board, always emphasizing that the independent registered public accounting firm is accountable to the Audit Committee; |
• | review complaints dealing with financial reporting or potential violations of applicable laws, rules and regulations, or violations of the Company’s codes, policies and procedures, that are reported on the Company’s hotline; and |
• | perform such other functions as our Board may assign to the Audit Committee from time to time. |
Information about our Board of Directors and its Committees
In addition to, and in connection with, the purposes and responsibilities described above, the Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the work of our independent registered public accounting firm. The Audit Committee also reviews our annual and quarterly financial statements and confirms the independence and quality systems of our independent registered public accounting firm.
While the Audit Committee has the responsibilities and powers set forth in its charter, it is not the duty of the Audit Committee to plan or conduct audits, to determine that our financial statements are complete and accurate, or to determine that such statements are in accordance with accounting principles generally accepted in the United States and other applicable rules and regulations. Our management is responsible for the preparation of our financial statements in accordance with accounting principles generally accepted in the United States and our internal controls. Our independent registered public accounting firm is responsible for the audit work on our financial statements. It is also not the duty of the Audit Committee to conduct investigations or to assure compliance with laws and regulations and our policies and procedures. Our management is responsible for compliance with laws and regulations and compliance with our policies and procedures.
All members of the Audit Committee are independent as that term is defined in the New York Stock
Exchange’s (the “NYSE”)NYSE’s listing standards and byRule 10A-3 promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”). Our Board has determined that each member of the Audit Committee is financially literate and that Mr. StrangeMs. Barth has the necessary accounting and financial expertise to serve as Chairman. Mr. Strange also serves on the Audit Committees of New Jersey Resources Corporation, Newfield Exploration Company and BBVA Compass. Our Board has determined that Mr. Strange’s simultaneous service on these other Audit Committees and our Audit Committee doeshas not impairimpaired his ability to serve effectively on our Audit Committee.
Our Board has also determined that each of Ms. Barth and Messrs. Arnold, Quinn, Strange and Szews is an “audit committee financial expert” following a determination that Ms. Barth and Messrs. Arnold, Quinn, Strange and Szews met the criteria for such designation under SEC rules and regulations. For information regarding the business experience for Ms.Mses. Barth and Taylor and Messrs. Quinn, Strange and Szews, please read “Proposal 1 — Election of Directors.” The Audit Committee held eightnine meetings during 2016, with all2018, and acted by unanimous written consent twice. All individuals who were members of the committeeAudit Committee at such time attendingattended each meeting.meeting of the Audit Committee.
Mr. Strange served as the Chairman of the Audit Committee until mid-May 2018. Following the 2018 Annual Meeting, Ms. Barth was appointed to serve as the Chairman of the Audit Committee.
The Report of the Audit Committee is set forth on page 2538 of this proxy statement.
Compensation CommitteeCOMPENSATION COMMITTEE
Pursuant to its charter, the purposes and responsibilities of our Compensation Committee are to:
• | review, evaluate, and approve our agreements, plans, policies, and programs to compensate our senior corporate officers; |
• | review and discuss with our management the Compensation Discussion and Analysis (the “CD&A”) to be included in our proxy statement for the Annual Meeting of Stockholders and to determine whether to recommend to our Board that the CD&A be included in the proxy statement, in accordance with applicable rules and regulations; |
• | produce the Compensation Committee Report for inclusion in the proxy statement, in accordance with applicable rules and regulations; |
• | oversee risks relating to employment policies, our compensation policies and programs, and our benefit systems; |
• | otherwise discharge our Board’s responsibility relating to compensation of our senior corporate officers; and |
• | perform such other functions as our Board may assign to the Compensation Committee from time to time. |
In connection with these purposes, our Board has entrusted the Compensation Committee with the overall responsibility for establishing, implementing and monitoring the compensation for our senior corporate officers (our named executive officers and officers that report directly to our Chief Executive Officer). The Compensation Committee reviews and approves the compensation of our senior corporate officers and makes appropriate adjustments based on Company performance, achievement of predetermined goals and changes in an officer’s duties and responsibilities. The Compensation Committee also approves all employment agreements related to the senior corporate officers and approves recommendations regarding equity awards for all employees. Together with management, and any counsel or other advisors deemed appropriate by the Compensation Committee, the Compensation Committee typically reviews and discusses the particular executive compensation matter presented and makes a final determination, with the exception of compensation
Information about our Board of Directors and its Committees
matters relating to our Chief Executive Officer. In the case of our Chief Executive Officer, the Compensation
2019 PROXY STATEMENT ● | 22 |
Committee reviews and discusses the particular compensation matter (together with our management and any counsel or other advisors deemed appropriate) and formulates a recommendation. The Compensation Committee’s Chairman then generally reports the Compensation Committee’s recommendation for approval by the full Board or, in certain cases, by the independent directors.
In general, executive compensation matters are presented to the Compensation Committee or raised with the Compensation Committee in one of the following ways: (1) at the request of the Compensation Committee Chairman or another Compensation Committee member or member of our Board, (2) in accordance with the Compensation Committee’s agenda, which is reviewed by the Compensation Committee members and other directors on at least an annual basis, (3) by our Chief Executive Officer or Senior Vice President, Human Resources, Training and Operations Support, or (4) by the Compensation Committee’s outside compensation consultant.
The Compensation Committee works with the management team, our Chief Executive Officer and our Senior Vice President, Human Resources, Training and Operations Support, to implement and promote our executive compensation strategy. The most significant aspects of management’s involvement in this process are:
• | preparing materials in advance of Compensation Committee meetings for review by the Compensation Committee members; |
• | evaluating executive performance; |
• | recommending our business goals; and |
• | recommending the compensation arrangements and components for our executives. |
Our Chief Executive Officer is instrumental to this process. Specifically, the Chief Executive Officer assists the Compensation Committee by:
• | evaluating senior corporate officer performance (other than his own); |
• | providing background information regarding our business goals; and |
• | recommending compensation arrangements and components for our senior corporate officers (other than himself). |
In addition, our Senior Vice President, Human Resources, Training and Operations Support is involved in the executive compensation process by:
• | providing the necessary compensation information to, and acting as our liaison with, the compensation consultant; |
• | updating and modifying compensation plan policies, guidelines and materials, as needed; and |
• | providing recommendations to the Compensation Committee and our Chief Executive Officer regarding compensation structure, awards and plan design changes. |
Under its charter, the Compensation Committee has the sole authority to retain and terminate any compensation consultant to be used to assist in the evaluation of the compensation of our senior corporate officers and our directors and also has the sole authority to approve the consultant’s fees and other retention terms. To the extent permitted by applicable law, the Compensation Committee may delegate some or all of its authority to subcommittees, as it deems appropriate.
During 2016,2018, the Compensation Committee engaged Pearl Meyer & Partners, LLC (“PM&P”) to conduct a compensation analysis which involved the comparison oflong-term,short-term and total compensation of our named executive officers with a selected group of peer companies. We generally compare compensation data at the 25th, 50th 25th, 50thand 75th 75thpercentiles of the market and engagethe Compensation Committee engaged PM&P to review ourthe analysis. While we do not think it is appropriate to establish compensation based solely on market analysis, we believe that this practice is useful for two reasons.
First, our compensation practices must be competitive in order to attract and retain executives with the ability and experience necessary to provide leadership and to deliver strong performance to our stockholders. Second, reviewing market analysis allows us to assess the reasonableness of our compensation practices. This process allows us to achieve one of our primary objectives of maintaining competitive compensation to ensure retention when justified and rewarding the achievement of Company objectives so as to align with stockholder interest.interests. PM&P is an independent compensation consulting firm and does not provide any other services to us outside of matters pertaining to executive officer and director compensation. PM&P reports directly to the Compensation Committee, which is the sole party responsible for determining the scope of services performed by PM&P and the directions given to PM&P regarding the performance of such services.
Information about our Board of Directors and its Committees
In February 2017,2019, the Compensation Committee considered the independence of PM&P in light of SEC rules and listing standards of the NYSE. The Compensation Committee requested and received a letter from PM&P addressing the consulting firm’s independence, including the following factors: (1) other services provided to us by the consultant; (2) fees paid by us as a percentage of the consulting firm’s total revenue; (3) policies or procedures maintained by the consulting firm that are designed to prevent a conflict of interest; (4) any business or personal relationships between the individual consultants involved in the engagement and a member of the Compensation Committee; (5) any company stock owned by the individual consultants involved in the engagement; and (6) any business or personal relationships between our named executive officers and the consulting firm or the individual consultants involved in the engagement. The letter highlighted three additional factors that supported their independence: (1) PM&P has regular discussions with only the Compensation Committee (or select members of the Compensation Committee) present and where PM&P interacts with management, it is at
the Compensation Committee Chair’s request and/or with the Chair’s knowledge and approval,approval; (2) PM&P has not provided any gifts, benefits or donations to our Company or received any gifts, benefits, or donations from our CompanyCompany; and (3) PM&P is bound by strict confidentiality and information sharing protocols. The Compensation Committee discussed these considerations, among other things, and concluded that the work of PM&P did not raise any conflict of interest.
All members of the Compensation Committee are independent as that term is defined in the NYSE’s listing standards.standards, including the heightened standards applicable to compensation committee members. The Compensation Committee held five meetings during 20162018 and acted by unanimous written consent once. All individuals who were members of the Compensation Committee at such time attended each meeting of the Compensation Committee, except for one director who was unable to attend one Compensation Committee meeting.Committee.
The Report of the Compensation Committee is set forth on page 4151 of this proxy statement.
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Nominating/Governance CommitteeNOMINATING/GOVERNANCE COMMITTEE
Pursuant to its charter, the purposes and responsibilities of our Nominating/Governance Committee are to:
• | assist our Board by identifying individuals qualified to become members of our Board and recommend director nominees to our Board for election at the Annual Meetings of stockholders or for appointment to fill vacancies; |
• | recommend to our Board the appropriate composition of our Board and its committees and Board committee membership and leadership; |
• | advise our Board about and recommend to our Board appropriate corporate governance guidelines and practices and assist our Board in implementing those guidelines and practices; |
• | lead our Board in its annual review of the performance of our Board and its committees; |
• | direct all matters relating to the succession of our Chief Executive Officer and other key officers of the Company; and |
• | perform such other functions as our Board may assign to the Nominating/Governance Committee from time to time. |
In connection with these purposes, the Nominating/Governance Committee actively seeks
individuals qualified to become members of our Board, seeks to implement the independence standards required by law, applicable listing standards, our Amended and Restated Certificate of Incorporation (“Certificate of Incorporation”), our SecondedThird Amended and Restated Bylaws (“Bylaws”) and our Corporate Governance Guidelines, and identifies the qualities and characteristics necessary for an effective Chief Executive Officer.
In considering candidates for our Board, the Nominating/ Governance Committee will consider the entirety of each candidate’s credentials. There is currently no set of specific minimum qualifications that must be met by a nominee recommended by the Nominating/Governance Committee, as different factors may assume greater or lesser significance at particular times and the needs of our Board may vary in light of its composition and the Nominating/Governance Committee’s perceptions about future issues and needs. However, while the Nominating/Governance Committee does not maintain a formal list of qualifications, in making its evaluation and recommendation of candidates, the Nominating/Governance Committee may consider, among other factors, diversity, age, skill, experience in the context of the needs of our Board, independence qualifications, moral character and whether prospective nominees have relevant business and financial experience or have industry or other specialized expertise.
Information about our Board of Directors and its Committees
The Nominating/Governance Committee may consider candidates for our Board from any reasonable source, including from a search firm engaged by the Nominating/Governance Committee or stockholder recommendations, provided that the procedures set forth below are followed. The Nominating/Governance Committee does not intend to alter the manner in which it evaluates candidates based on whether the candidate is recommended by a stockholder or not. However, in evaluating a candidate’s relevant business experience, the Nominating/Governance Committee may consider previous experience as a member of our Board. Any invitation to join our Board must be extended by our Board as a whole, by the Chairman of the Nominating/Governance Committee and by the Chairman of the Board.
Stockholders or a group of stockholders may recommend potential candidates for consideration by the Nominating/Governance Committee. For additional information on such requests and the applicable timing, please see “Stockholder Proposals for 20182020 Annual Meeting.”
In addition to the purposes described above, our Board has entrusted the Nominating/Governance Committee
with the responsibility for establishing, implementing and monitoring the compensation for our directors. The Nominating/Governance Committee establishes, reviews and approves the compensation of our directors and makes appropriate adjustments based on Company performance, duties and responsibilities of the directors and competitive environment. The Nominating/Governance Committee’s primary objectives in establishing and implementing director compensation are to:
• | ensure the ability to attract, motivate and retain the talent necessary to provide qualified Board leadership; and |
• | use the appropriate mix of long-term and short-term compensation to ensure high Board/committee performance. |
All members of the Nominating/Governance Committee are independent as defined under the NYSE’s listing standards. The Nominating/Governance Committee held four meetings during 2016, with all2018, and acted by unanimous written consent once. All individuals who were members of the Nominating/Governance Committee at such time attendingattended each meeting.
Finance/Risk Management Committeemeeting of the Nominating/Governance Committee.
FINANCE/RISK MANAGEMENT COMMITTEE
Pursuant to its charter and other applicable policies, the purposes of our Finance/Risk Management Committee are to:
• | review, oversee and report to our Board regarding our financial status and capital structure, debt and equity financings, cash management and other banking activities, compliance with covenants of material debt instruments, investor/stockholder relations, relationships with various financial constituents and securities repurchase activities, and authorize transactions related thereto within limits prescribed by our Board; |
• | review return on investment for our stockholders through dividend and stock repurchase programs; |
• | review and assess risk exposure, including cybersecurity, and insurance related to our operations and authorize transactions within limits prescribed by our Board; and |
• | review capital expenditures and other capital spending plans, including significant acquisitions and dispositions of business or assets, and authorize transactions within limits prescribed by our Board. |
2019 PROXY STATEMENT ● | 24 |
In connection with these purposes, the Finance/Risk Management Committee reviews periodically our financial status and capital structure and can authorizefinance-related activities within limits prescribed by our Board. The Finance/Risk Management Committee reviews with management the status of current litigation matters and regularly reports to our Board on litigation and contingent liabilities. The Finance/Risk Management Committee also consults with management on matters that could have a significant financial impact on our Company and reviews our financial policies and procedures, our compliance with material debt instruments and our significant banking relationships. In addition, the Finance/Risk Management Committee reviews and assesses periodically the risk exposure of our operations, including cybersecurity, and plans and strategies for insurance programs, and authorizes riskmanagement-related activities within limits prescribed by our Board. The Finance/Risk Management Committee also provides direction for the assessment of future capital spending and acquisition opportunities and reviews capital expenditure plans, including significant acquisitions and dispositions of businesses and assets and other specific capital projects.
Information about our Board of Directors and its Committees
At the request of the Finance/Risk Management Committee, management developed and presented to the Board a robust Enterprise Risk Management Program, concentrating primarily in fourfive principal areas that are significant to our business: (1) safety and property damage risk; (2) strategic planning and operational risk; (3) financial and accounting risk; (4) information technology and (4)cybersecurity risk; and (5) governance, regulatory and legislative risk. Risk profiles are updated annually to ensure that all risks continue to be identified. Management updates the Finance/Risk Management Committee as new risks are identified, and the steps taken to mitigate such risks. On an annual basis, management reviews results from tests of key risks with the full Board and the steps taken to mitigate new risks which have been identified.
All members of the Finance/Risk Management Committee, except for Mr. Hesterberg, our President and Chief Executive Officer and Mr. Pereira, our Regional Vice President, Brazil, are independent as defined under the NYSE’s listing standards. The Finance/Risk Management Committee held fourfive meetings during 2016,2018, and all members were in attendance.
Communications with Directors
Our Board welcomes communications from our stockholders and other interested parties. Stockholders and any other interested parties may send communications to our Board, to any committee of our Board, to thenon-executive independent Chairman of the Board (who presides over the executive sessions of our independent andnon-management directors), or to any director in particular, to:
c/o Group 1 Automotive, Inc.
800 Gessner, Suite 500
Houston, Texas 77024
Attn: Chairman of the Board
Any appropriate correspondence addressed to our Board, to any committee of our Board, to thenon-executive independent Chairman of the Board, or to any one of the directors in care of our offices is required towill be forwarded to the addressee or addressees without review by any person to whom such correspondence is not addressed.
Investor Outreachaddressees.
