Impact of COVID-19 Pandemic on New Hire PSUs
Within weeks of Mr. Hourican’s appointment, the World Health Organization declared the coronavirus a pandemic and governments across the U.S. and Europe initiated lockdowns. These events had an adverse impact on numerous aspects of Sysco’s business, financial condition and results of operations, including the Company’s financial performance with respect to the performance metrics under its annual and long-term incentive awards. Immediately after the onset of the crisis, Sysco leadership acted quickly to stabilize the business, including ensuring access to liquidity, reducing variable and structural costs and pivoting its business to maximize sales during a period of disruption. In addition, Mr. Hourican has led the Company’s efforts to substantially accelerate the transformation of its business and strengthen the executive leadership team required to successfully implement the transformation plan.
In excess of 40% of Mr. Hourican’s total new hire equity award was in the form of PSUs with performance goals that were established in July 2019, prior to Mr. Hourican’s employment. Due to the effects of the pandemic, within months of the grant date the performance goals under the PSUs granted to Mr. Hourican in February of 2020 became effectively unachievable, and the Committee deemed those previously set goals no longer relevant. Although the Committee believes strongly in pay-for-performance, the circumstances surrounding the impact of the pandemic on Sysco’s business, which occurred almost immediately after Mr. Hourican’s appointment, were extraordinary, and the Committee believes it would be detrimental to the Company’s business to undermine the motivation and retention of its CEO by allowing his new hire PSUs to remain unachievable. No adjustments to the PSUs previously issued to any other participant were made or are contemplated by the Committee.
Approval of Replacement PSU Award
As a result, following careful deliberations, on June 23, 2021, the Committee approved (i) the cancellation of the FY20 PSU Award and the Make-Whole PSU Award; and (ii) the issuance, pursuant to the Sysco 2018 Omnibus Incentive Plan, of a replacement award comprised of an equivalent number of new PSUs. The new PSUs were granted using the same performance goals as the fiscal year 2021 PSUs awarded to Sysco’s leadership team and described in Sysco’s Current Report on Form 8-K dated July 31, 2020, subject to the following additional terms:
| | • | | The shares of common stock received by Mr. Hourican, if any, upon the vesting of these replacement PSUs will be subject to a two-year holding requirement; |
| | • | | Consistent with his original award, 50% of the new PSUs issued to replace the FY20 PSU Award will vest immediately if Mr. Hourican’s employment is terminated without cause or upon his resignation for good reason, as such terms are defined in the letter agreement between Sysco and Mr. Hourican (together, an “Involuntary Termination”); and |
| | • | | Consistent with his original award, 100% of the new PSUs issued to replace the Make-Whole PSU Award will vest immediately upon Mr. Hourican’s Involuntary Termination. |
This action allowed the Committee to align Mr. Hourican’s new hire incentives with the current business context, recognize the scope and effectiveness of his strong leadership during this crisis, including the company’s business transformation initiatives, as well as continue to motivate and incentivize Mr. Hourican’s performance with equity compensation that includes achievable, while still rigorous, goals.
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