Each year, management interfaces with prospective investors, existing stockholders, and buy-side and sell-side investment research analysts in a variety of event formats, to discuss the Company’s publicly disclosed performance, business strategy and outlook, and corporate governance. These events include earnings teleconferences; investor calls, meetings, and conference events; non-deal road trips; and, occasionally site visits. Key topics include discussions regarding sales of new and used vehicles, market trends, parts and service strategies, successful implementation of our Val-u-Line® used vehicle sales program, success with hiring technicians, the impact of the Worldwide Harmonized Light Vehicles Test Procedure & Brexit in the U.K., our digital retail strategies, capital allocation, and profitability. We often attend investoraddress these topics with slide data in our roadshows and talking points on our earnings calls, conferences, and when requested, meet with investors on corporate governance matters.investor meetings. This interaction ensures that management and the Board understand and consider the issues that matter most toviews of our stockholders, perception of the investment community, and enablesindustry and economic outlook from the Company’s Wall Street covering analysts, while enabling the Company to address them effectively.dynamically operate in an evolving industry and economy with respect to maximizing return for our stockholders.
2019 PROXY STATEMENT ● | 25 |
Proposal 1 — Election of DirectorsCorporate Social Responsibility
At Group 1, we work to conduct our business in ways that are principled and accountable to key stakeholders and the communities in which we do business.We focus our efforts where we can have the most positive impact on our business and society, including issues related to community participation, environmental sustainability, culture and human capital.
Group 1 Foundation
Group 1 Foundation, Inc. (the “Foundation”) was formed in 2005 as a charitable 501(c)(3) entity with the purpose of providing guidance, emotional support and financial assistance, including though collected contributions and fundraising, to current Group 1 employees and their immediate families who suffer hardship due to a natural disaster, emergency hardship, extended illness, injury, fire, flood or special situation that is beyond their control. As an example of the Foundation’s efforts, through contributions made to the Foundation, employees in need were provided temporary living and related expenses after Hurricane Harvey and Hurricane Michael.
Community Outreach
Since its inception, Group 1 and its employees have supported the communities they serve. We believe community participation and charitable donations enrich our dealerships’ local neighborhoods. We are proud of these efforts and we encourage participation by all of our dealerships and employees.
• | Since 2009, Group 1 has partnered with Kids’ Meals, a Houston-based organization that delivers over 3,000 meals per weekday, to provide lunches, free of charge, to hungry preschool-aged children, living in poverty around the Houston area. In November 2017, Group 1 was named Kids’ Meals Corporate Honoree. |
• | Each year, Group 1’s corporate office donates essentials, such as socks, scarves, hats, gloves, hygiene products and food, to local charitable organizations. From 2016 through 2018, we provided approximately 780 bags of essentials to local homeless shelters and transitional housing organizations. |
• | Group 1’s corporate office and many of our dealerships regularly support local schools with donations of school supplies and by providing students with mentorship, internship and career opportunities. Group 1 employees have supported Junior Achievement for 15 years by volunteering in the classrooms of local Houston schools to share their experiences and inspire young people to pursue their dreams. In 2017, Group 1 and Sterling McCall VIP Services announced a partnership with Houston Independent School District’s Teacher of the Month award; through the partnership Group 1 awards a Teacher of the Month with the use of a new vehicle. |
• | For 2 years, Group 1 has supported BP MS 150, a member of Bike MS, the world’s largest fundraising bike series, organized by the National MS Society and focused on bringing awareness to and supporting research regarding MS. |
• | In August 2018, Group 1 participated in a Houston-area job fair aimed at hiring 100 Armed Forces Veterans. |
• | Our dealerships around the world also regularly support their communities through charitable efforts. For example, dealerships in the U.S. have partnered with The Humane Society, Habitat for Humanity, and local food banks, hospitals, school districts, animal rescue organizations and various other charitable organizations. Our dealerships in Brazil and the U.K. also support local charitable organizations; for example, in the U.K., dealerships have partnered with BBC Children in Need, an organization that funds projects to help children facing a range of disadvantages, and Ben – Support for Life, an independent charity focused on health and wellness in the automotive industry. |
We are proud of our dealerships and employees for their efforts to improve the communities in which they live and work. For more information on our charitable and philanthropic efforts, see our website at www.group1auto.com/group1cares.
Safety and Environmental Impact
2019 PROXY STATEMENT ● | 26 |
Employee Wellness and Wellbeing
At Group 1, we believe that supporting the wellness and wellbeing of our 2015 Annual Meetingemployees helps create a healthier company and ultimately more sustainable value to our stakeholders. In 2016, the Company began the Group 1 Wellness program, which is focused on providing employees with healthy living challenges and access to individual health coaching. In 2018, Group 1 was recognized by the American Heart Association as an organization that is promoting the heart health of Stockholders, we asked our stockholdersemployees.
We also believe that supporting our employees’ workplace satisfaction ultimately enhances the value of our business.
• | In 2008, we initiated the Manager Trainee Program, an entry-level rotational program designed for college graduates to learn our business from the ground up. Trainees will gain knowledge and experience within our Company over a 24-month period while working in one of our dealerships. The first year of the program is spent in Aftersales and the second year takes place in Variable Operations. After completing the program, trainees decide what area of the business suits them the most and where they would like to begin their career. This program helps prepare our employees for leadership roles within Group 1. We have had 69 employees graduate from the program. Examples of positions they currently hold are General Manager, New Vehicle Manager, Estimator, F&I Manager, Associate Manager Procurement, Manager Fixed Operations and Accounting Manager. |
• | In 2016, we launched the Pinnacle Program, an employee training and recognition program aimed at providing employees with meaningful opportunities to grow and develop, and to achieve greater employee retention and productivity in our business. Our dealerships are consistently recognized in the Automotive News Best Dealerships to Work for competition. |
• | In 2018, the Company worked with a third party vendor to conduct a confidential employee engagement survey for all U.S. dealership employees, with a focus on individual managers and an overall view of each General Manager. As a result of the survey, each dealership GM prepared an action plan focusing on becoming a better leader. A summary of the results of the survey was shared with our Board. |
• | In 2018, the Company elected to use the financial benefit it realized as a result of U.S. tax reform to recognize our U.S. employees who serve as the face of our company every day. Accordingly, a $500 bonus was paid to U.S. non-management dealership employees and operational staff. |
Group 1 PAC
Group 1 Automotive, Inc. maintains a Political Action Committee (PAC) that advocates for good government policies that further the best interests of the Company and its stockholders. The Group 1 PAC is open to approve our Amendedall eligible employees, and Restatedutilizes voluntary payroll deductions as a means for its funding. Through its contributions, the Group 1 PAC engages in local, state, and federal issues.
The PAC’s mission statement is “The mission of the Group 1 PAC is to support political candidates, without regard to party affiliation, who best represent and support the interests of Group 1 Automotive and the automotive industry at the federal, state and local levels of government, and to educate Group 1 Automotive employees as to government, politics and public policy issues.”
The Group 1 PAC is governed by a four-member board. Those members are the SVP, Financial Services, Manufacturer Relations and Public Affairs; SVP and General Counsel; SVP and Chief Financial Officer; and Director, Governmental and Public Affairs.
2019 PROXY STATEMENT ● | 27 |
Proposal 1 | Election of Directors |
Our Certificate of Incorporation (“Restated Certificate”) and Second Amended and Restated Bylaws (“Bylaws”), which, among other things, declassified our Board of Directors. Our Restated Certificate and Bylaws currently provide for annual elections of directors.
Our Board of Directors has nominated nine directors for election at this Annual Meeting to hold office until the next annual meeting and the election of their successors. All of the nominees are currently directors. Charles L. Szews was appointed toWith the exception of Ms. Taylor who joined our Board in November 2016, and Carin M. Barth was appointed to
the Board in February 2017. Mr. Arnold is not standing forre-election at the 2017 Annual Meeting. AllSeptember 2018, all of the other nominees were elected directors by a vote of the stockholders at the last annual meeting of stockholders which was held on May 18, 2016.17, 2018. Each nominee agreed to be named in this Proxy Statement and to serve if elected. All of the nominees are expected to attend the 20172019 Annual Meeting. All eightthen-current directors then serving on the Board, attended the 20162018 Annual Meeting.
The following table sets forth certain information, as of the date of this proxy statement, regarding our director nominees.nominees.
Director | Position and Offices with Group 1 | Director Since | Age | |||
John L. Adams | Director, Chairman of the Board | 1999 | 72 | |||
Carin M. Barth | Director | 2017 | 54 | |||
Earl J. Hesterberg | Director, President and Chief Executive Officer | 2005 | 63 | |||
Lincoln Pereira | Director, Regional Vice President, Brazil | 2013 | 57 | |||
Stephen D. Quinn | Director | 2002 | 61 | |||
J. Terry Strange | Director | 2003 | 73 | |||
Charles L. Szews | Director | 2016 | 60 | |||
Max P. Watson, Jr. | Director | 2001 | 71 | |||
MaryAnn Wright | Director | 2014 | 55 |
Director | Position and Offices with Group 1 | Director Since | Age |
John L. Adams | Director | 1999 | 74 |
Carin M. Barth | Director | 2017 | 56 |
Earl J. Hesterberg | Director, President and Chief Executive Officer | 2005 | 65 |
Lincoln Pereira | Director, Regional Vice President, Brazil | 2013 | 59 |
Stephen D. Quinn | Director, Non-Executive Chairman of the Board | 2002 | 63 |
Charles L. Szews | Director | 2016 | 62 |
Anne Taylor | Director | 2018 | 63 |
Max P. Watson, Jr. | Director | 2001 | 73 |
MaryAnn Wright | Director | 2014 | 57 |
We have no reason to believe that any of the nominees will be unable or unwilling for good cause to serve if elected. However, if any nominee should become unable for any reason or unwilling for good cause to serve, proxies may be voted for another person nominated as a substitute by the Board, or the Board may reduce the number of directors.
The number of directors on our Board is reviewed annually and fixed by our Board from time to time. In November 2016, the Board approved the number ofWe currently have ten directors serving on our Board. Effective as of the Annual Meeting, the Board size will be reduced to be nine members and in February 2017,as Mr. Strange has reached the Board expanded the number of directors serving on the Board to ten members.Company’s mandatory retirement age for non-management directors. The Board will continue to evaluate the size of the Board and make adjustments as needed to meet the current and future needs of the Company.
Stockholders may not cumulate their votes in the election of our directors. Under Delaware law and our Bylaws, a majority of votes cast by stockholders entitled to vote in the election of directors, is required
for the election of directors. This means that director nominees who receive more “for” votes than “against” will be elected for that position. You may vote “for” or “against” with respect to the election of directors. Only votes “for” or “against” are counted in determining whether a majority has been cast in favor of a director. Abstentions are not counted for purposes of the election of directors.
Our director resignation policy requires, in an uncontested election, any nominee for director who receives a greater number of votes “against” his or her election than votes “for” to promptly tender his or her resignation following certification of the election results. The Nominating/Governance Committee will promptly consider the resignation and a range of possible responses based on the circumstances that led stockholders to withhold votes, if known, and make a recommendation to the Board. The Board will act on the committee’s recommendation within 90 days following certification of the results of the election.
Proposal 1 — Election of Directors
2019 PROXY STATEMENT ● | 28 |
Our Board of Directors
Our Board believes that each of our directors is highly qualified to serve as a member of our Board. Each of our directors has contributed to the mix of skills, core competencies and qualifications of our Board. Our directors are highly educated and have diverse backgrounds and talents and extensive tracksuccessful records of successaccomplishment in what we believe are highly relevant positions with some of the most reputable organizations in the world.well-regarded organizations. Our Board has also considered the fact that all of our directors have worked for, or served on the boards of directors of, a variety of companies in a wide range of industries. Many of our directors also have served as directors of Group 1 for many years and
benefit from an intimate knowledge of our operations and corporate philosophy. Our Board believes that through their varying backgrounds, our directors bring a wealth of experiences and new ideas to our Board.
Described on the following pages are the principal occupations, positions and directorships for at least the past five years of our director nominees, as well as certain information regarding their individual experience, qualifications, attributes and skills that led our Board to conclude that they should serve on our Board. There are no family relationships among any of our directors or named executive officers.
Skills and Qualifications of ourOur Board of Directors
The following table includes the breadth and variety of business experience that each of our director nominees brings to our Board.Board.
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The lack of a ✓ for a particular item does not mean that the director does not possess that qualification, characteristic, skill or experience. We look to each director to be knowledgeable in these areas; however, the ✓ indicates that the item is a specific qualification, characteristic, skill or experience that the director brings to the Board.
IB – covered industry as Investment Banker
S – some experience
2019 PROXY STATEMENT ● | 29 |
JOHN L. ADAMS
Proposal 1 — Election of Directors
Age 74
Director Since: 1999
Independent Director
John L. Adams has served as one of our directors since November 1999, and served as non-executive Chairman of the Board from April 2005 through May 2017. Mr. Adams served as Executive Vice President of Trinity Industries, Inc., one of North America’s largest manufacturers of transportation, construction and industrial products, from January 1999 through June 2005, and as Vice Chairman from July 2005 through March 2007. Before joining Trinity Industries, Mr. Adams spent 25 years in various positions with Texas Commerce Bank N.A. and its successor, Chase Bank of Texas, National Association. From 1997 to 1998, Mr. Adams was Chairman, President and Chief Executive Officer of Chase Bank of Texas. Mr. Adams serves on the Board of Directors, the Corporate Governance and Directors Nominating Committee and is Chairman of the Finance and Risk Management Committee of Trinity Industries, Inc. Mr. Adams is Chairman of the University of Texas, Austin, President’s Development Board and serves on the Chancellor’s Council Executive Committee. He also serves on the McCombs School of Business Advisory Council. Mr. Adams recently retired from the Board of Directors and Audit Committee of Dr Pepper Snapple Group, Inc., a refreshment beverage business. Mr. Adams received his B.B.A. and J.D. from the University of Texas.
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The Board believes Mr. Adam’s extensive financial, strategic planning, capital allocation and executive management experience makes him well qualified to serve on our Board. His service on other public company boards has also provided exposure to various approaches to risk management, corporate governance and other key issues. Through his years of service on our Board, he has developed in-depth CARIN M. BARTH Age 56 Director Since: 2017 Independent Director Carin M. Barth has served as one of our directors since February 2017. She is co-founder and President of LB Capital, Inc., a private equity investment firm established in 1988. Since 2015, Ms. Barth has served on the Board of Directors of Enterprise Holdings, LLC, the General Partner of Enterprise Product Partners, L.P., one of the largest publicly traded partnerships and a leading North American provider of midstream energy services to producers and consumers of natural gas, and Black Stone Minerals, L.P., one of the largest oil and gas mineral and royalty companies in the United States, where she serves as Chair of the Audit Committee. Ms. Barth also serves as a Trustee of the Welch Foundation, and as a Board member of the Ronald McDonald House in Houston, Texas. From 2012 through 2018, Ms. Barth served as Chair of the Investment Advisory Committee for Texas Tech University. From 2008 to 2014, she served as a Commissioner for the Texas Department of Public Safety. Ms. Barth previously served on the Board of Directors of Bill Barrett Corporation where she served on the Compensation Committee and on the Nominating and Corporate Governance Committee from 2012 through 2016. From 2010 through 2017, she served on the board of directors of Strategic Growth Bancorp Incorporated, a privately held bank holding company located in El Paso, Texas, where she served as Chair of the Audit Committee, and Capital Bank, SSB, an affiliate of Strategic Growth Bancorp. Additional past board service includes Western Refining, Inc. from 2006 through 2016, where she served as Audit Committee Chair, Methodist Hospital Research Institute from 2007 through 2012, Encore Bancshares, Inc. from 2009 through 2012, Amegy Bancorporation, Inc. from 2006 through 2009, Texas Public Finance Authority from 2006 through 2008, and the Texas Tech University System Board of Regents from 1999 through 2005. Ms. Barth was also appointed by President George W. Bush to serve as Chief Financial Officer of the U.S. Department of Housing and Urban Development from 2004 to 2005. Ms. Barth received a B.S. from the University of Alabama and an M.B.A. from Vanderbilt University’s Owen Graduate School of Management. Ms. Barth has extensive experience in a variety of financial matters, including as chief financial officer for several entities. She also has a history of corporate and civic governance which provides additional depth and financial expertise to our Board. Her experience with mergers and acquisitions, in operating a private equity company, her previous and currently held board positions on other publicly traded companies and her audit committee experience are key attributes, among others, that make her well qualified to serve on our Board. Ms. Barth qualifies as an “audit committee financial expert.”
EARL J. HESTERBERG Age 65 Director Since: 2005 Earl J. Hesterberg has served as our President and Chief Executive Officer and as a director since April 2005. Prior to joining us, Mr. Hesterberg served as Group Vice President, North America Marketing, Sales and Service for Ford Motor Company, a global manufacturer and distributor of cars, trucks and automotive parts, since October 2004. From July 1999 to September 2004, he served as Vice President, Marketing, Sales and Service for Ford of Europe, and from 1999 until 2005, he served on the supervisory board of Ford Werke AG. Mr. Hesterberg has also served as President and Chief Executive Officer of Gulf States Toyota, an independent regional distributor of new Toyota vehicles, parts and accessories. He has also held various senior sales, marketing, general management, and parts and service positions with Nissan Motor Corporation in U.S.A. and Nissan Europe, both of which are wholly-owned by Nissan Motor Co., Ltd., a global provider of automotive products and services. Mr. Hesterberg serves on the Board of Directors of Stage Stores, Inc., a national retail clothing chain with over 800 stores located in 42 states where he is a member of the Corporate Governance and Nominating Committee and Chairman of the Compensation Committee. He is a past member of the Board of Trustees of Davidson College. Mr. Hesterberg also serves on the Board of Directors of the Greater Houston Partnership, where he serves on the Executive Committee and is Chairman of the Business Issues Committee. Mr. Hesterberg received his B.A. in Psychology at Davidson College and his M.B.A. from Xavier University in 1978. As our President and Chief Executive Officer, Mr. Hesterberg sets the strategic direction of our Company under the guidance of our Board. He has extensive senior executive management experience in the automotive industry. His successful leadership of our Company, and extensive knowledge of the automotive industry provides our Board with a unique perspective on the opportunities and challenges we face, and makes him well-qualified to serve on the Board. LINCOLN PEREIRA Age 59 Director Since: 2013 Lincoln Pereira has served as one of our directors since February 2013. Mr. Pereira has served as our Regional Vice President, Brazil since March 2013 and has served as chairman of our subsidiary, UAB (which we acquired in February 2013), since 2007. From 1999 to 2005, Mr. Pereira served as a legal representative of United Auto do Brasil Ltda, a public auto group operating in São Paulo and controlled by United Auto Group. From 1995 through 2005, Mr. Pereira practiced law with Cunha Pereira Advogados, representing professional athletes and international race car drivers. He was also co-founder and a major stockholder in Cunha Pereira Negócios Imobiliários, a local Brazilian real estate company, and in 1999, he founded Atrium Telecomunicações Ltda, a provider of local exchange telecommunication services. Atrium was sold to Telefonica of Spain in December 2004, and Mr. Pereira founded E-Vertical Tecnologia, a leading provider of high tech facilities management services to commercial properties. From 1978 through 1995, Mr. Pereira held numerous positions with various banks, both in Brazil and abroad. Mr. Pereira serves on the Board of Boa Vista Servicos S.A.-SCPC, the second largest credit bureau in Brazil, is Vice Chairman of the Board of the São Paulo Chamber of Commerce (ACSP), serves as a member of the Board of the Associação Brasileira dos Concessionários Mercedes-Benz, and serves as a Director of the Associação Brasileira dos Concessionários BMW and Associação Brasileira do Distribuidores Toyota. He is also a Chapter Sponsorship Officer of YPO-WPO São Paulo, a not-for-profit, global network of young chief executives connected around the shared mission of becoming Better Leaders Through Education and Idea Exchange.™ Mr. Pereira received his LL.B. from Faculdade de Direito do Largo de São Francisco. Mr. Pereira has extensive automotive retailing and manufacturer relations experience, as well as legal, finance, business and management expertise. He also has a deep understanding of the Brazilian finance, trade and legal sectors. Mr. Pereira’s experience and expertise in the automotive industry make him well qualified to serve as a member of the Board.
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STEPHEN D. QUINN
Age 63
Director Since: 2002
Independent Director
Stephen D. Quinn has served as our independent Chairman of the Board since May 2017, and as one of our directors since May 2002. Mr. Quinn joined Goldman, Sachs & Co., a full-service global investment banking and securities firm, in August 1981 where he specialized in corporate finance. From 1990 until his retirement in 2001, Mr. Quinn served as a General Partner and Managing Director of Goldman, Sachs. Mr. Quinn serves on the Audit Committee, the Nominating/Governance Committee, and as Lead Director of Zions Bancorporation, a large publicly-traded bank holding company. Mr. Quinn holds degrees from Brigham Young University and Harvard University Graduate School of Business.
Mr. Quinn was selected to serve as a director on our Board due to his valuable financial expertise and extensive experience with capital markets transactions. His judgment in assessing business strategies and the accompanying risks is an invaluable resource for our business model. Mr. Quinn also has significant historical knowledge of our Company as a result of his role at Goldman Sachs, an underwriter for our initial public offering. The Board believes his experience and expertise in these matters make him well qualified to serve as a member of the Board. Mr. Quinn qualifies as an “audit committee financial expert.”
CHARLES L. SZEWS
Age 62
Director Since: 2016
Independent Director
Charles L. Szews has served as one of our directors since November 2016. In January 2016, Mr. Szews retired from Oshkosh Corporation, a leading global manufacturer of specialty vehicles and vehicle bodies serving access equipment, defense, fire and emergency, and commercial markets. He joined Oshkosh in 1996 as Vice President and CFO, was appointed Executive Vice President in October 1997, and President and Chief Operating Officer in October 2007. Mr. Szews was appointed Chief Executive Officer in January 2011. Prior to joining Oshkosh, he began his career with Ernst & Young, and was Vice President and Controller at Fort Howard Corporation during its leveraged buyout. From November 2006 through July 2013, Mr. Szews served as a director of Gardner Denver, Inc., a worldwide provider of industrial equipment technologies and related parts and services, where he also served as Chairman of the Audit Committee and on the Nominating and Corporate Governance Committee. Since 2014, Mr. Szews has served as a director and on the Audit and Finance Committees for Commercial Metals Company, an operator of mini-steel mills located in the Southern United States and Poland. In August 2016, he was appointed to the board of directors of Rowan Companies plc, a global provider of contract drilling services, where he also serves as Chairman of the Audit Committee and is a member of the Health, Safety and Environment Committee. In April 2018, Mr. Szews was appointed to the board of directors of Allegion plc, a provider of security products and solutions for homes, businesses, schools and other institutions, where he also serves on the Compensation and Corporate Governance and Nominating Committees. Mr. Szews holds a degree in Business Administration from the University of Wisconsin – Eau Claire.
Mr. Szews was selected to serve on our Board due to his extensive operational and financial experience and his background in public accounting, auditing and risk management. His previous and current board positions on other publicly-traded companies have provided many years of audit committee experience, including as chair. Mr. Szews’ extensive financial and audit experience in a variety of senior management positions, combined with his global operational experience in vehicle manufacturing and distribution, have provided him with a wealth of knowledge in dealing with complex strategic, financial and accounting matters. Mr. Szews qualifies as an “audit committee financial expert.”
Proposal 1 — Election of Directors
2019 PROXY STATEMENT ● | ||
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Proposal 1 — Election of DirectorsANNE TAYLOR
Age 63
Director Since: 2018
Independent Director
Anne Taylor has served as one of our directors since September 2018. In 2018, Ms. Taylor retired from Deloitte, a leading global provider of audit and assurance, consulting, financial advisory, risk advisory, tax and related services, where she served as Vice Chairman, and Managing Partner of the Houston office. During her 30-year career at Deloitte, she held numerous leadership roles, including Regional Managing Partner for the eight-state Mid-America region. Ms. Taylor was Deloitte’s first Chief Strategy Officer, taking on the role at the initiation of the Sarbanes-Oxley Act of 2002 (as amended, the “Sarbanes-Oxley Act”). Under her leadership, the resulting firm grew a portfolio business, along with integrated service offerings, and retained a management consulting business that grew from $3.0 billion in revenue in 2003 to the largest in the world today at over $14.0 billion. She served as global e-business leader where she led Deloitte’s transformation to serve clients in the digital economy, which has evolved into the basis of Deloitte’s cyber-security practice. Additionally, Ms. Taylor was the strategic partner advisor to the World Economic Forum’s Technology Pioneer program and became the first woman to serve on Deloitte’s US executive committee and the management committee of Deloitte Global. She has served on Deloitte’s board of directors, chairing the strategic review of the proposed transaction to separate Deloitte Consulting. She served on both the US and Global Nominating Committees, the CEO Evaluation Committee, chaired the Strategic Investment Committee and served on the board of directors of Deloitte Consulting LLP (Global). Ms. Taylor serves on the Board of Directors of Southwestern Energy Company, an independent energy company engaged in natural gas, natural gas liquids and oil exploration, development, production, gathering and marketing. Ms. Taylor also serves on the Board of Directors of Conway MacKenzie, a consulting firm providing specialized, turnaround consulting and litigation support services. She also currently serves as the Chairman of the Board of Central Houston, Inc., is a member of C200 and previously served as an executive board member of the Greater Houston Partnership and United Way of Greater Houston. Ms. Taylor received her B.S. and M.S. degrees in civil engineering from the University of Utah, and attended Princeton University, pursuing PH.D. studies in transportation engineering. Ms. Taylor was identified as a potential Board candidate by two members of our Board of Directors.
Ms. Taylor is financially literate and has participated in audit committee meetings of many Deloitte clients. She was selected to serve on our Board due to her management and leadership experience, extensive background in global e-business, development and execution of business strategy, and corporate governance experience.
MAX P. WATSON, JR.
Age 73
Director Since: 2001
Independent Director
Max P. Watson, Jr. has served as one of our directors since May 2001. Mr. Watson served as President and Chief Executive Officer of BMC Software, Inc., a provider of enterprise management solutions, from April 1990 to January 2001. He served as Chairman of the Board of Directors of BMC from January 1992 until his retirement in April 2001. Mr. Watson serves on the Board of Trustees of Texas Children’s Hospital and as Chairman of the Quality and Safety Committee. From January 2007 through December 2008, Mr. Watson served as Chairman of the Board of Trustees of Texas Children’s Hospital. He also serves on the Board of Directors of Scenic Houston, an organization dedicated to preserving and enhancing the visual character of Houston. Mr. Watson holds a Bachelor’s in Business Administration from Louisiana Tech University.
Mr. Watson’s extensive business and management expertise from his position with a large global publicly-traded company makes him well qualified to serve as a member of our Board. As a former chairman, president and chief executive officer, Mr. Watson is familiar with many of the business issues we face today, including financial and strategic planning, technology, compensation, management development, international acquisitions, capital allocation, and stockholder relations.
2019 PROXY STATEMENT ● | ||
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Proposal 1 — Election of DirectorsMARYANN WRIGHT
Age 57
Director Since: 2014
Independent Director
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Proposal 1 — Election of Directors and the Nominating and Governance Committee of Maxim Integrated Products, Inc., a developer of innovative analog and mixed-signal products and technologies. She also serves as a Director of Delphi Technologies, a leading provider of advanced vehicle propulsion solutions, where she is a member of the Compensation and Human Resources Committee and Chairman of the Innovation and Technology Committee. Ms. Wright is also active in the community where she serves as Board Chair of the Friends for Animals of Metro Detroit. She previously served on the Board of Governors at Argonne National Laboratory, and the University of Wisconsin-Milwaukee, and as Trustee at Lawrence Technological University. Ms. Wright received a B.A. in Economics and International Business and a Master of Science in Engineering from the University of Michigan and an M.B.A. from Wayne State University.
Ms. Wright was selected to serve on our Board because of her extensive experience and her knowledge of the automotive industry, having been named one of the “Leading 100 Women in the Automotive Industry” by Automotive News. Her unique business, manufacturing, engineering and technology background and her extensive global automotive experience make her well qualified to serve as a member of the Board.
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Our Board of Directors Recommends a Vote “FOR” the Election of each of the Nominees for Director.
Proposal 2 — Advisory Vote on Executive Compensation
2019 PROXY STATEMENT ● | 34 |
Proposal 2 | Advisory Vote on Executive Compensation |
Pursuant to Section 14A of the Exchange Act, our stockholders are entitled to cast a vote at the Annual Meeting to approve, on anon-binding advisory basis, the compensation of our named executive officers, as disclosed in this proxy statement. As an advisory vote, Proposal 2 is not binding on our Board or itsthe Compensation Committee, will not overrule any previous decisions made by our Board or itsthe Compensation Committee, or require our Board or itsthe Compensation Committee to take any future or remedial action. Although the vote isnon-binding, the Compensation Committee will take into account the outcome of the vote when considering future executive compensation decisions.
Our Board recognizes that executive compensation is an important matter for our stockholders. As described in detail in the CD&A section of this proxy statement, the Compensation Committee is tasked with the implementation of our executive compensation philosophy. The core of that philosophy has been and continues to be to pay our named executive officers compensation that is competitive with amounts paid by our peer companies based on individual and Company performance. In particular, the Compensation Committee strives to attract, retain and motivate talented executives, to reward past performance measured against established goals and provide incentives for future performance, and to align executives’long-term interests with the interests of our stockholders. To do so, the Compensation Committee uses a combination ofshort- andlong-term incentive compensation to rewardnear-term performance and to encourage our executives’ commitment to ourlong-range, strategic business goals. It is always the intention of the Compensation Committee that our named executive officers be compensated competitively and in a manner that is consistent with our strategy, sound corporate governance principles, and stockholder interests and concerns. Our Board believes that our compensation policies and practices are effective in achieving our Company’s goals of rewarding sustained financial and operating performance, leadership excellence and aligning the executives’long-term interests with those of our stockholders.
We believe that it is appropriate to seek the views of our stockholders on the design and effectiveness of our executive compensation program, and we value your opinion. Based on the stockholder vote on the frequency of an advisory vote on executive compensation that took place at our 20112018 Annual Meeting of Stockholders,
our Board determined to holdcontinue holding the vote on executive compensation annually until the next stockholder vote on the frequency of such advisory vote, which we are conducting this year (See Proposal 3 – Advisory Vote on the Frequency of Executive Compensation Advisory Votes).vote.
At our 20162018 Annual Meeting of Stockholders, 97%96% of the shares voted on thesay-on-pay vote were in favor of the compensation paid to our named executive officers. The Compensation Committee believes this vote strongly endorses the compensation philosophy, policies and practices of the Company and, therefore, it did not make any significant changes in the structure of our executive compensation program as a result of thissay-on-pay vote. vote, other than the planned introduction of performance shares into the mix of long-term incentives in 2019, a best practice in executive compensation.
As described in the CD&A, we believe our compensation program is effective, appropriate and strongly aligned with thelong-term interests of our stockholders and that the total compensation package provided to our named executive officers (including potential payouts upon a termination or change of control) is consistent with market practice. We also believe our executive compensation is reasonable and not excessive. In fact, as a result of continuing challenging economic conditions in our Oklahoma and Texas markets, management received no increases to base compensation in 2016 or 2017 and, instead, salaries for 2016 and 2017 remainremained at the 2015 levels. In November 2017, the Committee elected to increase the base salaries for our named executive officers to become effective January 1, 2018, following record sales and record adjusted diluted earnings per share in 2017.
As you consider this Proposal 2, we urge you to read the CD&A section of this proxy statement for additional details on executive compensation, including the more detailed information about our compensation philosophy and objectives and the past compensation of our named executive officers, and to review the tabular disclosures regarding our named executive officers’ compensation together with the accompanying narrative disclosures in the “Executive Compensation” section of this proxy statement.
In light of these reasons, we are recommending that our stockholders vote“FOR” the following resolution:
“RESOLVED, that the compensation paid to our Company’s named executive officers, as disclosed pursuant to Item 402 ofRegulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby Approved.”
Our Board of Directors Recommends a Vote“FORFOR”” theNon-Binding
Advisory Approval of our Executive Compensation.
Proposal 3 — Advisory Vote on the Frequency of Executive Compensation Advisory Votes
2019 PROXY STATEMENT ● | 35 |
Proposal 3 | Ratification of the Appointment of Ernst & Young LLP as Our Independent Registered Public Accounting Firm |
Every six years, we are required to conduct a nonbinding stockholder advisory vote on the frequency of futuresay-on-pay votes. At our 2011 Annual Meeting of Stockholders, our stockholders cast the highest number of votes for annualsay-on-pay votes. In light of this result and other factors considered by our Board, we have since held suchsay-on-pay votes on an annual basis. As six years have passed, this Proposal 3 provides our stockholders with a second opportunity at the Annual Meeting to cast a nonbinding advisory vote on how often we should conduct asay-on-pay vote at future annual meetings of stockholders.
The Board believes that continuing to conductsay-on-pay votesevery year(as opposed to every two years or three years) is appropriate for us. We believe that an annual advisory vote on executive compensation is the most appropriate option for us because it will allow our stockholders to provide more frequent, direct input on our compensation policies and practices, and the resulting compensation for our named executive officers. Stockholders will have the opportunity to consider our most recent compensation decisions and focus on increasing long-term stockholder value, and to give immediate and direct feedback on our executive compensation programs. The Board also believes an annual advisory stockholder vote promotes corporate transparency
and accountability for the Compensation Committee. In making this recommendation, the Board took into account that a majority of the votes cast at our 2011 Annual Meeting of Stockholders voted in favor of holding an annual advisory vote on executive compensation. In addition, we are aware of the significant interest in executive compensation matters by investors and the general public, and value and encourage constructive dialogue with our stockholders on these matters. We understand that our stockholders may have different views as to what is the best approach for the Board of Directors, and we look forward to hearing from our stockholders on this Proposal.
The option of one year, two years or three years that receives the highest number of votes cast by our stockholders will be the frequency selected by our stockholders for future advisory votes on executive compensation. Abstentions and brokernon-votes will have no effect on the outcome of the vote. As an advisory vote, this proposal is nonbinding. Although the vote is nonbinding, the Board and the Compensation Committee value the opinions of our stockholders and will consider the outcome of the vote when setting the frequency of future advisory votes on named executive officer compensation.
Our Board of Directors Recommends a Vote of “ONE YEAR”
for this Proposal.
Proposal 4 — Ratification of the Appointment of Ernst & Young LLP as our Independent Registered Public Accounting Firm
The Audit Committee has appointed Ernst & Young LLP (“Ernst & Young”) as the independent registered public accounting firm of Group 1 for the fiscal year ending December 31, 2017.2019. We have been advised by Ernst & Young that the firm has no relationship with Group 1 or its subsidiaries other than
that arising from the firm’s engagement as auditors, tax advisors and consultants. Representatives of Ernst & Young will be present at the Annual Meeting and will have the opportunity to make a statement and respond to appropriate questions from stockholders.
Audit and Other Fees
Set forth below is a summary of certain fees accrued by Ernst & Young, which has served as our independent registered public accounting firm since 2002, for services related to the fiscal years ended December 31, 20152017 and 2016.2018. In determining the independence of Ernst & Young, the Audit Committee considered whether the provision ofnon-audit services is compatible with maintaining Ernst & Young’s independence.
2015 | 2016 | |||||||
Audit Fees(1) | $ | 2,427,500 | $ | 2,116,000 | ||||
Audit Related Fees(2) | — | — | ||||||
Tax Fees(3) | 278,733 | 198,000 | ||||||
All Other Fees(4) | 2,200 | 2,200 | ||||||
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Total | $ | 2,708,433 | $ | 2,316,200 | ||||
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Type of Fees | 2018 | 2017 | |||
Audit Fees(1) | $ 2,594,000 | $ 2,526,000 | |||
Audit Related Fees(2) | — | — | |||
Tax Fees(3) | 79,000 | 162,000 | |||
All Other Fees(4) | 2,200 | 2,200 | |||
TOTAL | $ 2,675,200 | $ 2,690,200 |
(1) | Audit fees consisted of amounts accrued for services performed in association with the annual financial statement audit (including required quarterly reviews) for |
(2) | There were no audit related fees in |
(3) | Tax fees consisted of amounts billed in |
(4) | Other fees consisted of amounts accrued in |
Proposal 4 — Ratification of the Appointment of Ernst & Young LLP as our Independent Registered Public Accounting Firm
2019 PROXY STATEMENT ● | 36 |
The Audit Committee considers whether the provision of these services is compatible with maintaining Ernst & Young’s independence, and has determined such services for fiscal 20152017 and 20162018 were compatible. All of the services described above werepre-approved by the Audit Committee pursuant to paragraph (c)(7)(ii)(C) ofRule 2-01 ofRegulation S-X under the Exchange Act, to the extent that rule was applicable during fiscal 20152017 and 2016.2018.
The Audit Committee has established a policy requiringpre-approval by the Audit Committee of all services (audit andnon-audit) to be provided to us by our independent registered public accounting firm. In accordance with this policy, the Audit Committee has given its annual approval for the provision of audit services by Ernst & Young, and has also given its approval for up to a year in advance for the provision by Ernst & Young of particular categories or types ofaudit-related, tax and permittednon-audit services, in each case subject to a specific budget.
Any proposed services to be provided by the independent registered public accounting firm not covered by one of these approvals, including proposed services exceedingpre-approved budget levels, requires specialpre-approval by the Audit Committee. The Audit Committee does not delegate its
responsibilities topre-approve services performed by the independent registered public accounting firm to management. All of the services listed on the preceding pageabove werepre-approved pursuant to this policy.
The ratification of our Audit Committee’s appointment of Ernst & Young as our independent registered public accounting firm for the fiscal year ending December 31, 20172019 requires our receiving the affirmative vote of the holders of a majority of our common stock present in person or represented by proxy and entitled to vote on the proposal. Although ratification is not required by our bylaws or otherwise, as a matter of good corporate governance, we are asking our stockholders to approve the selection of Ernst & Young as our independent registered public accounting firm. If the selection is not ratified, the Audit Committee will consider whether it is appropriate to select another independent registered public accounting firm. Even if the selection is ratified, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in our best interest and the best interest of our stockholders.
TheOur Board of Directors recommends a vote“FORFOR”” Ratification of the Appointment of Ernst & Young LLP as our Independent Registered Public Accounting Firm for the Fiscal Year Ending December 31, 2017.2019.
2019 PROXY STATEMENT ● | 37 |
The Audit Committee (the “Committee”) is appointed by the Board of Directors to assist the Board in fulfilling its oversight responsibilities relating to our accounting policies, reporting policies, internal controls, compliance with legal and regulatory requirements, and the integrity of Group 1’s financial reports. The Board of Directors, upon the recommendation of its Nominating/Governance Committee, has determined that each member of the Audit Committee has the requisite independence and other qualifications for audit committee membership under New York Stock Exchange corporate governance listing standards, theSarbanes-Oxley Act of 2002, the Audit Committee Charter and the Group 1 Automotive, Inc. Corporate Governance Guidelines.
The Audit Committee acts under a written charter adopted and approved by the Board of Directors. The Audit Committee reviews and reassesses the adequacy of the charter on an annual basis. Based on the recommendation of the Audit Committee, the Board approved the Audit Committee charter at a regularly scheduled meeting in February 2017.2019. The Audit Committee charter is posted on our website,www.group1auto.com, and you may obtain a printed copy of the Audit Committee charter by sending a written request to Group 1 Automotive, Inc., 800 Gessner, Suite 500, Houston, TX 77024, Attn: Corporate Secretary.
The Audit Committee assists the Board’s oversight and monitoring of the Company’s system of internal controls, including the internal audit function. The Audit Committee discussed with our internal auditors the overall scope and plans for the 20162018 audit. At each Audit Committee meeting, the Audit Committee is provided the opportunity to meet with the internal auditor with, and without, management present. During 2016,2018, management made any necessary updates to its internal control documentation for changes in internal control and completed its testing and evaluation of the Company’s system of internal control over financial reporting in response to the requirements set forth in Section 404 of the Sarbanes Oxley Act of 2002 and related regulations. The Audit Committee has kept apprised of the progress of the evaluation and provided oversight and advice to management during the process. In connection with this oversight, the Audit Committee received updates provided by management and the independent auditor at each regularly scheduled Audit Committee meeting and met in executive session separately with the internal and the independent auditor to discuss the results of their examinations, observations and recommendations regarding internal control over financial reporting.
The independent registered public accounting firm is accountable to the Audit Committee, and the Audit Committee has the ultimate authority and responsibility to select, evaluate and, where appropriate, replace the independent registered public accounting firm. The Audit Committee engages in an annual evaluation of the independent public accounting firm’s qualifications, assessing the firm’s quality of service, the firm’s sufficiency of resources, the quality of the communication and interaction with the firm, and the firm’s independence. The Audit Committee makes its selection based on the best interests of the Company and its stockholders. The Audit Committee participates in the selection of the lead Audit Partner (the “Lead Partner”) of the independent registered public accounting firm through its review of the Lead Partner’s professional qualifications, experience, and prior performance on the Company’s audit (if any); throughin-person meetings with the Lead Partner, and through discussion between the Audit Committee and Managementmanagement regarding the selection of the Lead Partner.
The Audit Committee has reviewed and discussed with management and Ernst & Young LLP, our independent registered public accounting firm, our audited financial statements as of and for the year ended December 31, 2016.2018. The Audit Committee has also discussed with Ernst & Young LLP the matters required to be discussed by Statement on Auditing Standard No. 1301 “Communications“Communications with Audit Committees,” issued by the Public Company Accounting Oversight Board.
Ernst & Young LLP submitted to the Audit Committee the written disclosures and the letter required by Rule 3526 of the Public Company Accounting Oversight Board,Communication with Audit Committees Concerning Independence. The Audit Committee discussed with Ernst & Young LLP such firm’s independence. The Audit Committee has also considered whether the provision ofnon-audit services to our Company by Ernst & Young LLP is compatible with maintaining their independence.
Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements referred to above be included in our Annual Report onForm 10-K for the year ended December 31, 2016,2018, for filing with the SEC.
Respectfully submitted by the Audit Committee of the Board of Directors of Group 1,
Carin Barth (Chairman)
Stephen D. Quinn
J. Terry Strange
Charles L. Szews
Anne Taylor
2019 PROXY STATEMENT ● | 38 |
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Except as described under the heading “Executive Compensation — Narrative Disclosure to Summary Compensation Table and Grants ofPlan-Based Awards Table”, our named executive officers serve at the discretion of our Board. The following table sets forth certain information as of the date of this proxy statement regarding our named executive officers:
Name | Age | Position | ||
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Earl J. Hesterberg | 65 | President and Chief Executive Officer | ||
Daryl A. Kenningham | 54 | President, U.S. Operations | ||
John C. Rickel | 57 | Senior Vice President and Chief Financial Officer | ||
Frank Grese, Jr. | 67 | Senior Vice President, Human Resources, Training and Operations Support | ||
| Peter C. DeLongchamps | 58 | ||
| Senior Vice President, Manufacturer Relations, Financial Services & Public Affairs |
Mr. Hesterberg’s biographical information may be found on page 1731 of this proxy statement.
DARYL A. KENNINGHAM | ||
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JOHN C. | |||
John C. Rickel was appointed Senior Vice President and Chief Financial Officer in December 2005. From 1984 until joining Group 1, Mr. Rickel held a number of executive and managerial positions of increasing responsibility with Ford Motor Company, a global manufacturer and distributor of cars, trucks and automotive parts. He most recently served as Controller, Ford Americas, where he was responsible for the financial management of Ford’s western hemisphere automotive operations. Immediately prior to that, he was Chief Financial Officer of Ford Europe, where he oversaw all accounting, financial planning, information services, tax and investor relations activities. Mr. Rickel serves on the Board of Directors, on the Audit Committee and as Chair of the Governance Committee of U.S. Xpress, a large truckload carrier providing services primarily throughout the United States. From 2002 to 2004, Mr. Rickel was Chairman of the Board of Directors of Ford Russia, and a member of the Board of Directors and the Audit Committee of Ford Otosan, a publicly traded automotive company located in Turkey and owned 41% by Ford. Mr. Rickel received his B.S.B.A. and M.B.A. from The Ohio State University. |
2019 PROXY STATEMENT ● | 39 |
FRANK GRESE, JR. | ||
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Frank Grese, Jr. was appointed Senior Vice President of Human Resources, Training and Operations Support effective February 1, 2016. Prior to that appointment, Mr. Grese served as Regional Vice President of the West Region from January 2006 to January 2016, and served as the Platform President of Group 1 Atlanta from December 2004 to December 2005. Mr. Grese began his automotive career in the Ford Management Training Program in 1974 where he progressed through various assignments in district offices as well as Ford headquarters in Detroit. He joined Nissan in 1982 where he ultimately held the position of National Dealer Advertising Manager. In 1986, Mr. Grese left the manufacturer side of the business and began working in various executive positions, including chief operating officer and district president, with large public and private dealer groups. He last served as Director of Dealership Operations, working extensively with underperforming stores, for a large private dealer group. Mr. Grese |
Executive Officers
PETER C. DELONGCHAMPS | ||
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Peter C. DeLongchamps has served as Group 1’s Senior Vice President, Manufacturer Relations, Financial Services |
2019 PROXY STATEMENT ● | 40 |
20162018 Compensation Discussion and Analysis
This Compensation Discussion and Analysis provides a detailed description of our executive compensation philosophy and programs, the compensation decisions the Compensation Committee has made under those programs and the factors considered in making those decisions. As discussed in greater detail below, our compensation plans are designed to reward our named executive officers for the achievement of these results for our Company and our stockholders. The Compensation Discussion and Analysis focuses on the compensation of our named executive officers as of December 31, 2016,2018, who were:
Business and Financial Highlights
In 2016, Group 1 continued to deliver record setting financial results and increased operational effectiveness. Our results included:
• | Daryl A. Kenningham — President, U.S. Operations; |
• | John C. Rickel — Senior Vice President and Chief Financial Officer; |
• | Frank Grese, Jr. — Senior Vice President, Human Resources, Training and Operations Support; and |
• | Peter C. DeLongchamps — Senior Vice President, Manufacturer Relations, Financial Services and Public Affairs. |
See Exhibit 99.1 to our Current Report onForm 8-K (FileNo. 001-13461) filed February 2, 2017
for a reconciliation of thenon-GAAP measures to the comparable GAAP measures.
2016 Compensation Discussion and Analysis
Compensation and Corporate Governance
The Committee continuously reviews best practices in executive compensation and has made several adjustments to elements of our compensation programs over the past several years to further align
our executive compensation structure with our stockholders’ interests and current governance practices, including:
COMPENSATION HIGHLIGHTS
Role of the Compensation Committee, its Consultant and Management
Our Board has entrusted the Compensation Committee (the “Committee”) with overall responsibility for establishing, implementing and monitoring our executive compensation program. Our Chief Executive Officer and Senior Vice President of Human Resources, Training and Operations Support, also play a role in the implementation of the executive compensation process, by overseeing the performance and dynamics of the executive team and generally keeping the Committee informed. All final decisions regarding our named executive officers’ compensation remain with the Committee, except in the case of our Chief Executive Officer where the independent members of the Board make all decisions with the benefit of recommendations from the Committee.
The Committee has historically engaged Pearl Meyer & Partners, LLC (“PM&P”), an executive compensation firm, to serve as its compensation consultant and to advise on
executive compensation matters. In 2016,2018, PM&P was engaged to conduct a competitive compensation analysis for the named executive officers. During that time, PM&P reviewed compensation data for our peer companies in comparison to our current compensation practices and made recommendations to the Committee. The Committee retains PM&P directly, although in carrying out assignments PM&P may interact with our management when necessary and appropriate. PM&P does not provide any services to our Company other than its consulting services to the Committee, and the Committee determined that no conflict of interest exists between PM&P and our Company. Please see “Information About our Board of Directors and its Committees — Compensation Committee” for additional information on the role of the Committee, its consultant and management in setting executive compensation.
2019 PROXY STATEMENT ● | 41 |
Objectives of Our Executive Compensation Program
Compensation PhilosophyCOMPENSATION PHILOSOPHY
The Committee believes that the most effective executive compensation program is one designed to recruit, retain and motivate capable leadership and reward those individuals upon the achievement of their
personal and departmental objectives, as well as upon our Company’s achievement of specific annual,long-term and strategic goals. The Committee evaluates both market competitiveness, as well as
2016 Compensation Discussion and Analysis
individual and Company performance, to ensure that we maintain our ability to attract, retain and motivate talented employees in key positions. By maintaining competitive compensation and rewarding for performance, the Committee strives to support our overall business objectives and provide our stockholders with a superior rate of return over time.
Our strategic business focus during the fiscal year ended December 31, 20162018 consisted of the following objectives:
increasing total same store gross profit through efforts in the new vehicle, used vehicle, finance and insurance, parts, service and collision departments; |
continuing to consolidate key operating processes and systems to improve our customer responsiveness, |
maintaining a cost level that aligns with the anticipated level of business activity; and |
seeking strategic portfolio management opportunities within the automotive retail market so that we can continue to optimize our business operations |
Our named executive officers’ individual or departmental goals for the fiscal year ended December 31, 20162018 generally consisted of one or more of the following criteria, which provide support for our business objectives:
sustain sales momentum; |
maximize |
continue to strengthen our processes and management for improved operating effectiveness and efficiency; |
control costs and expenses as sales levels |
dispose of underperforming dealerships and deploy the proceeds into other capital appreciation opportunities with better return potential; and |
drive the capital allocation process, which seeks investments that maximize return to our stockholders. |
Stockholder Input on Executive Compensation MattersSTOCKHOLDER INPUT ON EXECUTIVE COMPENSATION MATTERS
In accordance with applicable law and as described in more detail in Proposal 2 above, our stockholders have the right to vote, on an advisorynon-binding basis, on the approval of the compensation of our named executive officers at specified intervals (the“say-on-pay “say-on-pay vote”). Stockholders last voted on this matter at the 20162018 Annual Meeting of Stockholders. In accordance with the frequency vote at the 2017 Annual Meeting of Stockholders andwe hold our say-on-pay vote every year. In 2018, 96% of the votes cast were in accordance withfavor of our executive compensation program; therefore the Committee did not make any significant changes to our compensation program as a result of such a vote, atother than the 2011 Annual Meetingplanned introduction of Stockholders onperformance shares into the frequencymix ofsay-on-pay votes, stockholders currently will vote on such compensation every year.
long-term incentives in 2019, a best practice in executive compensation. The Compensation Committee will continue to consider on an annual basis the vote results forsay-on-pay
proposals when making compensation decisions for our named executive officers.
In addition to such consideration given to the results of thesay-on-pay vote, at various times throughout the year the Compensation Committee considers any input it may receive from stockholders and other stakeholders, and more general developments in executive compensation principles, in the development and implementation of the Company’s executive compensation philosophy, policies and programs. For additional information on thesay-on-pay vote with respect to the compensation paid to our named executive officers in 2016,2018, see Proposal 2 above.
Market AnalysisMARKET ANALYSIS
We again engaged PM&P to conduct an independentmarket-based analysis of our executive compensation program in 2016.2018. The market analysis process involved the comparison oflong-term,short-term and total compensation with a selected group of peer companies (“Peer Companies”). Compensation data was compared at the 25th, 50th 25th, 50thand 75th 75thpercentiles of the market.
While we do not think it is appropriate to establish compensation based solely on market analysis, we believe that the practice of comparing our compensation program to the programs of our peers can be useful for two reasons. First, our compensation practices must be competitive in order to attract and retain executives with the ability and experience necessary to provide leadership and to deliver strong performance to our stockholders. Second, comparison analysis allows us to assess the reasonableness of our compensation
2016 Compensation Discussion and Analysis
practices. This process allows us to achieve one of our primary objectives of maintaining competitive compensation to ensure retention and assists in aligning compensation with stockholder interests.
Our Peer Companies remained unchanged for 2016, and include all of thepublicly-traded publicly traded automotive consolidators and specialty retailers associated with
automotive sales, and automotive parts and service against whom we most directly compete for executive talent. The list of our Peer Companies is periodically reviewed and updated by the Committee. Our 20162018 Peer Companies were:
2019 PROXY STATEMENT ● | 42 |
Back to Contents |
• | Advance Auto Parts, Inc. | • | Lithia Motors, Inc. |
• | Asbury Automotive Group, Inc. | • | LKQ Corporation |
• | AutoNation, Inc. | • | O’Reilly Automotive, Inc. |
• | AutoZone, Inc. | • | Penske Automotive Group, Inc. |
• | CarMax, Inc. | • | Rush Enterprises, Inc. |
• | Genuine Parts Company | • | Sonic Automotive, Inc. |
When evaluating the compensation data and making compensation decisions, the Committee has taken into consideration the variance in revenue size among the entities comprising our Peer Companies. Additionally, the Committee has considered other differences between us and our Peer Companies such as corporate structure, tenure of officers, variance in scope of duties for each officer and other factors when calculating a market value. This value is used as the basis of comparison of compensation provided by us and our
Peer Companies. However, any application of market analysis data is tempered by our basic staffing philosophy, which is to remain as lean as practical. This guiding principle results in certain of our named executive officers having a broad range of job responsibilities, which, at certain of our Peer Companies, may be divided among multiple executive officers. The Committee’s use of market analysis data for specific compensation components is described in more detail below.
In 2016,2018, compensation tally sheets for the named executive officers were prepared by our Compensation Manager and reviewed by the Committee. This review consists of a twelve month summary of cash compensation earned, employee benefits provided, stock granted (with value at grant), and value of stock released (with value at release). Total shares and present value of unvested restricted stock is also presented for review. In addition to the PM&P market analysis, information from these tally sheets was also considered by the Committee in making compensation decisions for the named executive officers, as well as guiding the design of cash andnon-cash compensation and benefit programs. The Committee specifically used tally sheets in the following contexts for each named executive officer:
2016 Compensation Discussion and Analysis
• | To determine the historical value of compensation paid; |
• | To determine the value of restricted stock awards forfeited in the event of a voluntary termination when making decisions regarding grants to encourage retention; |
• | To understand total compensation potentially payable to the named executive officers under all possible scenarios, including death/disability, retirement, voluntary termination, termination with and without cause and changes of control; and |
• | To ensure that the structure of pay at different levels is fair and appropriate. |
Our compensation program for our named executive officers includes annual cash compensation andlong-termequity-based long-term equity-based compensation. Annual cash compensation consists of annual base salary and payments under our annual cash incentive plan. Ourlong-termequity-based long-term equity-based compensation consists of equity awards made under our long termlong-term incentive plan.
In addition, our named executive officers are eligible to (i) participate in our health and welfare plans, our Employee Stock Purchase Plan and our retirement plans (401(k) Savings Plan and Deferred Compensation Plan), (ii) receive a vehicle allowance and/or demonstrator vehicle(s), depending on the position held, and (iii) receive perquisites and other personal benefits as described under “Other Benefits” below.
Design
Design.
We provide our named executive officers with an annual base salary to compensate them for services rendered during the year. Our goal is to set base salaries for our named executive officers at levels that are competitive with comparable companies for the skills, experience and requirements of similar positions, using market analysis as previously discussed, in order to attract and retain top talent. In order to achieve this goal, we have generally sought to provide base salaries that fall near the 50th 50thpercentile of our Peer Companies. We believe that this range supports competitive compensation and ensures retention. In order to ensure that each officer is appropriately compensated, the Committee, when setting base salaries, considers individual performance, tenure and experience and our financial performance in addition to the compensation review of the Peer Companies. Individual base salary levels are generally reviewed each November and are adjusted as appropriate based on an analysis of current market salary levels at the Peer Companies, individual performance and experience, and our financial performance.
2019 PROXY STATEMENT ● | 43 |
Results.
In November 2017, after reviewing the tally sheets and certain economic conditions affecting the Company, the Committee discussed with Mr. Hesterberg the appropriate base compensation levels for the Company’s named executive officers other than himself. The Committee noted that due to challenging economic conditions in some of the Company’s key markets, base salaries for the named executive officers were not changed for 2016 or 2017, and remained at the 2015 base compensation levels. In November 2017, the Committee elected to increase the base salaries for our named executive officers by approximately 3.0%, to become effective January 1, 2016. In determining2018 to levels that remain near the 50thpercentile compensation of our Peer Companies. Accordingly, the base salaries for 2016, the Committee reviewed their salaries using the
criteria described above and determined to make the increases to position them closer to the 50th percentile of the named executive officers of our Peer Companies. The base salaries at that time for Messrs. Hesterberg, Kenningham, Rickel, Grese Burman and DeLongchamps were $583,500, $540,000, $440,300increased to $1,150,000, $624,000, $599,700, $572,500 and $465,300,$478,300, respectively. The 2016 base salaries of Messrs. Rickel, Grese, Burman and DeLongchamps were scheduled to be increased by approximately 3.0% to $598,500, $453,300 and $469,300, respectively. However, in light of challenging economic conditions in some of the Company’s key markets including Texas, Oklahoma and Brazil, the approved 2016 salary increases for the named executive officers were rescinded, and their base salaries for 2016 remained at the 2015 levels. Mr. Hesterberg’s base salary also remained at the 2015 level of $1,100,000. Mr. Grese’s 2016 compensation was not considered for the 3.0% increase since he transitioned from business operations to the corporate office on January 1, 2016.
Compensation Changes for Fiscal 2017.2019
In light of continuing challenging economic conditions in some ofNovember 2018, the Company’s key markets including Texas, Oklahoma and Brazil,Committee elected to increase the base salaries for 2017 for our named executive officers (with the exception of Mr. Hesterberg) effective January 1, 2019, to levels that remain atnear the 201550thpercentile compensation of our Peer Companies. Accordingly, the base compensation levels.salaries for our named executive officers were increased as follows:
2018 Base Salary | 2019 Base Salary | |||||
Named Executive Officer | ($) | ($) | ||||
Earl J. Hesterberg | 1,150,000 | 1,150,000 | ||||
Daryl A. Kenningham | 624,000 | 655,200 | ||||
John C. Rickel | 599,700 | 629,700 | ||||
Frank Grese, Jr. | 572,500 | 595,400 | ||||
Peter C. DeLongchamps | 478,300 | 492,650 |
Annual Incentive Compensation PlanANNUAL INCENTIVE COMPENSATION PLAN
Annual cash incentive awards are intended to align our annual performance and results with the compensation paid to persons who are most responsible for such performance, and to motivate and reward achievement of Company and individual or departmental performance objectives. Meaningful,performance-related goals are established so that attaining or exceeding the performance targets is not assured, requires significant effort by each of our named executive officers, and if accomplished, contributes to the ongoing overall improvement and success of the Company.
For 2016,2018, the annual incentive compensation plan was based upon achievement of financial and individual, or departmental, goals approved at the beginning of the year by the Committee. The financial andmission-based portions of the annual incentive awards could be awarded independently so that achievement of one was not predicated on the achievement of the other. There is, however, a minimum earnings per share goal established by the Committee at the beginning of each year which has to be achieved before any incentive award is paid. See page 33 for more detail.
2016 Compensation Discussion and Analysis
The following is a description of the 20162018 performance metrics under the annual incentive compensation plan:
Financial Goal.
For 2016,2018, the financial goal portion of our annual cash incentive compensation plan was based on achievement of diluted earnings per share (“EPS”). Diluted earnings per share is generally defined as our net income available to diluted common shares divided by the sum of the weighted average number of common shares outstanding during the period plus those that would have been outstanding, assuming issuance for all dilutive potential common shares. Under the 20162018 annual incentive compensation plan, the Committee may, in its sole discretion, adjust the Company’s EPS when determining achievement of the financial goal metric for extraordinary or unusual items that would be included in our annual operating results, but not typically considered at the time the targets were set, such as certain asset impairments or extraordinary dilutive events which materially affect EPS.
The Committee believes that EPS is the best metric for our financial goal portion of the annual incentive compensation plan, because it incentivizes our named executive officers to maximize stockholder
return and only rewards our named executive officers if our stockholders are rewarded. Further, no payments are made under the financial goal portion of the award unless a threshold level of EPS is achieved. The threshold, target and maximum levels of performance for the EPS metric set by the Committee for 20162018 were as follows: Threshold — $7.21; Target — $7.39; and Maximum — $7.56.
Mission-based
Threshold | Target | Maximum | |
($) | ($) | ($) | |
EPS | $8.20 | $8.55 | $8.76 |
Mission-based Goals.
Mission-based goals typically include four to six specific goals that are normally related to the individual’s functional area and are established at the beginning of each fiscal year jointly by the named executive officer and our Chief Executive Officer and reviewed by the Committee, or in the case of the Chief Executive Officer, by the Committee and the Board. These goals are integral toward achieving key business objectives, such as those listed on page 3042 which help improve our financial performance, promote corporate efficiencies and contribute to the growth of our Company. In 2016,2018, the followingmission-based goals were assigned to each of our named executive officers:
2019 PROXY STATEMENT ● | ||
| 44 |
Name | Individual/Departmental Performance Targets | |
Earl J. Hesterberg | • |
|
• | Identification of disruptive forces and revise strategy as necessary | |
• | Complete brand study and leverage certain brands | |
• | Focus on disposition of underperforming stores | |
• | Increase U.S. used vehicle gross profit | |
• | Increase U.S. aftersales gross profit | |
•
| Achieve selling, general and administrative cost reduction target | |
Daryl A. Kenningham | • | Decrease employee turnover |
• | Increase U.S. aftersales gross profit | |
• | Increase U.S. used vehicle gross profit | |
• | U.S. inventory management | |
•
| Achieve selling, general and administrative cost reduction target
| |
John C. Rickel | • | Payroll conversion and implementation |
• | Implementation of new payment solution | |
• | Further consolidate U.K. accounting | |
• | Continue deployment of cybersecurity measures | |
•
| Achieve selling, general and administrative cost reduction target |
2016 Compensation Discussion and Analysis
| • | Coordinate with procurement department to identify and achieve cost savings goal |
| Improve employee retention through training, professional development programs and learning opportunities | |
• | Support greater employee engagement and development through employee recognition programs | |
• | Achieve recruiting objectives for dealership service employees | |
• | Develop service appointment rescheduling system; support service development center | |
•
| Expand employee training program to develop “touch points” for more interaction with new employees | |
• | Promote employee wellness programs through quarterly wellness challenges | |
• | Achieve selling, general and administrative cost reduction target | |
Peter C. DeLongchamps | • | Achieve F&I per retail unit target |
•
| Maintain capital expenditure projects within budget while maintaining positive relationships with manufacturers | |
• | Implement online F&I product cancellations initiative | |
• | Renegotiate key lender agreements and roll out to U.S. dealerships | |
• | Continued focus on communication and relationships with manufacturers and investment community | |
• | Achieve selling, general and administrative cost reduction target |
For 2016, the Committee decided that at achievement of threshold or target performance for EPS, each of the performance metrics — financial andmission-based — should be weighted 50%, with the award payout based on 100% of base salary for Messrs. Hesterberg, Rickel and Grese and 60% of base salary for Messrs. Burman and DeLongchamps. The Committee also determined that: (i) if the threshold EPS goal was attained, the executive officers would receiveone-third of the financial goal portion of their award; and (ii) if the target EPS goal was attained, the executive officers would receivetwo-thirds of the financial goal portion of their award. In addition, the Committee decided that for 20162018 as long as earnings per share was at least $6.50,$7.25, themission-based portion of the award would be payable from 0% to 100% according to individual goal achievement levels.
The Committee also decided that at achievement of maximum level of performance for EPS, the total
possible cash incentive plan payout for each executive should be increased and such increase would be entirely attributable to the financial performance metric. As such, the executive officers would be eligible to receive the samemission-based award discussed above, however Messrs. Hesterberg, Burman and DeLongchamps would receive 150% of the financial portion of their awards as otherwise described above and Messrs. Rickel and Grese would receive 130% of the financial portion of their awards as otherwise described above. As a result, assuming allmission-based goals were attained, the following table sets forth the threshold, target and maximum annual incentive compensation plan potential payouts for 2016,2018, as a percentage of base salary. The target performance level was set such that, if attained, the total cash compensation paid to our named executive officers would approximate the median paid to named executive officers at our Peer Companies.
How the Annual Incentive is Paid (as a % of Salary) | |||||||||||||||||||||||||||
Financial Based | Total Opportunity (Assumes 100% Payout on Mission Based) | ||||||||||||||||||||||||||
2016 Incentive Payout as a % of Base Salary | Mission | ||||||||||||||||||||||||||
Named Executive Officer | Threshold Performance | Target Performance | Maximum Performance | Based | Threshold | Target | Max | Threshold | Target | Max | |||||||||||||||||
Earl J. Hesterberg | 67 | % | 83 | % | 125 | % | 50.0% | 16.7% | 33.3% | 75.0% | 66.67% | 83.33% | 125.00% | ||||||||||||||
Daryl A. Kenningham | 50.0% | 16.7% | 33.3% | 75.0% | 66.67% | 83.33% | 125.00% | ||||||||||||||||||||
John C. Rickel | 67 | % | 83 | % | 115 | % | 50.0% | 16.7% | 33.3% | 65.0% | 66.67% | 83.33% | 115.00% | ||||||||||||||
Frank Grese, Jr. | 67 | % | 83 | % | 115 | % | 50.0% | 16.7% | 33.3% | 65.0% | 66.67% | 83.33% | 115.00% | ||||||||||||||
Darryl M. Burman | 40 | % | 50 | % | 75 | % | |||||||||||||||||||||
Peter C. DeLongchamps | 40 | % | 50 | % | 75 | % | 50.0% | 16.7% | 33.3% | 65.0% | 66.67% | 83.33% | 115.00% |
2019 PROXY STATEMENT ● | 45 |
2016 Compensation Discussion and AnalysisResults
Results.For 2016,2018, we achieved the maximum level of our financial goal (EPS). The company recognized an $11.7 million net settlement with Volkswagen (“VW”) for claims stemming from the diesel emissions scandal, associated with the Company’s current and prior ownership of sevenVW-branded dealerships in the U.S. After evaluating the nature of the VW settlement, the Committee exercised its authority to adjustAdjusted actual performance criteria and elected to include the settlement with VW into its evaluation of the financial goal (EPS), determining the inclusion of such adjustment to be appropriate. Such adjustment increased the adjusted EPS to $7.75, an increase of $0.33 per share, which resulted in the financial goal portion of the annual incentive compensation being paid atwas $8.91, exceeding the maximum level.target performance level of $8.76.
In connection with its review of the performance of our Chief Executive Officer, the Committee determined that Mr. Hesterberg had achieved 70%100% of his 20162018 mission-based goals, resulting in a 70%100% payment of the mission basedmission-based payout. Following extensive discussion with our Chief Executive Officer regarding his evaluation of the performance of our named executive officers, the Committee determined that Messrs. Kenningham, Rickel, Grese Burman and DeLongchamps met or surpassed their individual and departmental goals, resulting in 100% payout of themission-based payout. In making these determinations, the Committee specifically considered each executive’snamed executive officer’s leadership in achieving each of the goals.
Based on the Committee’s evaluation of the performance of each of our named executive officers, it determined the degree to which each named executive officer had achieved his goals and the following amounts of incentive compensation were paid:
Named Executive Officer | 2016 Mission Based Award Earned $ | 2016 Financial Based Award Earned $ | 2016 Incentive Payout as a % of Base Salary | Amount Paid $ | ||||||||||||
Earl J. Hesterberg | 385,000 | 825,000 | 110 | 1,210,000 | ||||||||||||
John C. Rickel | 291,750 | 379,275 | 115 | 671,025 | ||||||||||||
Frank Grese, Jr. | 270,000 | 351,000 | 115 | 621,000 | ||||||||||||
Darryl M. Burman | 132,090 | 198,135 | 75 | 330,225 | ||||||||||||
Peter C. DeLongchamps | 136,890 | 205,335 | 75 | 342,225 |
2016 Compensation Discussion and Analysispaid with respect to the 2018 year:
Long Term Equity Incentive CompensationLONG TERM EQUITY INCENTIVE COMPENSATION
Design
Design.
To align the compensation of our corporatenamed executive officers with the attainment of our business goals and an increase in stockholder value, we awardlong-term equity incentive grants to our named executive officers as part of our total compensation package. These awards have been made pursuant to the Group 1 Automotive, Inc. 2014 Long Term Incentive Plan (the “LTIP”) and the 2007 Long Term Incentive Plan.
We believe that restricted stock, subject totime-based vesting requirements, appropriately alignaligns management’s interests with those of our Company and our stockholders, while helping to motivate and retain key members of our management team.
When determining the size of the awards, we typically consider amounts that would provide our named executive officers withlong-term incentive opportunities that, when combinedperformance is above target, results in pay above the median of our peer companies. We then take into account individual performance, the position and value of the named executive officer to our Company, experience and length of service to us, our desire to incentivize the officer to remain with base salaryour Company, and annual cash the amount of equity previously awarded to the officer.
Vesting of these awards is intended to facilitate retention, and the shares vest over a five-year period with the restrictions relating to the awards lapsing 40% after two years and 20% in each year thereafter. Since 2008, our vesting provisions have been based on the passage of time. Under the terms of the current award agreements, in the event of death or disability of any employee with unvested awards, all granted but unvested awards will automatically vest.
In addition, in the event of a “qualified retirement”,retirement,” which is a retirement after a minimum of ten years of service with our Company and the executive attaining the age of 63, upon satisfaction of a two yearnon-compete and certainnon-disclosure covenants, all unvested shares of restricted stock or restricted stock units (granted in prior years) held by the named executive officer as of his retirement date will vest. Provided, however, that beginning with the awards granted in 2018, any restricted stock granted to the executive must have been received at least six months prior to his notification of his intent to terminate his employment due to Qualified Retirement, and at least six months prior to the effective retirement date to be eligible for vesting as provided above.
2016
2018 Awards.
In February 2016,2018, the Committee reviewed the tally sheets and the competitive analysis prepared by PM&P to determine how each named executive officer’s base and total compensation compared to their peers and in order to assess all elements of each executive’s pay relative to total compensation. The Committee also considered each executive’s current equity position for purposes of reward and retention and considered other factors, such as size of previous awards, contribution to corporate results, leadership and Company performance during the year when
incentive opportunities, result in total direct compensation within the 50th to 75th percentile of our Peer Companies. We then take into account individual performance, the position and value of the named executive officer to our Company, experience and length of service to us, our desire to incentivize the officer to remain with our Company, and the amount of equity previously awarded to the officer.
Vesting of these awards is intended to facilitate retention, and the shares vest over afive-year period with the restrictions relating to the awards lapsing 40% after two years and 20% in each year thereafter. Since 2008, our vesting provisions have been based on the passage of time. Under the terms of the current award agreements, in the event of death or disability of any employee with unvested awards, all granted but unvested awards will automatically vest.
making the decision as to the size of the equity award for each named executive officer. Based on the analysis and review described above, on February 28, 2016,20, 2018, the Committee granted the following restricted stock awards to the named executive officers: Mr. Hesterberg (35,000 shares)(47,371 shares; valued at $3,599,959), Mr. Kenningham (13,000 shares; valued at $987,935),
2019 PROXY STATEMENT ● | 46 |
Mr. Rickel (14,430 shares)(11,500 shares; valued at $873,943), Mr. Grese (8,000 shares), Mr. Burman (9,140 shares)(9,000 shares; valued at $683,955) and Mr. DeLongchamps (10,000 shares)(8,500 shares; valued at $645,958).
For more information on the 20162018 equity awards, please see the section entitled “Executive Compensation — Grants of Plan Based Awards in 2016.2018.”
Compensation Changes for Fiscal 2017.2019
In 2019, after extensive discussions between the Compensation Committee and the compensation consultant, the Compensation Committee determined that the annual equity awards made to certain executive officers should include a performance-based award component. Accordingly, 25% of each NEO’s equity compensation under the LTIP will be subject to performance-based criteria, as follows: 50% of the performance-based portion of the equity award or 12.5% (50% x 25%) of the total grant, will be based on Group 1’s return on invested capital (“ROIC”), and 50% of the performance-based portion of the equity award or 12.5% of the total grant will be based on the Company’s total shareholder return (“TSR”) relative to a group of five domestic automotive retailers. The performance period is two fiscal years (2019 and 2020) but the vesting period for the performance shares is three years. The Committee has made no material changeswill certify performance at the February 2021 meeting following the end of the two-year performance period, and any awards that became eligible to ourlong-term incentive compensation strategyvest as a result of performance will remain subject to a time-based vesting requirement for fiscal 2017.
401(k) Planone additional year. Full vesting of any performance shares earned will vest on the third anniversary of the grant date (February 2022).
401(K) PLAN
We maintain the Group 1 Automotive, Inc. 401(k) Savings Plan (the “401(k) Savings Plan”) to assist all employees in providing for their retirement. Matching contributions may be in the form of cash or shares of our common stock or a combination of both, as
determined by the Committee. All of our matches have been in cash for all employees. Amounts that we contributed to each named executive officer’s 401(k) Savings Plan account are disclosed within the Summary Compensation Table.
Employee Stock Purchase PlanEMPLOYEE STOCK PURCHASE PLAN
Generally, under the Group 1 Automotive, Inc. Employee Stock Purchase Plan, all employees, including our named executive officers, are offered the opportunity to purchase up to $25,000 annually of our
common stock at a 15% discount to market, provided that the maximum number of shares that may be purchased by an employee shall not exceed 3,000 shares of common stock per quarter. This is an
2016 Compensation Discussion and Analysis
additional equity incentive we offer to all of our employees to further promote their interest in enhancing stockholder value. These shares may not
be sold by the employee for a minimum of six months following purchase.
Deferred Compensation PlanDEFERRED COMPENSATION PLAN
The Group 1 Automotive, Inc. Deferred Compensation Plan (“Deferred(the “Deferred Compensation Plan”) is designed as a retention tool for our corporate and regional officers, dealership general managers, other key employees andnon-employee directors. It allows participants the opportunity to accumulate additional savings for retirement on atax-deferred basis. Participants can choose from various defined investment options in which the deferred compensation is notionally
invested. Pursuant to the Deferred Compensation Plan, certain corporate officers, including our named executive officers, may defer up to 50% of their base salary and up to 100% of their incentive compensation, and we may make contributions to the participants’ accounts. For a more detailed discussion of the Deferred Compensation Plan, please see the section entitled “Executive Compensation — Nonqualified Deferred Compensation.”
Health and Welfare Benefits.
Our named executive officers are eligible to participate in our standard medical, dental, vision, disability insurance and life insurance plans to meet their health and welfare needs. These benefits are provided so as to assure that we are able to maintain a competitive position in terms of attracting and retaining executive officers and other employees. This is a fixed component of compensation and the benefits are provided on anon-discriminatory basis to all of ourfull-time employees.
Vehicle Allowance. Our
Under his employment agreement, our Chief Executive Officer under his employment agreement, is provided with two vehicles for his use. Our President, U.S. Operations receives the use of two vehicles. Our Senior Vice President and Chief Financial Officer, and our Senior Vice President, Human Resources, Training and Operations Support and our Senior Vice President, Manufacturer Relations, Financial Services and Public Affairs, as well as our other Senior Vice Presidents, receive a vehicle allowance of $15,000 per year and the use of one vehicle. Vice Presidents are provided with a vehicle allowance of $11,300 per year, or a vehicle, orand in certain limited cases, both. We have not modified these amounts since 2005.
2019 PROXY STATEMENT ● | 47 |
Other Perquisites and Personal Benefits.
We provide certain named executive officers with perquisites and other personal benefits that the Committee believes are reasonable and consistent with our overall compensation programs and philosophy. These benefits are provided in order to enable us to attract and retain these executives. For example, we pay for club membership privileges that are used primarily for business but also for occasional personal purposes by our Chief Executive Officer, Mr. Hesterberg. In addition, we own a fractional interest in an aircraft which is primarily used for business purposes. However, we make a portion of our time available to Mr. Hesterberg for personal use during the year. In 2016,2018, Mr. Hesterberg was allowed a maximum of 40 flight hours for personal use; however, his actual personal usage was 20.529.1 hours. Mr. Hesterberg reimburses us for his personal use based on the published standard industry fare level valuation method. We provide this benefit to Mr. Hesterberg because it optimizes the use of his time and is consistent with similar benefits provided by our Peer Companies.
Employment Agreements, Severance Benefits and Change in Control Provisions
We maintain employment and other compensatory agreements with certain named executive officers to ensure they will perform their roles for an extended period of time. Certain provisions contained in these agreements, such asnon-competition andnon-solicitation provisions, as well as change in control payments, are essential to retaining our talent and protecting our stockholders. We believe that it is appropriate to compensate individuals to refrain from working with competitors following termination, and that compensation enhances the enforceability of such agreements. These agreements and our severance terminology are described in more detail elsewhere in
this proxy statement.
Please read “Executive Compensation — Narrative Disclosure to Summary Compensation Table and Grants ofPlan-Based Awards Table — Employment, Incentive Compensation andNon-Compete Agreements.” These agreements provide for severance compensation to be paid if the officer’s employment is terminated under certain conditions, such as following a corporate change, involuntary termination, termination by us for “cause,” death or disability, each as defined in the applicable executive’s agreement. The employment and other compensatory agreements between our Company and our named executive officers and the
2016 Compensation Discussion and Analysis
related severance provisions are designed to meet the following objectives:
Corporate Change.
CORPORATE CHANGE
In certain limited scenarios, the potential for merger or being acquired may be in the best interests of our stockholders. As a result, we provide severance compensation to certain named executive officers if the officer’s employment is terminated following a corporate change transaction. Our intent is to promote the ability of the officer to act in the best interests of our stockholders even though his or her employment could be terminated as a result of the transaction. However, as previously discussed, we do not provide any excise taxgross-ups to any of our named executive officers.
Termination without Cause.
TERMINATION WITHOUT CAUSE
If we terminate the employment of certain corporatenamed executive officers “without cause” as defined in the applicable agreement, we are obligated to pay the officer certain compensation and other benefits as described in greater detail in “Executive Compensation - Potential Payments Upon Termination or Change in Control.” We believe these payments are appropriate because the terminated officer is bound by confidentiality,non-solicitation andnon-compete provisions ranging from one to two years after termination. Both parties have mutually agreed to a severance package that would be in place prior to any termination event. This provides us with more flexibility to make a change in senior management if such a change is in the best interests of our Company and its stockholders.
Hedging and Pledging Prohibitions
Our Directors and named executive officers are prohibited from engaging in “short sales” of our stock or otherwise hedging the risk of ownership of our stock. We have also adopted a policy that prohibits our
directors and officers from pledging their Company stock, or engaging in any other transaction of a similar nature that has the effect of using Group 1 securities as collateral.
2019 PROXY STATEMENT ● | 48 |
Policy on Payment or Recoupment ofPerformance-Based Cash Bonuses andPerformance-Based Stock Bonuses in the Event of Certain Restatements
The Committee has adopted a policy on payment or recoupment ofperformance-based cash bonuses andperformance-based stock bonuses in the event of certain restatements, excluding those required by a change in generally accepted accounting principles, which provides that we will require the payment or reimbursement (to the extent permitted by governing law) of all or a portion of anyperformance-based cash orperformance-based stock bonus where: (a) the payment was predicated upon the achievement of certain financial results that were subsequently the subject of a material restatement and (b) a higher or lower payment would have been made to the
employee based upon the restated financial results. In each of these instances, we will, to the extent practicable: (a) either make a payment of, or seek to recover, the cash amount by which the individual employee’s annualperformance-based bonus was recalculated based on the restated financial results; provided that we will not pay or seek to recover bonuses paid more than three years prior to the date the applicable restatement is disclosed; (b) cause the award or cancellation of anyperformance-based stock awards; and (c) seek reimbursement of any unearned gains realized on the vesting ofperformance-based stock attributable to such awards.
Our Board has adopted Stock Ownership Guidelines that apply to our named executive officers, as well as other officers within our Company. The guidelines require our named executive officers to maintain a minimum number of shares of our common stock while they are employed by us. The guidelines reinforce the importance of aligning thelonger-term interests of
our named executive officers with the interests of our stockholders and are expressed in terms of the dollar value of their equity holdings as a multiple of each named executive officer’s base salary. In February 2014, the Board increased the Stock Ownership Guidelines, as follows:
2016 Compensation Discussion and Analysis
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The dollar value of stock ownership is based on base salary times a multiple divided by the previous36-month average stock price as calculated on December 31st 31stof each year. Unvested restricted stock awards or restricted stock units are counted towards each named executive officer’s ownership requirement.
Stock ownership levels should be achieved by each officer within five years of the adoption of these guidelines, or within five years of the individual’s appointment as an officer. Each of our named executive officers iswas in compliance with current guidelines.guidelines on December 31, 2018, as indicated below:
2019 PROXY STATEMENT ● | 49 |
Tax Deductions for Compensation
In conducting our executive compensation programs, prior to 2018 the Committee considersconsidered the effects of Section 162(m) of the Internal Revenue Code (the “Code”), which deniesdenied publicly held companies a tax deduction for annual compensation in excess of $1 million paid to their chief executive officer or any of their three other most highly compensated corporate officers, other than the chief financial officer, who are employed on the last day of a given year,certain covered employees unless their compensation iswas based on performance criteriacriteria. Section 162(m) of the Code was modified in connection with the Tax Cuts and Jobs Act, and beginning with the 2018 calendar year there is no longer an exception for performance-based compensation arrangements that are established by anot deemed to be grandfathered pursuant to the Tax Cuts and Jobs Act, therefore Section 162(m) of the Code did not have an impact on the compensation committee which is made up of outside directors and approved, as to their material terms, by
their stockholders. The Committee considers its primary goal to design compensation strategies that further the best interests of our stockholders. In certain cases, it may determinedecisions that the amount of tax deductions lost is not significant when compared to the potential opportunity a compensation program provides for creatinglong-term stockholder value.Committee made in 2018. The Committee therefore retains the ability to evaluate the performance of our named executive officers and to pay appropriate compensation, even if some of it may benon-deductible, to ensure competitive levels of total compensation is paid to certain individuals.
We have reviewed our compensation policies and practices for all employees, including our named executive officers, and determined that our compensation programs are not reasonably likely to cause behaviors that would have a material adverse effect on our Company. Moreover, we believe that several design features of our compensation programs and policies reduce the likelihood of excessiverisk-taking:
The program design provides a balanced mix of cash and equity, annual andlonger-term incentives, and performance metrics. |
Annual and long-term incentive payouts are capped at industry standard levels. | |
We currently do not grant stock options. |
The Compensation Committee has discretion over incentive program payouts. |
The compensation recovery policy (which extends to all employees participating in the incentive plan) allows our Company to “claw back” payments made using materially inaccurate financial results. |
Compliance and ethical behaviors are integral factors considered in all performance assessments. |
We set the proper ethical and moral expectations through our policies, values and procedures and provide various mechanisms for reporting issues. |
We maintain an evaluation program, |
2016 Compensation Discussion and Analysis
A cap is placed on the number of shares of common stock that may be awarded to an individual in any calendar year. |
We believe that, for all employees, our compensation programs do not encourage excessive risk and instead encourage behaviors that support sustainable value creation.
2019 PROXY STATEMENT ● | 50 |
Report of the Compensation Committee
During the last fiscal year, and this year in preparation for the filing of this proxy statement with the SEC, the Committee:
• | reviewed and discussed the disclosure set forth under the heading “2018 Compensation Discussion and Analysis” with management; and |
• | based on the reviews and discussions referred to above, recommended to the Board of Directors that the disclosure set forth under the heading “2018 Compensation Discussion and Analysis” be included in this proxy statement and incorporated by reference into Group 1 Automotive, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018. |
Respectfully submitted by the Compensation Committee of the Board of Directors,
Max P. Watson, Jr. (Chairman)
John L. Adams
Stephen D. Quinn
J. Terry StrangeAnne Taylor
Charles L. Szews
2019 PROXY STATEMENT ● | 51 |
20162018 Summary Compensation Table
The following table summarizes, with respect to our named executive officers, information relating to the compensation earned for services rendered in all capacities during 2016.2018. Our named executive officers consist of our five executivesenior corporate officers, including our Chief Executive Officer and our Chief Financial Officer.
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards(1) ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings(2) ($) | All Other Compensation(3) ($) | Total ($) | ||||||||||||||||||||||
Earl J. Hesterberg | 2016 | 1,100,000 | — | 1,813,700 | 1,210,000 | 237,057 | 213,565 | 4,574,322 | ||||||||||||||||||||||
President and Chief | 2015 | 1,100,000 | — | 2,911,125 | 1,320,000 | 170,001 | 179,746 | 5,680,872 | ||||||||||||||||||||||
Executive Officer | 2014 | 1,000,000 | — | 2,881,350 | 1,250,000 | 119,519 | 553,792 | 5,804,661 | ||||||||||||||||||||||
John C. Rickel | 2016 | 583,500 | — | 747,763 | 671,025 | 282,877 | 26,740 | 2,311,905 | ||||||||||||||||||||||
Senior Vice President | 2015 | 583,500 | — | 1,200,215 | 671,025 | 224,771 | 25,585 | 2,705,097 | ||||||||||||||||||||||
and Chief Financial Officer | 2014 | 566,500 | — | 992,465 | 651,475 | 155,433 | 24,550 | 2,390,423 | ||||||||||||||||||||||
Frank Grese, Jr. | 2016 | 540,000 | — | 414,560 | 621,000 | 129,632 | 32,511 | 1,737,703 | ||||||||||||||||||||||
Senior Vice President, Human Resources, Training and Operations Support | ||||||||||||||||||||||||||||||
Darryl M. Burman | 2016 | 440,300 | — | 473,635 | 330,225 | 26,253 | 30,770 | 1,301,182 | ||||||||||||||||||||||
Vice President and | 2015 | 440,300 | — | 760,220 | 330,225 | 15,218 | 66,836 | 1,612,798 | ||||||||||||||||||||||
General Counsel | 2014 | 427,500 | — | 640,300 | 320,625 | 11,147 | 28,586 | 1,428,158 | ||||||||||||||||||||||
Peter C. DeLongchamps | 2016 | 456,300 | — | 518,200 | 342,225 | 66,367 | 18,759 | 1,401,851 | ||||||||||||||||||||||
Vice President, Mfr. | 2015 | 456,300 | — | 800,144 | 342,225 | 55,765 | 61,899 | 1,716,333 | ||||||||||||||||||||||
Relations, Financial | 2014 | 443,000 | 100,000 | 704,330 | 332,250 | 40,559 | 25,060 | 1,645,199 | ||||||||||||||||||||||
Services and Public Affairs |
Name and Principal Position | Year | Salary ($) | Stock Awards(1) ($) | Non-Equity Incentive Plan Compensation(2) ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings(3) ($) | All Other Compensation(4) ($) | Total ($) | |||||||
Earl J. Hesterberg President and Chief Executive Officer | 2018 | 1,150,000 | 3,599,959 | 1,437,500 | 337,607 | 378,588 | 6,903,654 | |||||||
2017 | 1,100,000 | 1,999,966 | 485,833 | 322,320 | 203,550 | 4,111,669 | ||||||||
2016 | 1,100,000 | 1,813,700 | 1,210,000 | 237,057 | 213,565 | 4,574,322 | ||||||||
Daryl A. Kenningham President, U.S. Operations | 2018 | 624,000 | 987,935 | 780,000 | 181,560 | 26,745 | 2,600,240 | |||||||
2017 | 533,333 | 962,312 | 645,296 | 169,653 | 31,310 | 2,341,904 | ||||||||
John C. Rickel Senior Vice President and Chief Financial Officer | 2018 | 599,700 | 873,943 | 689,655 | 395,460 | 26,210 | 2,584,968 | |||||||
2017 | 583,500 | 845,799 | 389,000 | 379,516 | 25,338 | 2,223,153 | ||||||||
2016 | 583,500 | 747,763 | 671,025 | 282,877 | 26,740 | 2,311,905 | ||||||||
Frank Grese, Jr. Senior Vice President, Human Resources, Training and Operations Support | 2018 | 572,500 | 683,955 | 658,375 | 193,206 | 31,914 | 2,139,950 | |||||||
2017 | 540,000 | 589,235 | 346,500 | 170,839 | 33,171 | 1,679,745 | ||||||||
2016 | 540,000 | 414,560 | 621,000 | 129,632 | 32,511 | 1,737,703 | ||||||||
Peter C. DeLongchamps Senior Vice President, Manufacturer Relations, Financial Services and Public Affairs | 2018 | 478,300 | 645,958 | 550,045 | 82,345 | 24,952 | 1,781,600 | |||||||
2017 | 456,300 | 651,610 | 182,520 | 82,239 | 22,418 | 1,395,087 | ||||||||
2016 | 456,300 | 518,200 | 342,225 | 66,367 | 18,759 | 1,401,851 |
(1) | The amounts in the “Stock Awards” column reflect the required accounting expense for these awards and do not correspond to the actual value that may be recognized by our named executive officers. These amounts represent the grant date fair value of awards computed in accordance with FASB ASC Topic 718 in connection with restricted stock awards granted under the Group 1 Automotive, Inc. 2014 Long Term Incentive Plan and the Group 1 Automotive, Inc. 2007 Long Term Incentive Plan. Assumptions made in the calculation of these amounts in fiscal years |
(2) | Annual cash incentive awards based upon the achievement of financial and mission-based goals. This is discussed further under “2018 Compensation Discussion and Analysis — Annual Incentive Compensation Plan”. |
(3) | Amounts reflectabove-market earnings on the Deferred Compensation Plan. Amounts are reflective of earnings in excess of 120% of the applicable federallong-term rate, with compounding, of |
The following table contains a breakdown of the compensation and benefits included under “All Other Compensation” for |
Name | Year | 401(k) SavingsPlan Matching Contribution ($) | Automobile Allowance ($) | Use of Demonstrator Vehicle(a) ($) | Airplane Use(b) ($) | Club Membership and Dues ($) | Total ($) | |||||||||||||||||||||
Earl J. Hesterberg | 2016 | 7,950 | — | 27,266 | 167,502 | 10,847 | 213,565 | |||||||||||||||||||||
John C. Rickel | 2016 | 7,950 | 15,000 | 3,790 | — | — | 26,740 | |||||||||||||||||||||
Frank Grese, Jr. | 2016 | 6,143 | 15,000 | 11,368 | — | — | 32,511 | |||||||||||||||||||||
Darryl M. Burman | 2016 | 7,899 | 11,300 | 11,571 | — | — | 30,770 | |||||||||||||||||||||
Peter C. DeLongchamps | 2016 | 1,107 | 11,300 | 6,352 | — | — | 18,759 |
2019 PROXY STATEMENT ● | 52 |
Name | Year | 401(k) Savings Plan Matching Contribution ($) | Automobile Allowance ($) | Use of Demonstrator Vehicle(a) ($) | Airplane Use(b) ($) | Club Membership and Dues ($) | Total ($) | |||||||||||
Earl J. Hesterberg | 2018 | 7,950 | — | 27,538 | 330,759 | 12,341 | 378,588 | |||||||||||
Daryl A. Kenningham | 2018 | 7,950 | — | 18,795 | — | — | 26,745 | |||||||||||
John C. Rickel | 2018 | 7,950 | 15,000 | 3,260 | — | — | 26,210 | |||||||||||
Frank Grese, Jr. | 2018 | 5,913 | 15,000 | 11,001 | — | — | 31,914 | |||||||||||
Peter C. DeLongchamps | 2018 | 7,950 | 15,000 | 2,002 | — | — | 24,952 |
(a) | Represents the incremental cost for personal use of one or more Company demonstrator vehicles. The incremental cost is determined by multiplying the annual lease value of the vehicle by the percentage of personal use, which we track through travel logs. |
(b) |
Executive Compensation
Grants of Plan-Based Awards in 20162018
The following table provides information concerning each grant of an award made to our named executive officers under our annual incentive compensation plan and 2014 Long Term Incentive Plan during 2016:2018:
Possible Payouts Under Non-Equity Incentive Plan Awards(1) | All Other Stock Awards: Number of Shares of | Grant Date Fair Value of Stock and Option | ||||||||||||||||||||||
Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Stock or Units (#) | Awards ($) | ||||||||||||||||||
Earl J. Hesterberg | — | — | 916,666 | 1,375,000 | — | — | ||||||||||||||||||
02/17/2016 | — | — | — | 35,000 | 1,813,700 | |||||||||||||||||||
John C. Rickel | — | — | 486,250 | 671,025 | — | — | ||||||||||||||||||
02/17/2016 | — | — | — | 14,430 | 747,763 | |||||||||||||||||||
Frank Grese, Jr. | — | — | 450,000 | 621,000 | — | — | ||||||||||||||||||
02/17/2016 | — | — | — | 8,000 | 414,560 | |||||||||||||||||||
Darryl M. Burman | — | — | 220,150 | 330,225 | — | — | ||||||||||||||||||
02/17/2016 | — | — | — | 9,140 | 473,635 | |||||||||||||||||||
Peter C. DeLongchamps | — | — | 228,150 | 342,225 | — | — | ||||||||||||||||||
02/17/2016 | — | — | — | 10,000 | 518,200 |
Possible Payouts Under Non-Equity Incentive Plan Awards(1) | All Other Stock Awards: Number of Shares of Stock | Grant Date Fair Value of Stock and Option | ||||||||||||
Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | or Units (#) | Awards ($) | ||||||||
Earl J. Hesterberg | — | — | 958,333 | 1,437,500 | — | — | ||||||||
02/20/2018 | — | — | — | 47,371 | 3,599,959 | |||||||||
Daryl A. Kenningham | — | — | 520,000 | 780,000 | — | — | ||||||||
02/20/2018 | — | — | — | 13,000 | 987,935 | |||||||||
John C. Rickel | — | — | 499,750 | 689,655 | — | — | ||||||||
02/20/2018 | — | — | — | 11,500 | 873,943 | |||||||||
Frank Grese, Jr. | — | — | 477,083 | 658,375 | — | — | ||||||||
02/20/2018 | — | — | — | 9,000 | 683,955 | |||||||||
Peter C. DeLongchamps | — | — | 378,583 | 550,045 | — | — | ||||||||
02/20/2018 | — | — | — | 8,500 | 645,958 |
(1) | Estimated possible payouts under the |
2019 PROXY STATEMENT ● | 53 |
Narrative Disclosure to Summary Compensation Table and Grants ofPlan-Based Awards Table
The following is a discussion of material factors we believe are necessary to an understanding of the information disclosed in the Summary Compensation Table and the Grants ofPlan-Based Awards Table for 2016.
Employment, Incentive Compensation andNon-Compete Agreements2018.
EMPLOYMENT, INCENTIVE COMPENSATION AND NON-COMPETE AGREEMENTS
Earl J. Hesterberg.Hesterberg
Effective May 19, 2015, we entered into an employment agreement with Mr. Hesterberg. Mr. Hesterberg’s annual base salary under the employment agreement is $1,100,000 (retroactive to January 1, 2015), subject to increase by the Compensation Committee from time to time. Effective January 1, 2018, the Compensation Committee increased Mr. Hesterberg’s base salary to $1,150,000.
Subject
On May 17, 2018, we entered into an amendment to employment agreement with Mr. Hesterberg. Under the terms and conditions of the agreement, we have agreed to employ Mr. Hesterberg through May 18, 2018. At that time, the employment agreement, as amended, the employment agreement was extended for a one-year term, and continuing through May 19, 2019, unless earlier terminated as provided therein. Following May 19, 2019, the agreement will automatically convert to amonth-to-month relationship terminable at any timecontinue until terminated by either employer
Group 1 or employee for any reasonMr. Hesterberg upon one year advancedelivery of written notice of termination no later than six months prior to the date of termination set forth in such notice. Provisions of Mr. Hesterberg’s employment agreement, as amended, related to termination and change in control are discussed in “Potential Payments upon Termination or Change in Control” beginning on page 57 of this proxy statement.
John C. Rickel.Rickel
Effective January 1, 2009, we entered into an employment agreement with Mr. Rickel. Subject to the terms and conditions of the agreement, we agreed to employ Mr. Rickel through December 31, 2010. Mr. Rickel’s employment agreement automatically renews for successiveone-year periods unless either party prior to the expiration of the term provides 60 days prior written notice of termination to the other party. Provisions of Mr. Rickel’s employment agreement related to termination and change in control are discussed in “Potential Payments upon Termination or Change in Control” beginning on page 4757 of this proxy statement.
Executive Compensation
Additional Information
Darryl M. Burman. Effective December 1, 2009, we entered into an employment agreement with Mr. Burman. Subject to the terms and conditions of the agreement, we agreed to employ Mr. Burman through November 30, 2011. Mr. Burman’s employment agreement automatically renews for successiveone-year periods unless either party prior to the expiration of the term provides 60 days prior written notice of termination to the other party. Provisions of Mr. Burman’s employment agreement related to termination and change in control are discussed in “Potential Payments upon Termination or Change in Control” beginning on page 47 of this proxy statement.
Messrs. Hesterberg, Kenningham, Rickel, Grese Burman and DeLongchamps are also entitled to participate, on the same basis generally as our other employees, in all general employee benefit plans and programs that are made available to all or substantially all of our employees.
In addition, Mr.Messrs. Hesterberg isand Kenningham are entitled to the use of two demonstrator vehicles of histheir choice, and Messrs. Rickel, Grese and GreseDeLongchamps are each entitled to one demonstrator vehicle of their choice and a vehicle allowance totaling $1,250 per month, and Messrs. Burman and DeLongchamps are each entitled to one demonstrator vehicle of their choice and a vehicle allowance totaling $941.66 per month.
All incentive compensation awards payable to Messrs. Hesterberg Rickel and BurmanRickel will be determined by the Committee in its sole discretion in accordance with the terms of our annual incentive compensation program, and all payments pursuant to this program shall be made on or before March 15th 15thof the year following the year of service to which the incentive compensation relates.
We have not entered into an employment ornon-compete agreement with Mr. Kenningham, Mr. Grese or Mr. DeLongchamps.
Executive Compensation However, in the event of a “qualified retirement”, which is a retirement after a minimum of ten years of service with our Company and the executive attaining the age of 63, upon satisfaction of a two year non-compete and certain non-disclosure covenants, all unvested shares of restricted stock or restricted stock units (granted in prior years) held by the named executive officer as of his retirement date will vest. Provided, however, that beginning with the awards granted in 2018, any restricted stock awarded to the executive must have been granted (1) at least six months prior to the date the executive provides notification of his intent to terminate his employment due to qualified retirement, and (2) at least six months prior to his effective retirement date, to be eligible for vesting as provided above. Messrs. Hesterberg and Grese are currently the only named executive officers eligible for a “qualified retirement”.
2019 PROXY STATEMENT ● | 54 |
Outstanding Equity Awards at December 31, 20162018
The following table provides information concerning restricted stock awards for our named executive officers. As of December 31, 2016,2018, none of our named executive officers hadheld any stock options.
Stock Awards | ||||||||||
Name | Grant Date(1) | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested(2) ($) | |||||||
Earl J. Hesterberg | 03/02/2012 | 9,000 | 701,460 | |||||||
02/27/2013 | 18,000 | 1,402,920 | ||||||||
02/25/2014 | 27,000 | 2,104,380 | ||||||||
02/24/2015 | 35,000 | 2,727,900 | ||||||||
02/17/2016 | 35,000 | 2,727,900 | ||||||||
John C. Rickel | 03/02/2012 | 3,000 | 233,820 | |||||||
02/27/2013 | 6,000 | 467,640 | ||||||||
02/25/2014 | 9,300 | 724,842 | ||||||||
02/24/2015 | 14,430 | 1,124,674 | ||||||||
02/17/2016 | 14,430 | 1,124,674 | ||||||||
Frank Grese, Jr. | 03/02/2012 | 2,000 | 155,880 | |||||||
02/27/2013 | 3,600 | 280,584 | ||||||||
02/25/2014 | 4,800 | 374,112 | ||||||||
02/24/2015 | 8,000 | 623,520 | ||||||||
02/17/2016 | 8,000 | 623,520 | ||||||||
Darryl M. Burman | 03/02/2012 | 2,000 | 155,880 | |||||||
02/27/2013 | 4,000 | 311,760 | ||||||||
02/25/2014 | 6,000 | 467,640 | ||||||||
02/24/2015 | 9,140 | 712,372 | ||||||||
02/17/2016 | 9,140 | 712,372 | ||||||||
Peter C. DeLongchamps | 03/02/2012 | 2,000 | 155,880 | |||||||
02/27/2013 | 4,400 | 342,936 | ||||||||
02/25/2014 | 6,600 | 514,404 | ||||||||
02/24/2015 | 9,620 | 749,783 | ||||||||
02/17/2016 | 10,000 | 779,400 |
Stock Awards | ||||||||
Name | Grant Date(1) | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested(2) ($) | |||||
Earl J. Hesterberg | 02/25/2014 | 9,000 | 474,480 | |||||
02/24/2015 | 14,000 | 738,080 | ||||||
02/17/2016 | 21,000 | 1,107,120 | ||||||
03/01/2017 | 25,440 | 1,341,197 | ||||||
02/20/2018 | 47,371 | 2,497,399 | ||||||
Daryl A. Kenningham | 02/25/2014 | 1,000 | 52,720 | |||||
02/24/2015 | 3,200 | 168,704 | ||||||
02/17/2016 | 4,800 | 253,056 | ||||||
02/28/2017 | 12,265 | 646,611 | ||||||
02/20/2018 | 13,000 | 685,360 | ||||||
John C. Rickel | 02/25/2014 | 3,100 | 163,432 | |||||
02/24/2015 | 5,772 | 304,300 | ||||||
02/17/2016 | 8,658 | 456,450 | ||||||
02/28/2017 | 10,780 | 568,322 | ||||||
02/20/2018 | 11,500 | 606,280 | ||||||
Frank Grese, Jr. | 02/25/2014 | 1,600 | 84,352 | |||||
02/24/2015 | 3,200 | 168,704 | ||||||
02/17/2016 | 4,800 | 253,056 | ||||||
02/28/2017 | 7,510 | 395,927 | ||||||
02/20/2018 | 9,000 | 474,480 | ||||||
Peter C. DeLongchamps | 02/25/2014 | 2,200 | 115,984 | |||||
02/24/2015 | 3,848 | 202,867 | ||||||
02/17/2016 | 6,000 | 316,320 | ||||||
02/28/2017 | 8,305 | 437,840 | ||||||
02/20/2018 | 8,500 | 448,120 |
(1) | Forfeiture restrictions on our restricted stock awards lapse over afive-year period: 40% of the award on the second anniversary of the grant date, and 20% on the third, fourth and fifth anniversaries of the grant date, respectively. |
(2) | Calculated using value of our common stock at close of market on December |
Executive Compensation
20162018 Restricted Stock Vested
The following table provides information relating to the vesting of restricted stock during 20162018 on an aggregated basis for each of our named executive officers. Our named executive officers currently do not have stock options.
Stock Awards | ||||||||
Name | Number of Shares Acquired on Vesting(1) (#) | Value Realized on Vesting(2) ($) | ||||||
Earl J. Hesterberg | 46,000 | 2,586,820 | ||||||
John C. Rickel | 15,000 | 842,436 | ||||||
Frank Grese, Jr. | 8,800 | 494,858 | ||||||
Darryl M. Burman | 9,800 | 550,360 | ||||||
Peter C. DeLongchamps | 10,400 | 583,670 |
Stock Awards | ||||||
Name | Number of Shares Acquired on Vesting(1) (#) | Value Realized on Vesting(2) ($) | ||||
Earl J. Hesterberg | 39,000 | 2,938,970 | ||||
Daryl A. Kenningham | 7,600 | 573,302 | ||||
John C. Rickel | 14,758 | 1,113,049 | ||||
Frank Grese, Jr. | 8,200 | 618,338 | ||||
Peter C. DeLongchamps | 10,324 | 778,513 |
(1) | Represents the gross number of shares acquired upon vesting of restricted stock, without taking into account any shares withheld to satisfy applicable tax obligations. |
(2) | Represents the value of the vested restricted stock, calculated by multiplying (a) the number of vested shares of restricted stock by (b) the average of the high and low sales prices of our common stock on the vesting date, which is how we calculate market value for purposes of this table. |
2019 PROXY STATEMENT ● | 55 |
Nonqualified Deferred Compensation
The following table sets forth our named executive officers’ information regarding the Deferred Compensation Plan, including, with respect to each officer: (1) the aggregate contributions made by the officer, (2) the employer contribution, (3) the aggregate interest or other earnings accrued, and (4) the total balance of the officer’s account.
Name | Executive Contributions in Last FY(1) ($) | Employer Match Contributions in Last FYE(2) ($) | Aggregate Earnings in Last FY(3) ($) | Aggregate Balance at Last FYE(4) ($) | Executive Contributions in Last FY(1) ($) | Employer Match Contributions in Last FY(2) ($) | Aggregate Earnings in Last FY(3) ($) | Aggregate Balance at Last FYE(4) ($) | ||||||||||||||||||||
Earl J. Hesterberg | 847,000 | 806 | 371,915 | 5,012,707 | 1,150,000 | 210 | 549,120 | 7,223,963 | ||||||||||||||||||||
Daryl A. Kenningham | — | — | 296,192 | 3,881,688 | ||||||||||||||||||||||||
John C. Rickel | 904,425 | 806 | 455,022 | 6,116,958 | — | 210 | 645,528 | 8,464,076 | ||||||||||||||||||||
Frank Grese, Jr. | 321,300 | — | 211,248 | 2,821,787 | 615,438 | — | 314,178 | 4,263,458 | ||||||||||||||||||||
Darryl M. Burman | 108,974 | 798 | 40,719 | 543,411 | ||||||||||||||||||||||||
Peter C. DeLongchamps | 82,134 | 802 | 107,241 | 1,417,879 | 69,354 | — | 135,316 | 1,772,610 |
(1) | Reported as compensation to the named executive officer in the Summary Compensation Table for |
(2) | Represents portion of Company 401(k) savings plan matching contributions that could not be contributed into the 401(k) savings plan for the individuals due to Code restrictions. The 401(k) Savings Plan matching contributions are reported as “All Other Compensation” in the Summary Compensation Table for |
(3) | The following portions of the aggregate earnings in the last fiscal year were reported in the |
(4) | The following portions of the aggregate balance amounts for each of the following named executive officers were reported as compensation to the officer in the Summary Compensation Table in previous years: |
Executive Compensation
Earl J. Hesterberg ($) | Daryl A. Kenningham ($) | John C. Rickel ($) | Frank Grese, Jr. ($) | Peter C. DeLongchamps ($) | ||||||||||||||||
2017 | 340,083 | 451,707 | 466,814 | 443,250 | 13,689 | |||||||||||||||
2016 | 847,000 | — | 904,425 | 321,300 | 82,134 | |||||||||||||||
2015 | 924,000 | — | 636,015 | — | 82,134 | |||||||||||||||
2014 | 375,000 | — | 560,835 | — | 86,450 | |||||||||||||||
2013 | 66,667 | — | 385,000 | — | 44,400 | |||||||||||||||
2012 | 125,000 | — | 215,938 | — | 62,550 | |||||||||||||||
2011 | 100,000 | — | 462,000 | — | 25,120 | |||||||||||||||
2010 | — | — | 465,750 | — | — | |||||||||||||||
2009 | 500,000 | — | 561,630 | — | — | |||||||||||||||
2008 | 37,159 | — | 11,300 | — | — | |||||||||||||||
2007 | 39,509 | — | 7,852 | — | — | |||||||||||||||
2006 | 25,465 | — | 1,235 | — | — | |||||||||||||||
2005 | 12,019 | — | — | — | — |
Pursuant to the Deferred Compensation Plan, certain corporate officers, including named executive officers, may defer up to 50% of their base salary and up to 100% of their incentive compensation. Deferral elections are to be made no later than the last day of the calendar year immediately preceding the calendar year in which such compensation is earned. At the plan administrative committee’s discretion, deferral elections with respect to certainperformance-based compensation may be made not later than six months prior to the end of the performance period in which such compensation is earned. In addition, for each calendar year, we contribute an amount on behalf of each executive equal to the amount of the employer match the executive forfeited under the 401(k) Savings Plan in order for the 401(k) Savings Plan to comply with the nondiscrimination requirements of the Internal Revenue Code. Currently, 100% of each named executive officer’s account is vested. We may also make discretionary credits to an officer’s account from time to time, which credits will be subject to a vesting schedule established by us at the time of such credit. We did not make any discretionary contribution credits during the 20152017 or 20162018 year. If no vesting schedule is established, the officer will be vested in a percentage of the discretionary employer deferral equal to the officer’s vested interest in his “employer contribution account” under the 401(k) Savings Plan. If we undergo a corporate change, the officer will become fully vested in his account under the Deferred Compensation Plan.
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Benefits under the Deferred Compensation Plan will be paid no earlier than upon the executive’s termination of
service, or, upon a certain date elected by the officer. Benefits will be paid, at the participant’s election, in a lump sum or in annual installments, although all distributions will be paid in cash. Payments upon an executive’s termination of service may be delayed for six months to the extent necessary to comply with the requirements of Section 409A of the Internal Revenue Code. Except in the event of unforeseeable financial emergencies,in-service withdrawals are generally not permitted in the Deferred Compensation Plan, although the necessary portion of a participant’s vested account balance may be distributed in order to satisfy certain employment, federal or state taxes. An unforeseeable financial emergency shall allow a participant to access vested funds in his accounts upon the occurrence of: (1) a severe financial hardship of the participant that results from an illness or accident of the participant, or the participant’s beneficiary, spouse or dependent; (2) loss of the participant’s or the beneficiary’s property due to casualty; or (3) a similar extraordinary and unforeseeable circumstance as described in Section 409A of the Internal Revenue Code arising as a result of events beyond the participant’s control.
Deferred amounts will be deemed to be notionally invested in such fund as the participants shall designate. Most of the funds are also available in the Group 1 401(k) Savings Plan except for the Group 1 Guaranteed Crediting Rate investment option which is the default investment option.option and only available in the Deferred Compensation Plan. The Group 1 Guaranteed Crediting Rate investment option is a declared interest rate, which wasis set by the Committee annually. The deferred interest rate for 2018 was set at 8% for 2016.8.0%.
Potential Payments upon Termination or Change in Control
We believe providing certain executivesenior corporate officers with severance payments and accelerated vesting of equity awards in certain circumstances are important retention tools. In addition, we believe that providing fordouble-trigger payments and equity award vesting to certain key executives in connection with a change in corporate control helps maximize stockholder value by encouraging our executives to objectively review any proposed transaction, whether or not that executive will continue to be employed. Executive officers at other companies in the general market against which we compete for executive talent commonly have equity compensation plans that provide for accelerated vesting upon a corporate change andpost-termination payments, and we have consistently provided this benefit to certain executivesenior corporate officers in order to remain competitive in attracting and retaining skilled professionals.
The discussion below discloses the amount of compensation and/or other benefits that would be
payable to each of our named executive officers in the event of termination of their employment under the following scenarios: death, disability, with and without cause, for certain constructive termination events, and following a corporate change. All potential payments to the named executive officers upon termination of their employment or upon a corporate change that could have occurred on December 31, 20162018 are governed by the 2014 Long Term Incentive Plan and the 2007 Long Term Incentive Plan pursuant to which various equity incentive awards were issued and, with respect to Messrs. Hesterberg Rickel and Burman,Rickel, the terms of employment agreements as described below. None of our named executive officers is entitled to an excise taxgross-up payment. For additional information regarding the employment agreements, see “2016“2018 Compensation Discussion and Analysis — Employment Agreements, Severance Benefits and Change in Control Provisions.”
Executive CompensationEMPLOYMENT AGREEMENTS
Employment Agreements
We maintained employment agreements with Messrs. Hesterberg and Rickel and Burman during 2016.2018. Each agreement provides that in the event the executive is terminated due to an Involuntary Termination or the executive terminates his employment following a Constructive Termination Event, the executive will be entitled to the following:
• | a lump sum payment equal to the executive’s base salary divided by 12 and multiplied by a severance multiplier. The “severance multiplier” in the case of Mr. Hesterberg or Mr. Rickel, is the greater of 12 months or the remaining months in the term of the employment agreement. The payment will be made on the first day of the seventh month following the termination of employment; |
• | a pro rata bonus calculated in accordance with our Annual Incentive Compensation Plan, paid in a single lump sum payment at the later of (1) the first day of the seventh month following the executive’s separation from service, or (2) March 15thof the year following the release of earnings for the year in which the separation of service occurred; |
• | immediate vesting of all unvested restricted stock awards or stock options, which will be exercisable as if the executive had continued to be employed by us for the full term of his employment agreement; and |
• | the use of a demonstrator vehicle for a period of six months. |
In the event that the executive terminates employment following an involuntary reduction of his salary or incentive compensation targets within six months after a Corporate Change, the executive will be entitled to the same payments and benefits as described in the first three bullets above, except the severance multiplier will be 30 months for Messrs. Hesterberg and Rickel and 15 months for Mr. Burman.months. Each agreement further provides that if the executive’s employment is terminated due to deathDeath or Disability, then the executive is entitled to:
• | his pro rata salary through the date of such termination and a pro rata bonus (based on his termination date), calculated in accordance with our Annual Incentive Compensation Plan, paid in a single lump sum payment at the later of (1) the first day of the seventh month following the executive’s separation from service, or (2) March |
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• | immediate vesting of all unvested restricted stock awards or stock options, which will be exercisable as if the executive had continued to be employed by us for the full term of his employment agreement; and |
• | in the case of Disability, the use of a demonstrator vehicle for a period of six months, or in the event of the executive’s Death, for Messrs. Hesterberg and Rickel, the use of the vehicle would go to the surviving spouse, if any, for a period of twelve months. |
Mr. Hesterberg’s agreement also provides that if he resigns at any time after May 18, 2018, all unvested equity awards held by Mr. Hesterberg will vest upon satisfaction of certainpost-termination employment obligations set forth in hisnon-compete agreement (discussed below).; provided, however, that beginning with the awards granted in 2018, any restricted stock awarded to the executive must have been granted at least six months prior to the date the executive provides notification of his intent to terminate his employment due to qualified retirement, and at least six months prior to his effective retirement date to be eligible for vesting as provided above. In addition, if Mr. Hesterberg’s employment is terminated for any reason, other than cause, after May 18, 2018, he will receive his pro rata bonus through the date of his termination, calculated in accordance with the annual incentive compensation plan and paid in a single lump sum payment.
In the event of a termination by the Company for Cause or a Voluntary Termination by the executive, all compensation and benefits will cease as of the respective date of termination. In these circumstances, the named executive officers would only receive base salary earned but not yet paid.
The employment agreements contain a covenant that the executives will not sue or lodge any claim against us based upon an Involuntary Termination for any payments in addition to those described above. In the event that the executive breaches this covenant, we will be entitled to recover from that executive all sums we or any of our subsidiaries or affiliates have expended in relation to such action. We will also be
Executive Compensation
entitled to offset any amounts expended in relation to defending such claim against any amounts owed to the executive prior to a final determination of the arbitration provisions provided for in the employment agreement.
The executives have agreed not to disclose, during or at any time after their employment with us, any of our confidential information or trade secrets. The executives will return all proprietary materials, and all copies thereof, to us upon a termination of employment for any reason, and all copyrighted works that the executive may have created during his employment relating to us or our business in any manner shall remain our property.
These agreements generally contain the following terms, except where noted otherwise below, and the following provisions that could impact the amount of compensation that the executives receive at or following their separation from service from us: