DEF 14A 1 d507489ddef14a.htm DEF 14A DEF 14A
Table of Contents

 

 

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

(AMENDMENT NO.    )

 

 

Filed by the Registrant                               Filed by a Party other than the Registrant  

Check the appropriate box:

 

  Preliminary Proxy Statement
  Definitive Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Additional Materials
  Soliciting Material Pursuant to §240.14a-12

HERBALIFE LTD.

(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):

  Fee not required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

     

  (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:

 

     

  (2)  

Form, Schedule or Registration Statement No.:

 

     

  (3)  

Filing Party:

 

     

  (4)  

Date Filed:

 

     

 

 

 


Table of Contents

LOGO


Table of Contents

 

 Herbalife Ltd. 

 

 2018 Proxy Statement  

 

 

 

 

 

Annual General Meeting of Shareholders

Our 2018 Annual General Meeting of Shareholders

will be held on Tuesday, April 24, 2018 at 8:30 a.m., Pacific Daylight Time, at:

800 W. Olympic Blvd., Suite 406

Los Angeles, CA 90015

Admission requirements

See Part 1 – “Information concerning solicitation and voting” for details on admission requirements to attend the Annual Meeting.

 

 

Proxy voting options

Your vote is important!

All shareholders are cordially invited to attend the Annual General Meeting in person. However, in order to assure your representation at the Annual General Meeting, you are urged to vote promptly. You may vote your shares via a toll-free telephone number, over the Internet or by completing, signing and mailing a proxy card or voting instruction form. Please follow the instructions on the proxy card or voting instruction form.

Proxies submitted by mail, the Internet or telephone must be received by 11:59 p.m., Eastern Time, on April 23, 2018.

Vote by Internet

www.envisionreports.com/HLF

24 hours a day / 7 days a week

Instructions:

 

1.   Go to: www.envisionreports.com/HLF

 

2.   Or scan the QR code with your smartphone

 

3.   Follow the steps outlined on the secure website

 

LOGO

Vote by telephone

1.800.652.VOTE (8683) via touch tone phone

toll-free within the USA, US territories & Canada 24 hours a day / 7 days a week

Outside the USA, US territories & Canada, call 1.781.575.2300 via a touch tone phone. Standard rates will apply

Instructions:

 

1.   Call toll-free 1.800.652.VOTE (8683) within the USA, US territories & Canada. Outside the USA, US territories & Canada, call 1.781.575.2300.

 

2.   Follow the instructions provided by the recorded message.
 

 

LOGO


Table of Contents

Herbalife Ltd.

Notice of Annual General Meeting of Shareholders

Date:   Tuesday, April 24, 2018
Time:   8:30 a.m., Pacific Daylight Time
Place:  

800 W. Olympic Blvd., Suite 406

Los Angeles, CA 90015

Record date:   February 26, 2018
Proxy voting:  

All shareholders are cordially invited to attend the Annual General Meeting in person. See Part 1 — “Information concerning solicitation and voting” for details on admission requirements to attend the Annual Meeting.

 

However, to assure your representation at the Annual General Meeting, you are urged to vote promptly. You may vote your shares via a toll-free telephone number, over the Internet or by completing, signing and mailing a proxy card or voting instruction form provided to you. Please follow the instructions on the proxy card or voting instruction form provided to you.

Items of business:  

1. Elect the 14 directors named in the Proxy Statement;

 

2. Approve, on an advisory basis, the Company’s executive compensation;

 

3. Approve, as a special resolution, the name change of the Company from “Herbalife Ltd.” to “Herbalife Nutrition Ltd.”;

 

4. Approve, as a special resolution, an amendment and restatement of the Company’s Amended and Restated Memorandum and Articles of Association in the form attached as Annex A;

 

5. Effect a two-for-one stock split of the Company’s Common Shares; and

 

6. Ratify the appointment of the Company’s independent registered public accountants for fiscal 2018.

 

Shareholders will also act upon such other matters as may properly come before the Annual General Meeting.

  The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice. Only shareholders of record at the close of business on February 26, 2018 are entitled to notice of and to vote at the Annual General Meeting and any subsequent adjournment(s) or postponement(s) thereof.
Availability of Materials:  

The Proxy Statement and Annual Report to Shareholders are available at

http://www.envisionreports.com/HLF.

 

NOTICE IS HEREBY GIVEN that the 2018 Annual General Meeting of Shareholders, or the Meeting, of Herbalife Ltd., a Cayman Islands exempted company incorporated with limited liability, or the Company, will be held on Tuesday, April 24, 2018 at 8:30 a.m., Pacific Daylight Time, at 800 W. Olympic Blvd., Suite 406, Los Angeles, CA 90015.

 

Sincerely,

 

LOGO

RICHARD WERBER

Acting General Counsel and Corporate Secretary

Los Angeles, California

March 13, 2018

LOGO


Table of Contents

 

 

Proxy summary

 

This summary highlights information contained elsewhere in this Proxy Statement. You should carefully read this Proxy Statement in its entirety prior to voting on the proposals listed below and outlined herein. This Proxy Statement is dated March 13, 2018, and is first being made available to shareholders of the Company on or about March 14, 2018. A Notice Regarding Internet Availability of Proxy Materials for the Annual General Meeting was mailed to shareholders of the Company on or about March 14, 2018.

Annual General Meeting of Shareholders

 

Date:   Tuesday, April 24, 2018
Time:   8:30 a.m., Pacific Daylight Time
Place:  

800 W. Olympic Blvd., Suite 406

Los Angeles, CA 90015

Record date:   February 26, 2018
Voting:   Shareholders as of the record date are entitled to vote.

Admission to meeting: Proof of share ownership will be required to enter the Meeting. See Part 1 – “Information concerning solicitation and voting” for details.

Meeting agenda

 

1.   Elect the 14 directors named in the Proxy Statement;

 

2.   Approve, on an advisory basis, the Company’s executive compensation;

 

3.   Approve, as a special resolution, the name change of the Company from “Herbalife Ltd.” to “Herbalife Nutrition Ltd.”;

 

4.   Approve, as a special resolution, an amendment and restatement of the Company’s Amended and Restated Memorandum and Articles of Association in the form attached as Annex A;

 

5.   Effect a two-for-one stock split of the Company’s Common Shares; and

 

6.   Ratify the appointment of the Company’s independent registered public accountants for fiscal 2018.

 

Shareholders will also act upon such other matters as may properly come before the Meeting.

 

Proxy summary    i


Table of Contents

Voting matters and vote recommendation

Our Board of Directors unanimously recommends that you vote on the proposals to be considered at the Meeting as follows:

 

 

    Matter   Board vote recommendation  

Page Reference

(for more detail)

1.

 

Election of 14 directors

 

  For each director nominee  

11

     

2.

 

Advisory vote to approve the Company’s executive compensation

 

  For  

22

3.    

 

Approve, as a special resolution, the name change of the Company from “Herbalife Ltd.” to “Herbalife Nutrition Ltd.”

 

  For  

24

     

4.

 

Approve, as a special resolution, the amendment and restatement of the Company’s Amended and Restated Memorandum and Articles of Association in the form attached as Annex A

 

  For  

25

5.

 

Effect a two-for-one stock split of the Company’s Common Shares

 

  For  

26

     

6.

 

Ratification of the Company’s independent registered
public accountants for fiscal 2018

 

  For  

28

YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the Meeting, please take the time to vote. You may vote your shares via a toll-free telephone number, over the Internet or by completing, signing and mailing the proxy card or voting instruction form provided to you. Please follow the instructions on the proxy card or voting instruction form.

 

ii    Proxy summary


Table of Contents

Proxy Statement table of contents

 

Part 1. Our annual general meeting of shareholders   

Information concerning solicitation and voting

     1  
Part 2. The board of directors   

Director independence

     3  

Board meetings and attendance

     3  

Board leadership

     4  

The board’s role in risk oversight

     4  

2017 Director compensation

     5  

Stock ownership guidelines

     7  

Shareholder communications with the board of directors

     8  

Committees of the board

     8  

Compensation committee interlocks and insider participation

     10  
Part 3. Proposals to be voted on at the meeting   

Proposal 1: The election of directors

     11  

Proposal  2: Approve, on an advisory basis, the Company’s executive compensation

     22  

Proposal 3: Approve the name change of the Company from “Herbalife Ltd.” to “Herbalife Nutrition Ltd.”

     24  

Proposal 4: Approve the amendment and restatement of the Company’s Amended and Restated Memorandum and Articles of Association in the form attached as Annex A

     25  

Proposal 5: Effect a two-for-one stock split of the Company’s Common Shares

     26  

Proposal  6: Ratification of the appointment of the independent registered public accountants

     28  

Audit committee report

     28  

Fees to independent registered public accountants for fiscal 2017 and 2016

     29  

Pre-approval policy

     29  
Part 4. Executive compensation   

Compensation discussion and analysis

     30  

Executive summary of our compensation program

     30  

Financial performance for purposes of our annual incentive program

     30  

Strategic accomplishments

     31  

Compensation program that aligns pay and performance

     31  

Say on pay

     33  

Things we do

     33  

Things we don’t do

     33  

2018 compensation changes

     35  

Executive compensation program objectives

     35  

Purpose of compensation elements

     38  

Establishing CEO compensation

     38  

Role of executive officers in executive compensation decisions

     38  

Base salaries

     39  

Annual incentive awards & long term incentive program

     39  

Annual incentive awards

     39  

Pre-transition annual incentive opportunities — January  1, 2017 through May 31, 2017

     39  

Post-transition annual incentive opportunities — June  1, 2017 through December 31, 2017

     40  

Targets and award determination

     40  

2017 Annual incentive plan performance targets

     41  

2017 Annual incentive opportunities by executive and target

     42  

2017 Annual incentive award calculation

     43  

Long-term incentive awards

     44  

Equity award grant policy

     46  

Hedging

     46  

Pledging

     46  

Clawback Policy

     46  

Benefits and perquisites

     46  

Employment and severance agreements

     47  

Compensation advisor

     47  

Peer Group

     48  

Tax implications

     49  

Compensation committee report

     49  
 

 

Table of contents      iii  


Table of Contents
 

 

iv    Table of contents


Table of Contents

  Part 1

 

 

  Our annual general meeting of
shareholders

Information concerning solicitation and voting

 

 

Place, time and date of meeting.    This Proxy Statement is being furnished to the Company’s shareholders in connection with the solicitation of proxies on behalf of our Board of Directors for use at the Meeting to be held on Tuesday, April 24, 2018 at 8:30 a.m., Pacific Daylight Time, and at any subsequent adjournment(s) or postponement(s) thereof, for the purposes set forth herein and in the accompanying Notice of Annual General Meeting of Shareholders. The Meeting will be held at 800 W. Olympic Blvd., Suite 406, Los Angeles, CA 90015. Our telephone number is (213) 745-0500.

Record date and voting securities.    Only shareholders of record at the close of business on February 26, 2018, or the Record Date, or duly authorized proxy holders of such shareholders of record, are entitled to notice of and to vote at the Meeting. The Company has one series of common shares, or Common Shares, outstanding. As of the Record Date, 87,432,346 Common Shares were issued and outstanding and held of record by 570 registered holders.

Voting.     Each shareholder is entitled to one vote for each Common Share held on the Record Date on all matters submitted for consideration at the Meeting. A quorum, representing the holders of not less than a majority of the issued and outstanding Common Shares entitled to vote at the Meeting, must be present in person or by proxy at the Meeting for the transaction of business. Common Shares that reflect abstentions are treated as Common Shares that are present and entitled to vote for the purposes of establishing a quorum and for purposes of determining the outcome of any matter submitted to the shareholders for a vote that requires the approval of a specified percentage of shares present and entitled to vote. However, abstentions do not constitute a vote “for” or “against” any matter and thus will have no effect in determining whether a required affirmative majority of votes cast has been obtained.

“Broker non-votes” are Common Shares held in “street name” through a broker or other nominee over which the broker or nominee lacks discretionary power to vote and for which the broker or nominee has not received specific voting instructions. Thus, if you do not give your broker or nominee specific instructions, your Common Shares may not be voted on certain matters. Common Shares that

reflect “broker non-votes” are treated as Common Shares that are present and entitled to vote for the purposes of establishing a quorum. However, for the purposes of determining the outcome of any matter as to which the broker or nominee has indicated on the proxy that it does not have discretionary authority to vote, those Common Shares will be treated as not present and not entitled to vote with respect to that matter, even though those Common Shares are considered present and entitled to vote for the purposes of establishing a quorum and may be entitled to vote on other matters.

If you are a beneficial shareholder and your broker or nominee holds your Common Shares in its name, the broker or nominee is permitted to vote your Common Shares with respect to proposals 3, 5 and 6, which involve the name change of the Company, a two-for-one stock split of the Company’s Common Shares and the ratification of the appointment of independent registered public accountants, respectively, even if the broker or nominee does not receive voting instructions from you.

Directors are elected under a majority voting standard in uncontested director elections (i.e., an election where the number of persons nominated for election does not exceed the number of Directors to be elected). The election of directors at the Meeting constitutes an uncontested director election. Under a majority voting standard in uncontested director elections, each vote is required to be counted “for” or “against” a director nominee’s election. In order to be elected, the votes cast “for” such nominee’s election must exceed the number of votes cast “against” such nominee’s election. Abstentions and “broker non-votes” will not affect the outcome of the election of directors.

In respect of proposals 2, 5 and 6, which involve an advisory vote on the Company’s executive compensation, a two-for-one stock split of the Company’s Common Shares and ratification of accountants, respectively, each proposal must receive the affirmative vote of a majority of the Common Shares present or represented by proxy and entitled to vote on such matter. In respect of proposal 3 and 4, which involve changes to the Company’s name and Amended and Restated Memorandum and Articles of Association, or “Articles,” the Companies Law (2016 Revision) of the Cayman Islands, or Cayman Islands Law,

 

 

 

Our annual general meeting of shareholders      1  


Table of Contents

requires each such proposal to be passed as a special resolution. Accordingly, each such proposal must receive the affirmative vote of not less than 66.67% of the Common Shares present or represented by proxy and entitled to vote in order to be approved. In respect of determining the outcome of proposals 2, 3, 4, 5 and 6, abstentions have the effect of a negative vote. “Broker non-votes” will not affect the outcome of any such proposals.

The results of the advisory vote on the Company’s executive compensation are not binding on the Board of Directors.

Revocability of proxies.    Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before its use by either (a) delivering to the Corporate Secretary of the Company a written notice of revocation or a duly executed proxy bearing a later date, (b) granting a subsequent proxy through the Internet or telephone or (c) by attending the Meeting and voting in person. However, please note that if you would like to vote at the Meeting and you are not the shareholder of record, you must request, complete and deliver a proxy from your broker or other nominee.

Proxy solicitation.    The Company bears the expense of printing and mailing proxy materials. Proxies may be solicited by certain of our directors, officers and employees, without additional compensation, in person, by telephone, facsimile or electronic mail. We will, upon request, reimburse brokerage firms and others for their reasonable expenses in forwarding solicitation material to the beneficial owners of Common Shares.

Meeting attendance.    Only shareholders of record and beneficial owners as of February 26, 2018, their authorized proxy holders, and invited guests of the Board of Directors may attend the Meeting.

If you are a shareholder of record, in order to be admitted to the Meeting, you will need to produce picture identification (such as a valid driver’s license or passport) as well as copy of a form of proxy card or a Notice showing your name and address. If you are a beneficial owner and you wish to vote in person at the Meeting, you will need to obtain a proxy from the shareholder or record. If you are beneficial owner or other authorized proxy holder, in order to attend the Meeting, you will need both an admission ticket and picture identification (such as a valid driver’s license or passport). To obtain an

admission ticket to the Meeting, please send your written request to Corporate Secretary, Herbalife International of America, Inc., 800 W. Olympic Boulevard, Suite 406, Los Angeles, California 90015 or electronically by emailing corpsec@herbalife.com. Your request must be received on or before April 14, 2018 and include a copy of a form of proxy card or voting instruction form confirming your appointment as a proxy holder of a shareholder of record. In your request, please include the address where your admission ticket should be mailed, and any special assistance needs. The Board requests that persons attending the Meeting observe a professional business dress code. The Company also does not permit the use of cameras or other recording devices at the Meeting.

Meaning of shareholder of record.    You are a shareholder of record only if your name is recorded on the Company’s register of members. If your name is not recorded on the Company’s register of members, any shares you hold in the Company are held beneficially. In this case you may still be entitled to direct the holder of your shares as to who should be appointed as proxy in respect of those shares and/or as to how to vote those shares on your behalf.

Shareholders who have purchased their shares on an exchange may hold those shares through a depository, in which case they will be beneficial shareholders and will not be shareholders of record. If you hold your shares in “street name,” you will not be a shareholder of record.

If you wish to enquire as to whether or not you are a shareholder of record, please contact our Corporate Secretary at c/o Herbalife International of America, Inc., 800 W. Olympic Boulevard, Suite 406, Los Angeles, California 90015.

Additional information.    This Proxy Statement contains summaries of certain documents, but you are urged to read the documents themselves for complete information. The summaries are qualified in their entirety by reference to the complete text of the document. In the event that any of the terms, conditions or other provisions of any such document is inconsistent with or contrary to the description or terms in this Proxy Statement, such document will control. Each of these documents, as well as those documents referenced in this Proxy Statement as being available in print upon request, are available upon request to the Company by following the procedures described under Part 7 — “Annual report, financial and additional information.”

 

 

Important Notice Regarding the Availability of Proxy Materials for the Annual General Meeting of Shareholders to be Held on April 24, 2018. The Proxy Statement and Annual Report to Shareholders are available at http://www.envisionreports.com/HLF.

 

 

2    Our annual general meeting of shareholders


Table of Contents

  Part 2

 

 

  The board of directors

Director independence

 

 

Our Board of Directors has affirmatively determined that each of Messrs. Bermingham, Carmona, Christodoro, Cozza, Dunn, Gary, Lynn, Montelongo and Nelson and Mme. Otero is independent under section 303A.02 of the New York Stock Exchange, or the NYSE, Listed Company Manual and the Company’s Categorical Standards of Independence, which are included as part of our Principles of Corporate Governance. Our Principles of Corporate Governance are available on our website at www.herbalife.com by following the links through “Investor Relations” to “Corporate Governance.” The NYSE’s independence guidelines and the Company’s Categorical Standards include a series of objective tests, such as the person is not an employee of the Company and has not engaged in various types of business dealings involving the Company that would prevent the person from being an independent director. The Board of Directors has affirmatively determined that none of the foregoing directors had any relationship with the Company that would compromise his or her independence. Additionally, the Board has determined that, if elected, Mme. Paláu-Hernández, and Messrs. LeFevre and Graziano will be independent under

section 303A.02 of the NYSE’s Listed Company Manual and the Company’s Categorical Standards of Independence.

Messrs. Cardoso and Tartol are not, and Mr. Mendoza will not be, independent due to their status as independent Herbalife distributors.

Dr. Carmona received $100,000 in speaking fees in 2017 as disclosed in the “Director Compensation Table” below. We leverage Dr. Carmona’s professional experience — as the 17th Surgeon General of the United States — to provide training and education to our independent members at various Company-sponsored sales events, such as Extravaganzas. Additionally, Messrs. Christodoro, Cozza, Gary, Graziano (if elected), Lynn and Nelson are affiliated with the Icahn Parties (as defined in Part 3 — “Proposal 1: the election of directors”), which beneficially own approximately 22,872,324 Common Shares. However, the Board of Directors affirmatively determined that such relationships did not compromise their independent judgment or their ability to act independent of the Company’s management.

 

Board meetings and attendance

 

 

During the fiscal year ended December 31, 2017, the Board of Directors held nine meetings. Eleven Board members attended 100% of these meetings, and the other two attended eight out of nine of these meetings. Board members who serve on the Compensation Committee, the Nominating and Corporate Governance Committee, the Audit Committee and the implementation oversight committee attended at least 75% of the committee meetings on which they served. Each director is expected to dedicate sufficient time, energy and attention to ensure the diligent performance of his or her duties, including attending meetings of the shareholders of the Company, the Board of Directors and committees of which he or she is a member. All members of the Board of Directors

attended the 2017 annual general meeting of shareholders.

It is the policy of the Board of Directors to hold four regularly scheduled meetings, each of which includes an executive session of non-management directors, led by the Lead Director of the Board of Directors, without the presence of management as well as a session of only the independent directors. Additional meetings of the Board of Directors, executive sessions of non-management directors and sessions of independent directors may be held from time to time as required or determined to be necessary.

 

 

The board of directors      3  


Table of Contents

Board leadership

 

 

Currently, Mr. Johnson serves as our Executive Chairman. Mr. Richard Goudis succeeded Mr. Johnson as CEO effective June 1, 2017, thereby separating the roles of Chairman of the Board and CEO. As Executive Chairman, Mr. Johnson supports Mr. Goudis as Mr. Goudis continues to transition into and establish himself in his role as CEO. Mr. Johnson continues to take part in the management of the Company’s business, including working with independent members. In this way, Mr. Johnson can serve as a key link between the Board and other members of management. The Board determined that although the roles of Chairman and CEO have been separated, having a board leadership structure featuring an executive as Executive Chairman with a Lead Director best serves the interests of the Company and its shareholders because the Board also believes that strong, independent Board leadership is a critical aspect of effective corporate governance.

The Lead Director is an independent director elected for a two year term by the independent directors. The Lead Director chairs the Board meetings during all executive sessions and when the Executive Chairman is unable to participate in Board meetings, and is a contact point for major shareholders and third parties who may desire to contact the Board independently of the Executive Chairman and/or CEO. Mr. Dunn has served as Lead Director since April 24, 2014, and was re-elected as Lead Director by the independent directors effective April 28, 2016. The responsibilities of the Lead Director include:

 

  setting the agenda for and leading the regularly-held non-management and independent director sessions, and
   

briefing the Executive Chairman on any issues arising from those sessions;

 

  coordinating the activities of the independent directors;

 

  presiding at meetings of the Board at which the Executive Chairman is not present, including executive sessions of the independent directors;

 

  acting as the principal liaison to the Executive Chairman for the views and any concerns and issues of the independent directors;

 

  reviewing the development of, revisions to and implementation of strategic plans and initiatives and facilitating explanation and communication in these areas between the Board and management;

 

  advising on the flow of information sent to the Board, and reviewing the agenda, materials and schedule for Board meetings;

 

  being available for consultation and communication with major shareholders, as appropriate;

 

  maintaining close contact with the chairperson of each standing committee; and

 

  performing other duties that the Board may from time to time delegate to assist the Board in the fulfillment of its responsibilities.

With Mr. Dunn’s two-year term as Lead Director coming to an end, the independent directors will elect the next Lead Director immediately after the Meeting.

The Board periodically reviews the structure of Board and Company leadership as part of the succession planning process.

 

The board’s role in risk oversight

 

 

The full Board of Directors has the ultimate responsibility for risk oversight regarding the Company. The Board oversees a Company-wide approach to risk management, designed to enhance shareholder value and to support the achievement of strategic objectives and to improve long-term organizational performance. The first aspect of the Board’s approach to risk management is to determine the appropriate level of risk for the Company generally, followed by an assessment of the specific risks the Company faces and the steps management is taking to manage those risks. The full Board’s involvement in setting the Company’s business strategy facilitates those assessments, culminating in the development of a strategic plan that reflects the Board’s and management’s consensus as to appropriate levels of risk as to specific aspects of the Company’s business and the appropriate measures to manage those risks. Additionally, the full Board of Directors participates in a periodic enterprise risk

management assessment during its quarterly meetings. In this process, risk is assessed throughout the business, focusing on risks arising out of various aspects of the Company’s strategic plan and its implementation, including financial, legal/compliance, operational/strategic and compensation risks. The Board also assesses its role in risk oversight throughout our business. In addition to the discussion of risk with the full Board at least once a year, the independent directors discuss risk management during executive sessions without management present with the Lead Director presiding. While the full Board of Directors has the ultimate oversight responsibility for the risk management process, various Board committees also have responsibility for risk management in certain areas. In particular, the audit committee focuses on financial risk, including internal controls, and assesses the Company’s risk profile with the Company’s internal auditors. The internal controls risk profile drives the internal audit plan

 

 

 

4    The board of directors


Table of Contents

for the coming year. The audit committee also reviews the Company’s cyber security matters and handles violations of the Company’s Code of Ethics and related corporate policies. Finally, the compensation committee periodically reviews compensation practices and policies to confirm that they do not encourage excessive risk taking.

Management regularly reports on each such risk to the relevant committee or the full Board, as appropriate, and additional review or reporting on enterprise risks is conducted as needed or as requested by the Board or the relevant committee.

 

2017 Director compensation

 

The table below summarizes the compensation paid by the Company to non-management directors for the fiscal year ended December 31, 2017.

 

  Name  

Fees

earned or

paid in cash

($)

 

   

Equity

awards

($)(1)

   

All

other

compensation
($)

 

   

Total

($)

 

Richard P. Bermingham

 

    157,500       119,930             277,430  

Pedro Cardoso

 

    95,000       119,930       1,403,497 (2)      1,618,427  

Dr. Richard Carmona

 

    119,000       119,930       100,000 (3)      338,930  

Jonathan Christodoro

 

    130,000       119,930             249,930  

Keith Cozza

 

    101,000       119,930             220,930  

Jeffrey T. Dunn

 

    132,000       119,930             251,930  

Hunter C. Gary

 

    117,000       119,930         236,930  

Jesse A. Lynn

 

    114,000       119,930             233,930  

Michael Montelongo

 

    119,000       119,930             238,930  

James L. Nelson

 

    144,000       119,930             263,930  

Maria Otero

 

    136,000       119,930             255,930  

John Tartol

 

    96,000       119,930       1,709,979 (4)      1,925,909  

 

(1)   Amounts represent the aggregate grant date fair value of the relevant award(s) presented in accordance with ASC Topic 718, “Compensation—Stock Compensation.” See note 9 of the notes to consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 regarding assumptions underlying the valuation of equity awards.

 

(2)   Amount includes $18,000 in fees for speaking at Herbalife events and $1,385,497 in compensation under the Company’s Marketing Plan resulting from Mr. Cardoso’s activities as an Herbalife Member.

 

(3)   Amount represents fees for speaking at Herbalife events.

 

(4)   Amount includes $62,000 in fees for speaking at Herbalife events and $1,647,979 in compensation under the Company’s Marketing Plan resulting from Mr. Tartol’s activities as an Herbalife Member.

 

Effective April 24, 2014, each non-management director receives (i) $85,000 per year for services as a director and $5,000 for each Board committee on which the director served, an additional $20,000 per year for the Lead Director, an additional $15,000 per year for the chair of the audit committee, an additional $10,000 per year for the chair of the compensation committee and an additional $10,000 per year for the chair of the nominating and corporate governance committee, (ii) $1,500 for each Board meeting attended by the director in person or $1,000 per Board meeting attended telephonically, (iii) $3,000 for each audit committee meeting attended either in person or telephonically, and

(iv) $2,000 for each compensation committee and for each nominating and corporate governance committee meeting attended either in person or telephonically. In addition, on July 18, 2016, the Board of Directors established the implementation oversight committee to oversee the implementation of the Federal Trade Commission’s Consent Order, as discussed in greater detail below under “Committees of the board.” Each member of the independent oversight committee receives $1,000 for each such committee meeting attended either in person or telephonically, and the chair such committee receives additional $15,000 per year.

 

 

 

The board of directors      5  


Table of Contents

Effective April 24, 2018, each non-management director will receive (i) $100,000 per year for services as a director and $10,000 for each Board committee on which the director served, an additional $25,000 per year for the Lead Director, an additional $20,000 per year for the chair of the audit committee, an additional $20,000 per year for the chair of the implementation oversight committee, an additional $15,000 per year for the chair of the compensation committee and an additional $15,000 per year for the chair of the nominating and corporate governance committee. Directors will no longer receive meeting attendance compensation.

Cash fees with respect to Board or committee membership or service as the Lead Director or a committee chair are paid ratably assuming 12 consecutive months of service from the date the particular membership or service commences. Cash fees for attending Board or committee meetings were paid in the month following the meeting date. Non-management directors also receive an annual equity grant pursuant to the Company’s Amended and Restated Independent Deferred Compensation and Stock Unit Plan, which is part of the Herbalife Ltd. 2014 Stock Incentive Plan, as it may be amended from time to time, in the form of restricted

stock units, or RSUs, with a grant date fair value (as determined for financial reporting purposes) of $120,000 (rounded down to the nearest whole unit that vest on April 15, 2018). Effective April 24, 2018, RSUs granted to non-management directors will have a grant date fair value of $135,000 (rounded down to the nearest whole unit that vest on April 15, 2019). The Lead Director also receives an equity grant upon appointment in the form of RSUs with a grant date fair value (as determined for financial reporting purposes) of $250,000 (rounded down to the nearest whole unit) in respect of his or her two-year term as Lead Director. It is anticipated that, effective April 24, 2018, the Lead Director’s equity grant upon appointment will continue to be in the form of RSUs but with a grant date fair value of $25,000 (rounded down to the nearest whole unit) per each year of his or her two-year term. Currently, the RSU award granted to the Lead Director vests on continuation of service as Lead Director in ratable amounts over each quarter, over the two-year life of the award. However, effective April 24, 2018, such RSU award will vest annually on the grant date the following year. Our Lead Director typically serves for a two-year term and the appointment is reconsidered biannually concurrently with our annual general meeting of shareholders.

 

 

 

6    The board of directors


Table of Contents

The table below summarizes the equity-based awards held by the Company’s non-management directors as of December 31, 2017.

 

  Name  

Options/Stock Appreciation Rights

 

   

Stock Unit Awards

 

 
   

Number of

securities

underlying

unexercised

options/SARs

(#)

exercisable

   

Number of

securities

underlying

unexercised

options/SARs

(#)

un-exercisable

   

Exercise

price

($)

   

Expiration

date

   

Number of

Shares or

units of

stock that

have not

vested

(#)

   

Market

value of

Shares or

units of

stock that

have not

vested(1)

($)

 

Richard P. Bermingham

 

    7,503      

 

 

 

 

   

 

44.79

 

 

 

   

 

05/31/2019

 

 

 

   

Richard P. Bermingham

 

   

 

4,526

 

 

 

   

 

 

 

 

   

 

79.58

 

 

 

   

 

12/19/2020

 

 

 

   

Richard P. Bermingham

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

     

 

1,665

 

 

 

   

 

112,754

 

 

 

Pedro Cardoso

 

   

 

5,452

 

 

 

   

 

 

 

 

   

 

53.29

 

 

 

   

 

05/18/2018

 

 

 

   

Pedro Cardoso

 

   

 

7,503

 

 

 

   

 

 

 

 

   

 

44.79

 

 

 

   

 

05/31/2019

 

 

 

   

Pedro Cardoso

 

   

 

4,526

 

 

 

   

 

 

 

 

   

 

79.58

 

 

 

   

 

12/19/2020

 

 

 

   

Pedro Cardoso

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

     

 

1,665

 

 

 

   

 

112,754

 

 

 

Richard Carmona

 

   

 

4,526

 

 

 

   

 

 

 

 

   

 

79.58

 

 

 

   

 

12/19/2020

 

 

 

   

Richard Carmona

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

     

 

1,665

 

 

 

   

 

112,754

 

 

 

Jonathan Christodoro

 

   

 

4,526

 

 

 

   

 

 

 

 

   

 

79.58

 

 

 

   

 

12/19/2020

 

 

 

   

Jonathan Christodoro

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

     

 

1,665

 

 

 

   

 

112,754

 

 

 

Keith Cozza

 

   

 

4,526

 

 

 

   

 

 

 

 

   

 

79.58

 

 

 

   

 

12/19/2020

 

 

 

   

Keith Cozza

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

     

 

1,665

 

 

 

   

 

112,754

 

 

 

Jeffrey T. Dunn

 

   

 

5,452

 

 

 

   

 

 

 

 

   

 

53.29

 

 

 

   

 

05/18/2018

 

 

 

   

Jeffrey T. Dunn

 

   

 

7,503

 

 

 

   

 

 

 

 

   

 

44.79

 

 

 

   

 

05/31/2019

 

 

 

   

Jeffrey T. Dunn

 

   

 

4,526

 

 

 

   

 

 

 

 

   

 

79.58

 

 

 

   

 

12/19/2020

 

 

 

   

Jeffrey T. Dunn

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

     

 

1,665

 

 

 

   

 

112,754

 

 

 

Jeffrey T. Dunn

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

     

 

1,022

 

 

 

   

 

69,210

 

 

 

Hunter C. Gary

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

     

 

1,665

 

 

 

   

 

112,754

 

 

 

Jesse Lynn

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

     

 

1,665

 

 

 

   

 

112,754

 

 

 

Michael Montelongo

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

     

 

1,665

 

 

 

   

 

112,754

 

 

 

James Nelson

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

     

 

1,665

 

 

 

   

 

112,754

 

 

 

Maria Otero

 

   

 

4,526

 

 

 

   

 

 

 

 

   

 

79.58

 

 

 

   

 

12/19/2020

 

 

 

   

Maria Otero

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

     

 

1,665

 

 

 

   

 

112,754

 

 

 

John Tartol

 

   

 

5,452

 

 

 

   

 

 

 

 

   

 

53.29

 

 

 

   

 

05/18/2018

 

 

 

   

John Tartol

 

   

 

7,503

 

 

 

   

 

 

 

 

   

 

44.79

 

 

 

   

 

05/31/2019

 

 

 

   

John Tartol

 

   

 

4,526

 

 

 

   

 

 

 

 

   

 

79.58

 

 

 

   

 

12/19/2020

 

 

 

   

John Tartol

 

   

 

 

 

 

   

 

 

 

 

   

 

 

 

 

           

 

1,665

 

 

 

   

 

112,754

 

 

 

 

(1)   Market value based on the closing price of a Common Share on the NYSE on December 29, 2017 of $67.72.

Stock ownership guidelines

 

 

The Company has adopted stock ownership guidelines applicable to each of our named executive officers and non-management directors. Our CEO is encouraged to acquire and hold Common Shares and/or vested equity awards with an aggregate value equal to five times his base salary. Our other named executive officers are

encouraged to acquire and hold Common Shares and/or vested equity awards with an aggregate value equal to two times their respective base salaries. Each non-management director is encouraged to hold Common Shares and/or vested equity awards with a value equal to five times such director’s annual retainer within

 

 

 

 

The board of directors

     7  


Table of Contents

two years of such director’s appointment or election to the Board of Directors. As of the date of this Proxy Statement, all of our Board members other than our Executive Chairman have served for two or more years

and all such non-management directors were in compliance with these guidelines. All of our NEOs were in compliance with these guidelines.

 

Shareholder communications with the board of directors

 

 

Shareholders and other parties interested in communicating directly with the Board of Directors, non-management directors as a group or individual directors, including the Lead Director in his or her capacity as such, may do so by writing to Herbalife Ltd., c/o Corporate Secretary, 800 W. Olympic Blvd, Suite 406, Los Angeles, CA 90015, or by email at corpsec@herbalife.com, indicating to whose attention the communication should be directed. Under a process approved by the Board of Directors for handling communications received by the Company and addressed to non-management directors, the Corporate Secretary of the Company reviews all such correspondence and forwards to members of the audit committee a summary

and/or copies of any such correspondence that, in the opinion of the Corporate Secretary, deal with the functions of the Board of Directors or committees thereof, or that he otherwise determines requires their attention. Directors may at any time review a log of all communications received by the Company and addressed to members of the Board of Directors and request copies of any such correspondence. Concerns relating to accounting, internal controls or auditing matters are immediately brought to the attention of the Company’s internal audit department and handled in accordance with procedures established by the audit committee with respect to such matters.

 

Committees of the board

 

 

Our Board of Directors has a standing audit committee, nominating and corporate governance committee, and compensation committee. Our Board of Directors has also constituted the implementation oversight committee as discussed below.

Audit committee

The audit committee consists of Messrs. Bermingham, Montelongo and Nelson. Each director who served on the audit committee in 2017 is or was independent as discussed above under “— Director Independence.” As required by Rule 303A.07 of the NYSE Listed Company Manual, the Board of Directors has affirmatively determined that each of Messrs. Bermingham, Montelongo and Nelson is financially literate, and that Mr. Bermingham is an “audit committee financial expert,” as defined in Item 407(d)(5) of Regulation S-K.

The principal duties of the audit committee are as follows:

 

  to monitor the integrity of the Company’s financial reporting process and systems of internal controls regarding finance, accounting and reporting;

 

  to monitor the independence and performance of the Company’s independent auditors and internal auditing department; and

 

  to provide an avenue of communication among the independent auditors, management, the internal auditing department and the Board of Directors.

Our Board of Directors has adopted a written charter for the audit committee which is available on the Company’s website at www.herbalife.com by following the links through “Investor Relations” to “Corporate Governance,” and in print to any shareholder who requests it as set forth under Part 7 — “Annual report, financial and additional information.” In 2017, the audit committee met six times.

Nominating and corporate governance committee

The nominating and corporate governance committee consists of Messrs. Carmona, Christodoro, Dunn and Lynn.

Each director who served on the nominating and corporate governance committee in 2017 is independent as discussed above under “— Director Independence.” The principal duties of the nominating and corporate governance committee are as follows:

 

  to recommend to the Board of Directors proposed nominees for election to the Board of Directors both at annual general meetings and to fill vacancies that occur between annual general meetings; and

 

  to review and make recommendations to the Board of Directors regarding the Company’s corporate governance matters and practices.

In identifying candidates to serve on the Board, the nominating and corporate governance committee first

 

 

 

8    The board of directors


Table of Contents

determines the evolving needs of the Board taking into account such factors as it deems appropriate, including, among others, the current composition of the Board of Directors, the range of talents, experiences and skills that would best complement those already represented on the Board of Directors, the balance of management and independent directors and the need for financial or other specialized expertise, as discussed in greater detail below under Part 3 — “Proposal 1: The Election of Directors — Director Qualifications.” Applying these criteria, the nominating and corporate governance committee considers candidates for director suggested by its members and other directors, as well as by management and shareholders. The nominating and corporate governance committee also retains a third-party executive search firm on an ad-hoc basis to identify and review candidates upon request of the committee from time to time.

If the nominating and corporate governance committee decides, on the basis of its preliminary review, to proceed with further consideration, the committee members, as well as other directors as appropriate, interview the nominee. After completing this evaluation and interview, the nominating and corporate governance committee makes a recommendation to the full Board of Directors, which makes the final determination whether to nominate the candidate after considering the nominating and corporate governance committee’s report.

A shareholder who wishes to recommend a prospective nominee for the Board of Directors pursuant to the provisions of the Articles should notify the Corporate Secretary in writing with the appropriate supporting materials, as more fully described under Part 7 — “Shareholder nominations.”

The Board of Directors has adopted a written charter for the nominating and corporate governance committee, which is available on the Company’s website at www.herbalife.com by following the links through “Investor Relations” to “Corporate Governance” or in print to any shareholder who requests it as set forth under Part 7 — “Annual report, financial and additional information.” In 2017, the nominating and corporate governance committee met four times.

Compensation committee

The compensation committee consists of Mme. Otero and Messrs. Bermingham, Christodoro and Gary. Each director who served on the compensation committee in 2017 is independent as discussed above under “— Director Independence.” The principal duties of the compensation committee are as follows:

 

  to oversee and approve compensation policies and programs;
  to review and approve corporate goals and objectives relevant to the compensation of the Company’s CEO and other executive officers;

 

  to evaluate the performance of the CEO and recommend the compensation level of the CEO for approval by the independent members of the Board of Directors;

 

  to evaluate the performance of certain executive officers and, considering the CEO’s recommendations, set the compensation level for such executive officers;

 

  to administer existing incentive compensation plans and equity-based plans;

 

  to oversee regulatory compliance with respect to executive compensation matters; and

 

  to review the compensation of directors.

Among other duties, the compensation committee is responsible for making the initial risk assessment of the Company’s compensation programs and determining whether those programs require modification to remain consistent with the Board’s determinations as to the levels of risk that are appropriate for the Company. In its assessment, the compensation committee reviewed the Company’s compensation structure and noted numerous ways in which risk is potentially mitigated by practices and policies that include: the balanced mix between short- and long-term incentives; the use of multiple performance measures for the CEO’s annual incentive awards; strong internal controls; the use of stock ownership guidelines; and the existence of an anti-hedging policy. In light of its analysis, the compensation committee believes that the architecture of the Company’s compensation programs provide various safeguards to protect against undue risk-taking.

Our Board of Directors has adopted a written charter for the compensation committee which is available on the Company’s website at www.herbalife.com by following the links through “Investor Relations” to “Corporate Governance” or in print to any shareholder who requests it as set forth under Part 7 — “Annual report, financial and additional information.” In 2017, the compensation committee met eight times.

Implementation oversight committee

On July 18, 2016, the Board of Directors established the implementation oversight committee to oversee the implementation of the Federal Trade Commission’s Consent Order entered into on July 15, 2016, or the Consent Order. The implementation oversight committee is comprised of independent members of the Board of Directors and will exist for a period of two years, unless otherwise determined by the Board of Directors. After two years, the duties and responsibilities of the implementation oversight committee will become the

 

 

 

The board of directors      9  


Table of Contents

duties and responsibilities of the audit committee. Mr. Nelson serves as chair of the implementation oversight committee, and Ms. Otero and Mr. Lynn serve as members of such committee. For more information

regarding the Consent Order, see note 7, Contingencies, of the notes to consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

 

Compensation committee interlocks and insider participation

 

 

During the fiscal year ended December 31, 2017, Mme. Otero and Messrs. Bermingham, Christodoro and Gary served on the compensation committee of the Board of Directors. During the fiscal year ended December 31,

2017, there were no relationships or transactions between the Company and any member of the compensation committee requiring disclosure hereunder.

 

 

 

10    The board of directors


Table of Contents

  Part 3

 

 

  Proposals to be voted on at the
meeting

Proposal 1: The election of directors

 

 

Generally

The Articles presently provide for not less than one nor more than 15 directors. The Board of Directors has, by resolution, presently fixed the number of directors at 14. There currently is a full complement of 14 members of the Board of Directors. Directors are elected at each annual general meeting of shareholders to hold office for one-year terms until the next annual general meeting of shareholders.

The Board has nominated each of Michael O. Johnson, Jeffrey T. Dunn, Richard H. Carmona, Jonathan Christodoro, Hunter C. Gary, Nicholas Graziano, Alan LeFevre, Jesse A. Lynn, Michael Montelongo, Juan Miguel Mendoza, James L. Nelson, Maria Otero, Margarita Paláu-Hernández and John Tartol for election as directors to serve one-year terms expiring at the 2019 annual general meeting. Mme. Paláu-Hernández was nominated by Messrs. Cozza, Gary and Lynn, all of whom are members of the Board; Mr. Mendoza was nominated by the Company’s Executive Chairman, Mr. Johnson; and Mr. LeFevre was nominated by the Company’s Chief Executive Officer, Richard Goudis. The nominations of Messrs. Christodoro, Gary, Lynn, Graziano and Nelson were made pursuant to that certain Second Amended and Restated Support Agreement, or the Support Agreement, dated July 15, 2016, by and among the Company and Carl C. Icahn, Icahn Partners Master Fund LP, Icahn Offshore LP, Icahn Partners LP, Icahn Onshore LP, Beckton Corp., Hopper Investments LLC, Barberry Corp., High River Limited Partnership, Icahn Capital LP, IPH GP LLC, Icahn Enterprises Holdings L.P. and Icahn Enterprises G.P. Inc., or collectively, the Icahn Parties. A copy of the Support Agreement was filed by the Company on Form 8-K on July 15, 2016. In consideration of these nominations, the Icahn Parties have agreed to vote their Common Shares in favor of the Board’s nominees for director at the Meeting and thereafter for so long as any Icahn Party designee is a member of the Board. The Icahn Parties beneficially own approximately 22,872,324 of our Common Shares. The Support Agreement also includes standstill and voting provisions applicable to the Icahn Parties’ ownership of Company Common Shares. The Company did not receive any shareholder nominations for director.

The persons named as proxies on the accompanying proxy card intend to vote the Common Shares as to which they are granted authority to vote for the election of the nominees listed above. The form of proxy card does not permit shareholders to vote for a greater number of nominees than 14. Although the Board of Directors does not know of any reason why any nominee will be unavailable for election, in the event any nominee should be unavailable at the time of the Meeting, the proxies may be voted for a substitute nominee as selected by the Board of Directors or just for the remaining nominees, leaving a vacancy. Alternatively, the Board may reduce the size of the Board.

Director qualifications

The Board believes that the Board, as a whole, should possess a combination of skills, professional experience and diversity of backgrounds necessary to oversee the Company’s business. In addition, the Board believes that there are certain attributes that every director should possess, as reflected in the Board’s membership criteria discussed below. Accordingly, the Board and the nominating and corporate governance committee consider the qualifications of directors and director candidates individually and in the broader context of the Board’s overall composition and the Company’s current and future needs.

The nominating and corporate governance committee is responsible for developing and recommending Board membership criteria to the Board for approval. The criteria, which are set forth in the Company’s Principles of Corporate Governance, are available on the Company’s website, www.herbalife.com, by following the links through “Investor Relations” to “Corporate Governance,” and include business experience and skills, independence, judgment, integrity, the ability to commit sufficient time and attention to Board activities and the absence of potential conflicts with the Company’s interests. In addition, the nominating and corporate governance committee periodically evaluates the composition of the Board to assess the skills and experience that are currently represented on the Board, as well as the skills and experience that the Board will find valuable in the future,

 

 

Proposals to be voted on at the meeting      11  


Table of Contents

given the Company’s current situation and strategic plans. The nominating and corporate governance committee seeks a variety of occupational, educational and personal backgrounds on the Board in order to obtain a range of viewpoints and perspectives and to enhance the diversity of the Board in such areas as professional experience, geography, race, gender, ethnicity and age. While the nominating and corporate governance committee does not have a formal policy with respect to diversity, the nominating and corporate governance committee believes that it is essential that Board members represent diverse viewpoints. This periodic assessment enables the Board to update the skills and experience it seeks in the Board as a whole, and in individual directors, as the Company’s needs evolve and change over time and to assess effectiveness of efforts at pursuing diversity. In identifying director candidates from time to time, the nominating and corporate governance committee may establish specific skills and experience that it believes the

Company should seek in order to constitute a balanced and effective Board.

In evaluating director candidates, and considering incumbent directors for re-nomination to the Board, the nominating and corporate governance committee considers a variety of factors. These include each nominee’s independence, financial literacy, personal and professional accomplishments and experience, each in light of the composition of the Board as a whole and the needs of the Company in general, and for incumbent directors, past performance on the Board. The nominating and corporate governance committee also considers the terms of the Support Agreement. The process undertaken by the nominating and corporate governance committee in recommending qualified director candidates is described above under Part 2 — “Committees of the board — Nominating and corporate governance committee.”

 

 

 

12    Proposals to be voted on at the meeting


Table of Contents

Set forth below is biographical information about the 14 nominees standing for election at the Meeting, including each such person’s specific experience, qualifications, attributes and skills that led our Board of Directors to conclude that such individual should serve on our Board of Directors.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF EACH OF THE NOMINEES NAMED IN THIS PROXY STATEMENT TO THE BOARD OF DIRECTORS.

 

Nominees for Election as Directors

 

LOGO  

Michael O. Johnson

Age 63

 

Director since 2003

Mr. Johnson has served as the Company’s Executive Chairman since June 2017 and Chairman of the Board since 2007. Mr. Johnson previously served as the Company’s Chief Executive Officer from April 2003 until May 2017. Mr. Johnson spent 17 years with The Walt Disney Company, where he served as President of Walt Disney International, and also served as President of Asia Pacific for The Walt Disney Company and President of Buena Vista Home Entertainment. Mr. Johnson has also served as a publisher of Audio Times magazine, and has directed the regional sales efforts of Warner Amex Satellite Entertainment Company for three of its television channels, including MTV, Nickelodeon and The Movie Channel. Mr. Johnson formerly served as a director of Univision Communications, Inc., a television company serving Spanish-speaking Americans, until March 2007, and on the Board of Regents for Loyola High School of Los Angeles. Mr. Johnson received his Bachelor of Arts in Political Science from Western State College.

Mr. Johnson’s qualifications to serve on our Board include his fourteen years of experience as our Chief Executive Officer, his 11 years of experience as our Chairman of the Board, and his significant experience in international business matters.

 

LOGO  

Jeffrey T. Dunn

Age 60

 

Director since 2009

Lead Director since 2014

Mr. Dunn has served as a venture partner at Acre Venture Partners since February 2016. Mr. Dunn previously served as the Chief Executive Officer of Juicero, Inc., a manufacturer of commercial grade juicers and related customer support applications, from October 2016 until November 2017. Prior to joining Juicero, Inc., Mr. Dunn was President of Campbell Fresh, a division of Campbell Soup Company, where he led the launch of the company’s premium juice and salad dressing businesses, a position he assumed February 2015. Before joining Campbell Soup Company, Mr. Dunn was Chief Executive Officer and President of Wm. Bolthouse Farms, Inc., a company he joined in May 2008. Prior to joining Wm. Bolthouse Farms Inc., he was President and Chief Executive Officer of Ubiquity Brands, a rollup of several regional snack food businesses. Mr. Dunn also held various leadership roles within The Coca-Cola Company, including serving as president of Coca-Cola North America from 1985 until 2004. He earned a bachelor’s degree in business from the University of Georgia and an MBA in management from Pepperdine University.

Mr. Dunn’s qualifications to serve on our Board include his significant consumer marketing experience, which is relevant to the Company’s business operations in selling and manufacturing packaged food and nutritional supplement products; his significant knowledge and experience regarding international business matters, which is relevant to the Company in light of its operations across 94 countries worldwide; and his service as a chief executive officer, which helps the Board better understand management’s day-to-day actions and responsibilities.

 

 

Proposals to be voted on at the meeting      13  


Table of Contents
LOGO  

Dr. Richard Carmona

Age 68

 

Director since 2013

Dr. Carmona has served as Chief of Health Innovations of Canyon Ranch, a life-enhancement company, since August 2017. He previously served as Vice Chairman of Canyon Ranch, Chief Executive Officer of the Canyon Ranch Health division, and the president of the nonprofit Canyon Ranch Institute, from October 2006 until August 2017. Dr. Carmona is also a Distinguished Professor of Public Health at the Mel and Enid Zuckerman College of Public Health at the University of Arizona. Prior to joining Canyon Ranch, Dr. Carmona served as the 17th Surgeon General of the United States from August 2002 through July 2006. Previously, he was Chairman of the State of Arizona Southern Regional Emergency Medical System; a professor of surgery, public health, and family and community medicine at the University of Arizona; and surgeon and deputy sheriff of the Pima County, Arizona, Sheriff’s Department. Dr. Carmona served in the U.S. Army and the Army’s Special Forces. Dr. Carmona is a director of Axon Enterprise Inc. and the Clorox Company.

Dr. Carmona’s qualifications to serve on our Board include his extensive experience in public health and clinical sciences. His commitment to prevention as an effective means to improve public health and reduce health care costs brings valuable and significant insight to the Board, and his experience serving on other public company boards adds a depth of knowledge as to best practices in corporate governance.

 

 

 

 

Photo Not Available

 

Jonathan Christodoro

Age 41

 

Director since 2013

Mr. Christodoro served as a Managing Director of Icahn Capital LP, the entity through which Carl C. Icahn manages investment funds, from July 2012 to February 2017. Mr. Christodoro was responsible for identifying, analyzing and monitoring investment opportunities and portfolio companies for Icahn Capital. Prior to joining Icahn Capital, Mr. Christodoro served in various investment and research roles at P2 Capital Partners, LLC, Prentice Capital Management, LP and S.A.C. Capital Advisors, LP. Mr. Christodoro began his career as an investment banking analyst at Morgan Stanley, where he focused on merger and acquisition transactions across a variety of industries. Mr. Christodoro has been a director of: PayPal Holdings, Inc., a technology platform company that enables digital and mobile payments worldwide, since July 2015; Lyft, Inc., a mobile ride-sharing application, since May 2015; and Enzon Pharmaceuticals, Inc., a biotechnology company, since October 2013 (and has been Chairman of the Board of Enzon since November 2013). Mr. Christodoro was previously a director of: Xerox Corporation, a provider of document management solutions, from June 2016 to December 2017; Cheniere Energy, Inc., a developer of natural gas liquefaction and export facilities and related pipelines, from August 2015 until August 2017; Hologic, Inc., a supplier of diagnostic, medical imaging and surgical products, from December 2013 to March 2016; eBay Inc., a global commerce and payments company, from March 2015 to July 2015; Talisman Energy Inc., an independent oil and gas exploration and production company, from December 2013 to May 2015; and American Railcar Industries, Inc., a railcar manufacturing company, from June 2015 to February 2017. American Railcar Industries is indirectly controlled by Carl C. Icahn. Mr. Icahn has or previously had non-controlling interests in each of Xerox, Cheniere, PayPal, eBay, Lyft, Hologic, Talisman, Enzon and Herbalife through the ownership of securities. Mr. Christodoro received an M.B.A from the University of Pennsylvania’s Wharton School of Business with Distinction, majoring in Finance and Entrepreneurial Management. Mr. Christodoro received a B.S. in Applied Economics and Management Magna Cum Laude with Honors Distinction in Research from Cornell University. Mr. Christodoro also served in the United States Marine Corps.

Mr. Christodoro’s qualifications to serve on our Board include his service on other boards as well as his extensive investment, research and investment banking experience in a variety of industries. Mr. Christodoro was recommended by the Icahn Parties pursuant to the Support Agreement.

 

 

14    Proposals to be voted on at the meeting


Table of Contents
LOGO  

Hunter C. Gary

Age 43

 

Director since 2014

Mr. Gary has served as Senior Vice President of Icahn Enterprises L.P., or IEP, a master limited partnership and diversified holding company engaged in ten primary business segments which include investment, automotive, energy, gaming, railcar, mining, food packaging, metals, real estate and home fashion, since November 2010. At IEP, Mr. Gary is responsible for monitoring portfolio company operations, implementing operational value enhancement as well as leads a variety of operational activities for IEP which focus on a variety of areas including, technology, merger integration, supply chain, organization transformation, real estate, recruiting and executive compensation. Mr. Gary has served as President of IEP’s Real Estate segment since November 2013 and has lead the Information Technology and Cybersecurity group at IEP since September 2015 while serving as President of Sfire Technology LLC (f.k.a. IEH Technology LLC) since December 2015. Mr. Gary has served as President and Chief Executive Officer of Cadus Corporation, or Cadus, a company engaged in the acquisition of real estate for renovation or construction and resale, since March 2014 and as a director, since February 2014. Prior to IEP and Cadus, Mr. Gary was employed by Icahn Associates Corporation, an affiliate of IEP, in various roles beginning in June 2003, most recently as the Chief Operating Officer of Icahn Sourcing LLC (n.k.a. Insight Portfolio Group LLC). From 1997 to 2002, Mr. Gary worked, most recently as a Managing Director, at Kaufhof Warenhaus AG, a former subsidiary of the Metro Group which was acquired by Hudson’s Bay Company.

Mr. Gary has been a director of: The Pep Boys — Manny, Moe & Jack, or PBYS, an automotive parts installer and retailer, since February 2016; IEH Auto Parts LLC, or IEHAP,

a distributor of automotive aftermarket parts, since June 2015; Ferrous Resources Limited, or Ferrous, an iron ore mining company, since June 2015; PSC Metals Inc., or PSC, a metal recycling company, since May 2012; Tropicana Entertainment Inc., or TPCA, a company that is primarily engaged in the business of owning and operating casinos and resorts, since March 2010; and WestPoint Home LLC, a home textiles manufacturer, since June 2007. Mr. Gary has also been a member of the Executive Committee of ACF Industries LLC (“ACF”), a railcar manufacturing company, since July 2015.

Mr. Gary was previously a director of: XO Holdings, XO, a competitive provider of telecom services, from September 2011 until January 2018; Federal-Mogul Holdings Corporation (formerly known as Federal-Mogul Holdings Corporation; or FDML), a supplier of automotive powertrain and safety components, from October 2012 to February 2016; Voltari Corporation, or VLTC, a mobile data services provider, from October 2007 to September 2015; American Railcar Industries, Inc. , or ARI, a railcar manufacturing company, from January 2008 to June 2015; and Viskase Companies Inc., or VKSC, a meat casing company, from August 2012 to June 2015.

ACF, ARI, Cadus, FDML, Ferrous, IEHAP, IEP, PBYS, PSC, TPCA, VKSE, VLTC, WPH and XO are each are indirectly controlled by Carl C. Icahn. Mr. Icahn also has a non-controlling interest in Herbalife through the ownership of securities.

Mr. Gary received his Bachelor of Science degree with senior honors from Georgetown University as well as a certificate of executive development from Columbia Graduate School of Business.

Mr. Gary’s qualifications to serve on our Board include his extensive experience dealing with operations and oversight matters for a variety of companies which, in addition to his experience as a director of various companies, enables him to advise our Board on a range of matters. Mr. Gary was recommended by the Icahn Parties pursuant to the Support Agreement.

 

 

Proposals to be voted on at the meeting      15  


Table of Contents
LOGO  

Nicholas Graziano

Age 46

 

New Nominee

Mr. Graziano has served as Portfolio Manager of Icahn Capital, the entity through which Carl C. Icahn manages investment funds, since February 2018. Mr. Graziano was previously the Founding Partner and Chief Investment Officer of the hedge fund Venetus Partners LP, where he was responsible for portfolio and risk management, along with day-to-day firm management, from June 2015 to August 2017. Prior to founding Venetus, Mr. Graziano was a Partner and Senior Managing Director at the hedge fund Corvex Management LP from December 2010 to March 2015. At Corvex, Mr. Graziano played a key role in investment management and analysis, hiring and training of analysts and risk management. Prior to Corvex, Mr. Graziano was a Portfolio Manager at the hedge fund Omega Advisors, Inc., where he managed a proprietary equity portfolio and made investment recommendations, from September 2009 until December 2010. Before Omega, Mr. Graziano served as a Managing Director and Head of Special Situations Equity at the hedge fund Sandell Asset Management, where he helped build and lead the special situations team responsible for managing a portfolio of concentrated equity and activist investments, from July 2006 to July 2009. Mr. Graziano previously served on the Board of Directors of each of: Fair Isaac Corporation (FICO) from February 2008 to May 2013; WCI Communities Inc. from August 2007 to August 2009; and InfoSpace Inc. from May 2007 to October 2008. Sandell Asset Management had non-controlling interests in FICO and InfoSpace through the ownership of securities.

Mr. Graziano completed a five year undergraduate/MBA program at Duke University earning a BA in Economics and an MBA from The Fuqua School of Business.

Mr. Graziano’s qualifications to serve on our Board include his service on other boards as well as his extensive investment, research and investment banking experience in a variety of industries. Mr. Graziano was recommended by the Icahn Parties pursuant to the Support Agreement.

LOGO  

Alan LeFevre

Age 58

 

New Nominee

Alan W. LeFevre is the former Executive Vice President – Finance and Chief Financial Officer for Jarden Corporation (“Jarden”), a leading provider of consumer products with a portfolio of over 120 brands sold globally, from June 2014 to April 2016. Prior to Jarden, from February 1997 to June 2014, Mr. LeFevre worked for Jarden Consumer Solutions (“JCS”), a subsidiary of Jarden and formerly the Sunbeam Corporation, a manufacturer of home appliances. From April 2002 until June 2014, Mr. LeFevre was the Executive Vice President of Operations and Chief Financial Officer for JCS. In this role, in addition to his responsibilities over accounting and finance, Mr. LeFevre also led the Supply Chain, Manufacturing, Sourcing, Engineering, and Information Technology groups for JCS. From February 1997 to April 2002, Mr. LeFevre held positions of increasing responsibilities within the same business unit. Mr. LeFevre started his career with Arthur Andersen & Co. in 1982. Mr. LeFevre graduated with distinction from Valparaiso University with a Bachelor of Science in Business Administration degree and was a certified public accountant.

Mr. LeFevre’s qualifications to serve on our Board include his significant financial experience, which provides the Board with important knowledge regarding financial matters and operational and executive experience, which is relevant to the Company’s business operations.

 

 

16    Proposals to be voted on at the meeting


Table of Contents
LOGO  

Jesse A. Lynn

Age 47

 

Director since 2014

Mr. Lynn has been General Counsel of Icahn Enterprises L.P. (a diversified holding company engaged in a variety of businesses, including investment, automotive, energy, gaming, railcar, food packaging, metals, real estate and home fashion) since January 2015. From September 2004 to January 2015, Mr. Lynn was Assistant General Counsel of Icahn Enterprises. Prior to joining Icahn Enterprises, L.P., Mr. Lynn worked as an associate in the New York office of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. in its business and finance department from February 2000 until September 2004. From September 1996 until February 2000, Mr. Lynn was an associate in the corporate group at Gordon Altman Butowsky Weitzen Shalov & Wein. Mr. Lynn previously served as a director of The Manitowoc Company, Inc., a capital goods manufacturer, from April 2015 to February 2018. Mr. Lynn received a B.A. in 1992 from the University of Michigan and a J.D. in 1996 from the Boston University School of Law.

Mr. Lynn’s qualifications to serve on our Board include his legal and finance experience gained both in private practice as well as his positions with Icahn Enterprises. Mr. Lynn was recommended by the Icahn Parties pursuant to the Support Agreement.

LOGO

 

Juan Miguel Mendoza

Age 43

 

New Nominee

Mr. Mendoza has been an independent Herbalife distributor for 25 years and a member of the Company’s Chairman’s Club since 2013. He has been active in training independent Herbalife distributors around the world, and is a member of various strategy and planning groups for Herbalife.

Mr. Mendoza’s qualifications to serve on our Board include his 25 years of experience as an independent Herbalife distributor, which brings a first-hand understanding of the function and specific needs of our independent Herbalife distributors, the ultimate drivers of our business, to the Board. His tenure as a distributor also provides valuable insight into the Company’s growth and development over the 25-year period.

 

 

Proposals to be voted on at the meeting      17  


Table of Contents
LOGO  

Michael Montelongo

Age 62

 

Director since 2015

The Honorable Michael Montelongo, a former presidential appointee and Senate-confirmed official, has been President and Chief Executive Officer of GRC Advisory Services, LLC, a private firm specializing in board governance, risk management, and compliance matters, since July 2016. He is also a senior advisor at leadershipForward, Inc., a premier leadership performance firm serving Fortune 500 and small business clients and serves on the boards of the Larry H. Miller Management Corporation, Exostar LLC, and Aerospace Corporation. Mr. Montelongo is an experienced c-level executive and board governance leader who has led commercial, government, and non-profit organizations and brings a unique and broad service industry and customer experience skill set in facilities and food service management, retail services, outsourced technical services, telecommunications, professional services, and aerospace/defense, including government service in the military, the U.S. Senate, the Pentagon, and the National Aeronautics and Space Administration (NASA). Focusing on strategy, financial and risk management (including cyber-risk), policymaking, and operations excellence for global commercial and public sector enterprises, he is recognized for leading change in large organizations.

Most recently, Mr. Montelongo served as chief administrative officer and senior vice president, public policy and corporate affairs for Sodexo, Inc., a quality of life services enterprise in North America from January 2008 until July 2016. Previously, he was a George W. Bush White House appointee serving as the 19th assistant secretary for financial management and chief financial officer of the U.S. Air Force from August 2001 until March 2005 and concluded his tenure at the Pentagon as acting secretary of the Air Force. A public policy expert, he is a lifetime member of the Council on Foreign Relations. Before joining the George W. Bush administration, Mr. Montelongo was an executive with a global management consulting firm, a regional telecommunications company, and completed a career in the U.S. Army that included line and staff assignments, a Congressional Fellowship in the U.S. Senate, and service as an assistant professor teaching economics and political science at West Point. Mr. Montelongo is also a member of the Council on Foreign Relations.

Mr. Montelongo earned his bachelor’s degree in science from West Point and an M.B.A. from Harvard Business School.

Mr. Montelongo’s qualifications to serve on our Board include his experience as a c-level executive and corporate governance leader for commercial, government, and non-profit organizations, which helps the Board better appreciate federal government and regulatory matters and understand management’s day-to-day actions and responsibilities; his current and past professional financial and audit committee experience, which provides the Board with important financial and compliance insight; his service with a global food service firm focused on health, wellness, and nutrition, which is relevant to the Company’s business operations in selling and manufacturing packaged food and nutritional supplement products; his significant experience regarding international business and global security matters, which is relevant to the Company in light of its operations across 94 countries worldwide; his standing in and deep knowledge of the U.S. Latino community and market and his experience on other private and public company boards, which adds a depth of knowledge to our Board as to best practices in corporate governance.

 

 

18    Proposals to be voted on at the meeting


Table of Contents
LOGO  

James L. Nelson

Age 68

 

Director since 2014

Mr. Nelson currently serves as Chief Executive Officer of Global Net Lease, Inc., or GNL, a publicly-traded real estate investment trust, a position he has held since July of 2017, and, since March of 2017, as a director of GNL. Mr. Nelson previously served as a member of the GNL’s audit committee from March 2017 until July 2017. Mr. Nelson also serves as a director and member of the audit committee of Icahn Enterprises GP, or IEP, a position he has held since June of 2001. Mr. Nelson was previously a director of New York REIT, Inc. from November 2015 until June 2017; a director and chairman of the audit committee of the Viskase Companies, Inc. from April 2003 through April 2010; a director of American Entertainment Properties Corp. from December 2003 until March 2013; a director of Tropicana Entertainment Inc. from March 2010 until May 2014, and a member of its audit committee from March 2010 until December 2013 and a member of its nominating and governance committee until his resignation in May 2014; a director of Orbitex Financial Services Group from August 1995 until March 2001; a director and as Chairman of the audit committee of Cequel Communications, an owner and operator of a large cable television system, from April 2008 to November 2012; a director and member of the audit committee of Take Two Interactive Software, Inc. a publisher, developer, and maker of video games and video game peripherals, from April 2010 through November 2013; a director and member of the compensation, governance and strategic alternatives committees of Voltari Corporation (f/k/a Motricity Inc.) from June 2011 to September 2015, and as Chairman of Voltari’s board of directors from January 2012 to September 2015; a director of VII Peaks Co-Optivist Income BDC II, Inc., an externally managed, closed-end management investment company, from November 2013 until August 2014; and a director of Ubiquity Corp from April 2014 until August 2014. Mr. Nelson was Chairman and Chief Executive Officer of Eaglescliff Corporation, a specialty investment banking, consulting and wealth management company, from 1986 until 2009. From March 1998 through 2003, he was Chairman and Chief Executive Officer of Orbit Aviation, Inc., a company engaged in the acquisition and completion of Boeing Business Jets for private and corporate clients; and from August 1995 until July 1999, Mr. Nelson was Chief Executive Officer and Co-Chairman of Orbitex Management, Inc., a financial services company in the mutual fund sector.

Mr. Nelson brings to his service as a director his significant experience in leadership roles serving as Chief Executive Officer, Director and Chairman of audit committees. Mr. Nelson was recommended by the Icahn Parties pursuant to the Support Agreement.

 

 

Proposals to be voted on at the meeting      19  


Table of Contents

LOGO

 

Maria Otero

Age 67

 

Director since 2013

Ms. Otero currently serves on the board of Development Alternatives Inc. In 2009 she was nominated by President Obama and confirmed by the US Senate to serve as Undersecretary of State for Democracy and Global Affairs. On January 17, 2012, Secretary Clinton named Maria Otero as Undersecretary for Civilian Security, Democracy, and Human Rights, a newly created office and position at the State Department, where she served until 2013. During her time at the Department of State, Undersecretary Otero also served as the President’s Special Coordinator for Tibetan Issues. She became the highest ranking Hispanic official at the State Department and the first Latina undersecretary in its history. From 2000 to 2009 Ms. Otero served as President and CEO of Accion International, a global microfinance organization operating in 26 countries. In that capacity she chaired the board of Accion Investments, a global equity investment fund and represented Accion on the board of several microfinance banks. She was appointed by President Clinton to chair the board of the Inter-American Foundation and by President Bush to serve as vice-chair on the board of the US Institute of Peace. In 2006, she was appointed by Secretary General Kofi Annan to the U.N. Advisors Group on Inclusive Financial Sectors. Ms. Otero has served on the boards of The Kresge Foundation since 2013, the Public Welfare Foundation since 2013, Oxfam America since 2014, and the Smithsonian Institution National Portrait Gallery since 2016, and is a member of the Council of Foreign Relations. She also chaired the board of Bread for the World, and served on the boards of the Calvert Foundation and BRAC in Bangladesh. Ms. Otero also worked as an economist for Latin America and the Caribbean in the Women in Development Office of USAID.

Ms. Otero holds an M.A. in literature from the University of Maryland; an M.A. in International Relations from the Paul H. Nitze School of Advanced International Studies (SAIS), at the Johns Hopkins University; and holds an honorary Doctorate of Humane Letters from Dartmouth College.

Ms. Otero’s qualifications to serve on our Board include an expansive career focused on empowering those less fortunate around the world, her standing in and deep knowledge of the U.S. Latino community and market, and her leadership, extensive public service and microfinance experience which add a valuable breadth and depth of knowledge to the Board.

LOGO

 

Margarita Paláu-Hernández

Age 61

 

New Nominee

Ms. Paláu-Hernández is the founder and Chief Executive Officer of Hernández Ventures, a private firm engaged in the acquisition and management of a variety of business interests, a position she has held since November 1988. Prior to founding Hernández Ventures, Ms. Paláu-Hernández was an attorney with the law firm of McCutcheon, Black Verleger & Shea, where she focused on domestic and international business and real estate transactions from September 1985 until August 1988. Ms. Paláu-Hernández has been a director and member of the Compensation and Nominating and Corporate Governance Committees of ALJ Regional Holdings, Inc., a publically traded holding company, since November 2015. She is also a member of the following non-profit commissions and boards: the Woodrow Wilson International Center for Scholars and the Consejo Mexicano de Asuntos Internacionales Commission on Building a Secure and Competitive U.S.-Mexico Border, since January 2017; Pacific Counsel on International Policy, since April 2017; Yale School of Management Council of Global Advisors, since March 2016; Ex-Officio member of the Yale School of Management Board of Advisors, since March 2016; Smithsonian National Latino Board, since August 2016; UCLA School of Law Board of Advisors, since October 2008; and Trustee Emeritus of the University of San Diego Board of Trustees, since December 2017. Ms. Paláu-Hernández also served on the University of San Diego Board of Trustees from September 2007 until July 2016.

Ms. Paláu-Hernández has a B.A. from the University of San Diego and a J.D. from the UCLA School of Law.

Ms. Paláu-Hernández’s qualifications to serve on our Board include her experience in starting a business, which allow her to appreciate the challenges many of our distributors face, her finance and legal experience gained both her role at Hernández Ventures and in her private practice, her standing in and deep knowledge of the U.S. Latino community and market, and her leadership and extensive non-profit experience which add a valuable breadth and depth of knowledge to the Board.

 

 

20    Proposals to be voted on at the meeting


Table of Contents
LOGO  

John Tartol

Age 66

 

Director since 2005

Mr. Tartol has been an independent Herbalife distributor for 36 years and a member of the Company’s Chairman’s Club since 2000. He is active in training other independent Herbalife distributors all over the world and has served on various strategy and planning groups for Herbalife. He is also active on behalf of various charities in his community and worldwide on behalf of the Herbalife Family Foundation. He has a Bachelor’s degree in finance from the University of Illinois.

Mr. Tartol’s qualifications to serve on our Board include his 36 years of experience as an independent Herbalife distributor, which brings a first-hand understanding of the function and specific needs of our independent Herbalife distributors, the ultimate drivers of our business, to the Board. His tenure as a distributor also provides valuable insight into the Company’s growth and development over the 36-year period.

 

 

Proposals to be voted on at the meeting      21  


Table of Contents

Proposal 2: Approve, on an advisory basis, the Company’s executive compensation

 

 

Our executive compensation program is designed to attract, motivate and encourage a long-term commitment from talented and high-performing executives to lead the Company’s global success selling nutrition products including: food, dietary supplements and personal care products that are regulated at varying levels in the 94 markets where we operate through a direct selling independent sales organization. Our program is further designed to advance our shareholders’ interests in a manner that is consistent with our Company value of “operating with integrity and transparency.” The compensation program places strong emphasis on long-term sustainable growth and enhanced value for our shareholders through an annual equity grant program that rewards executives with the ability to participate in our share price appreciation and to share equally in potential downside if key targets that drive shareholder value are not achieved. By encouraging long-term performance and enhanced shareholder value, our executives are encouraged to operate our business with integrity, focusing on fostering strategic growth while being mindful to mitigate against risk. In addition to emphasizing long-term growth, our compensation program attracts talented executives by offering a competitive base salary and annual cash incentives, which encourages our executives to achieve short-term financial goals.

The vast majority of the compensation of the Company’s named executive officers — the officers identified in Part 4 — “Compensation discussion and analysis” — is tied to Company operating and share price performance. Volume Points, operating income and earnings per share (adjusted, as applicable) are used to determine executives’ annual incentive compensation. Long term incentives were provided to our named executive officers in 2017 in the form of an annual grant of stock appreciation rights, or SARs, and performance share units, or PSUs, all of which are subject to performance and service criteria. These awards directly align the long-term interests of our executives with those of our shareholders.

At our 2017 annual general meeting, our shareholders expressed strong support for our 2016 executive compensation program, with over 88% of votes cast in favor of the advisory vote proposal. When designing our 2017 executive compensation program, the compensation committee of the Board of Directors, or the Committee, considered, among other things, the Company’s growth,

profit and non-financial (i.e., sales leader retention) objectives, benchmarking against market practices, the Company’s financial performance, incentives that reward shareholder value creation and any shareholder feedback. While the Committee did not make any changes to our 2017 executive compensation program as a result of the say on pay vote in respect of our 2016 executive

compensation program, the Committee determined to make the following changes, which applied to our 2017 program:

 

  Elimination of any entitlement to tax gross-ups;

 

  Increased threshold and maximum achievement levels of performance-based SARs, and clarified that such SARs vest three years from grant date (subject to potential, partial early vesting) based on achievement of established performance criteria;

 

  Revised peer group to eliminate companies with dissimilar products and notably lower revenues and added new peers;

 

  Added PSUs as part of the long-term equity incentive program;

 

  Consolidated existing three performance measures for annual incentive program for NEOS (EPS, Volume Points and Operating Income) into two measures (Volume Points and Operating Income), with a weighting of 30% and 70%, respectively; provided however, that EPS continued to serve as the performance metric to measure Mr. Johnson’s prorated annual bonus in connection with his role as CEO;

 

  Approved a severance plan to apply to NEOs other than the Executive Chairman and NEOs with existing severance agreements; and

 

  Elimination of perquisites, including the executive wellness program, executive physical and financial planning benefits effective January 1, 2017 and personal use of Company-chartered aircraft and home security monitoring services effective June 1, 2017.

We believe that the Company’s financial performance is facilitated by the “pay for performance” design of our compensation program. Our program motivates our executives to deliver financial results, with the appropriate level of risk taking, against three performance metrics in a manner that ultimately aligns with the realized growth of shareholder equity value.

 

 

 

22    Proposals to be voted on at the meeting


Table of Contents

Additional information regarding the Company’s compensation program applicable to the named executive officers is described in Part 4 — “Compensation discussion and analysis” and the related tables and narrative disclosure. For the reasons discussed above, the Board of Directors unanimously recommends that shareholders vote in favor of the following resolution:

“Resolved, that the shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed pursuant to Item 402 of Regulation S-K and described in the Compensation Discussion and Analysis, the compensation tables and the accompanying narrative disclosure, in the proxy statement.”

While the resolution is non-binding, the Board of Directors values the opinions that shareholders express in their votes and in any additional dialogue. It will consider the outcome of the vote and those opinions when making future compensation decisions. The next shareholder advisory vote on the Company’s executive compensation is expected to occur at the 2019 annual general meeting and the Company currently intends to offer shareholders this advisory vote on an annual basis.

 

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ADVISORY RESOLUTION ON THE COMPANY’S EXECUTIVE COMPENSATION.

 

 

Proposals to be voted on at the meeting      23  


Table of Contents

Proposal 3: Approve the name change of the Company from “Herbalife Ltd.” to “Herbalife Nutrition Ltd.”

 

 

In proposal 3, we are asking shareholders to pass the following resolution:

“Resolved, that, as a special resolution, the name of the Company is changed from “Herbalife Ltd.” to “Herbalife Nutrition Ltd.”

If this proposal is approved by the shareholders, the name change will be effective as of May 7, 2018. Subsequent to the name change, the Company will not change its trading symbol on the NYSE and the Common Shares will continue to trade on the NYSE.

The Board of Directors determined that it would be in the Company’s best interest to change the Company’s name to better align it with the Company’s principal business operations and to reinforce the Company’s purpose as a global nutrition company that focuses on weight management, targeted nutrition, and energy, sports and fitness products. The Board of Directors, together with management, believes that the proposed name change would allow the Company to better represent our business strategy to customers, business partners and the investment community.

Under the Articles and Cayman Islands Law, the affirmative vote of not less than 66.67% of the Common Shares present or represented by proxy and entitled to vote must approve a change to the Company’s name.

If the name change is approved by our shareholders, Article 1 of our Articles will be amended to read as follows:

“The name of the Company is Herbalife Nutrition Ltd.”

The change of name will not affect in any way the validity or transferability of share certificates outstanding at the time of the name change, our capital structure or the trading of the Common Shares on the NYSE.

Following the date of the Meeting, shareholders should continue to hold their existing share certificates regardless of whether the shareholders approve this proposal 3 to change the Company’s name, proposal 4 to amend and restate the Articles and/or proposal 5 to effect a two-for-one stock split of the Company’s Common Shares. Shareholders should not destroy any share certificates and should not deliver any share certificates to the transfer agent or take any other action with respect to their Common Shares solely as a result of this proposal, proposal 4 or proposal 5. If the name change is approved by shareholders at the Meeting, uncertificated shares currently held in direct registration accounts and any new share certificates that are issued after the name change becomes effective will bear the name “HERBALIFE NUTRITION LTD.”

 

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE PROPOSAL TO CHANGE THE NAME OF THE COMPANY FROM “HERBALIFE LTD.” TO “HERBALIFE NUTRITION LTD.”

 

 

24    Proposals to be voted on at the meeting


Table of Contents

Proposal 4: Approve the amendment and restatement of the Company’s Amended and Restated Memorandum and Articles of Association

 

 

The Company’s Board of Directors is recommending to shareholders to pass the following resolution to account for the Company’s proposed name change (if approved), the stock split proposal (if approved) and to provide for additional changes as summarized below:

“Resolved, that, as a special resolution, from the Effective Time, the memorandum and articles of association of the Company currently in effect be amended and restated in the form attached as Annex A to this Proxy Statement and notice of annual general meeting.”

The Effective Time for the purposes of the above resolution is May 7, 2018.

Article references in the summary below are to the sections reflected in Annex A and not necessarily the Articles in effect as of the date hereof. The description of the proposed changes to the Articles contained in this Proxy Statement does not purport to be complete and is qualified in its entirely by reference to the full text of the form of the second amended and restated memorandum and articles of association attached to this Proxy Statement as Annex A.

Proposed Changes to the Articles

Articles 2.10 and 2.11 have been added to permit electronic execution and/or delivery of documents pursuant to the provisions of the Electronic Transactions Law (2003 Revision) of the Cayman Islands.

Articles 30 and 31 have been updated to provide for the repurchase of Common Shares by the Company and to conform with recent updates to Cayman Islands Law.

Articles 37 and 38 of the Articles have been added to permit the Company to hold its Common Shares as treasury shares as treasury shares are now permitted by Cayman Islands Law.

Article 87 has been added to permit a shareholder who holds more than one share to split his votes “for” or “against” a resolution and/or abstain from voting some or all of the his shares.

Articles 95 and 99 have been updated to remove references to classification of directors as the declassification of the Board was completed in 2016.

Article 117 has been updated to authorize the Board to delegate their powers, authorities and discretionary duties to committees of the Board.

Article 161 has been added to permit the Company to merge or consolidate with one or more constituent companies on such terms as the Board of Directors may determine and with shareholder approval of a special resolution related thereto.

Additional non-material changes have been made to the Articles in order correct minor typographical errors, reflect general legislative updates since the last full adoption of the amended and restated memorandum and articles of association in April 2015 and to include all prior amendments already made to the Articles since December 2004.

The form of the second amended and restated memorandum and articles of association, as it will appear if the name change proposal, this proposal 4 and proposal 5 are approved, is attached to this Proxy Statement as Annex A.

Under the Articles and Cayman Islands Law, the affirmative vote of not less than 66.67% of the Common Shares present or represented by proxy and entitled to vote must approve the amendment to the Articles set forth in this proposal 4.

 

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE PROPOSED AMENDMENT AND RESTATEMENT OF THE COMPANY’S ARTICLES IN THE FORM ATTACHED AS ANNEX A.

 

 

Proposals to be voted on at the meeting      25  


Table of Contents

Proposal 5: Effect a two-for-one stock split of the Company’s Common Shares.

 

 

The Company’s Board of Directors has approved, and is recommending to shareholders for approval at the Meeting, the following resolution to effect a two-for-one stock split of the Common Shares, or the Stock Split Proposal:

“Resolved, that, from the Effective Time, the Company’s outstanding Common Shares be subject to a stock split at a ratio of two-for-one (2:1) by:

 

(a)   the authorized share capital of the Company being amended by the subdivision of 1,000,000,000 Common Shares of a nominal or par value of US$0.001 each, into 2,000,000,000 Common Shares of a nominal or par value of US$0.0005 each; and

 

(b)   each issued and outstanding Common Share of a nominal or par value of US$0.001 each, being subdivided into two (2) Common Shares of a nominal or par value of US$0.0005 each.

The Effective Time for the purposes of the above resolution is May 7, 2018.”

If the Stock Split Proposal is approved, on May 7, 2018 each issued and outstanding Common Share, par value US $0.001 per share, would be subdivided into two Common Shares, par value US $0.0005 per share, and the Company’s currently authorized share capital of 1,000,000,000 Common Shares, par value US $0.001 per share, would be subdivided into 2,000,000,000 Common Shares, par value US $0.0005 per share. The Company is currently authorized to issue 7,500,000 preferred shares, par value US $0.002 per share, and the proposed stock split will not affect this authorization.

The purpose of the Stock Split Proposal is to effect a two-for-one stock split of the Common Shares. The two-for-one stock split will increase the number of shares held in the public market, and the Board of Directors believes that this will place the market price of a Common Share in a range that is more affordable to investors, particularly individuals. As a result, potentially more people would be able to buy our Common Shares and provide more liquidity in each shareholder’s investment. We cannot be certain that these effects will occur.

If the Stock Split Proposal is approved by the shareholders, it will be effective on May 7, 2018, the record date for the stock split. The Company will apply to the NYSE for the listing of the additional Common Shares that would be issued as a result of the stock split. Provided the listing application is approved by the NYSE, the stock split would be accomplished by providing each shareholder of record as of the close of business on the stock split record date an additional Common Share, par value $0.0005 per share, in book entry form for each Common Share held by the shareholder on that date. The additional Common Shares will be distributed on or about May 14, 2018.

FOLLOWING THE STOCK SPLIT, EXISTING SHARE CERTIFICATES REPRESENTING COMMON SHARES, PAR VALUE US $0.001 PER SHARE, WOULD BE DEEMED TO REPRESENT THE SAME NUMBER OF COMMON SHARES HAVING A PAR VALUE OF US $0.0005 PER SHARE. EXISTING CERTIFICATES WILL NOT BE EXCHANGED FOR NEW CERTIFICATES AND CERTIFICATES SHOULD NOT BE RETURNED TO THE COMPANY OR ITS TRANSFER AGENT AS A RESULT OF THE STOCK SPLIT.

There are no preemptive rights with respect to the Common Shares, and shareholders will not have any dissenters’ or appraisal rights in connection with adoption of the Stock Split Proposal. The additional Common Shares issuable upon the effective date of the stock split would have the identical powers, preferences and rights as the currently outstanding Common Shares. Adoption of the Stock Split Proposal would not affect the rights of the holders of currently outstanding Common Shares, except for rights incidental to increasing the number of Common Shares outstanding. Appropriate adjustments will be made to all awards granted under the Company’s equity incentive and other employee incentive plans as well as the number of Common Shares reserved for issuance thereunder.

Assuming transactions of an equivalent dollar amount, brokerage commissions on purchases and sales of Common Shares after the stock split may be higher than before the stock split because the same ownership interest would be represented by a greater number of shares.

 

 

 

26    Proposals to be voted on at the meeting


Table of Contents

Tax Effect of the Two-for-One Stock Split

Under existing United States federal income tax laws, the proposed two-for-one stock split would not result in any gain or loss or realization of taxable income to owners of Common Shares. The cost basis for tax purposes of each new Common Share and each retained Common Share would be equal to one-half of the cost basis for tax purposes of the corresponding Common Share immediately preceding the stock split. The holding period for each additional Common Share issued pursuant to the stock split would be deemed to be the same as the holding period for the original Common Share. The laws of jurisdictions other than the United States may impose income taxes on the receipt of additional shares pursuant to the stock split.

This summary is based upon the Internal Revenue Code, existing and proposed Treasury Regulations promulgated thereunder, administrative pronouncements and judicial decisions, all as in effect on the date of this Proxy Statement, and all of which are subject to change, possibly on a retroactive basis. Any such change could affect the continuing validity of this discussion. This discussion does not address the effect of any applicable state, local or foreign tax laws. The foregoing summary does not purport to be a complete analysis of all potential tax effects of the stock split. Each shareholder is urged to consult with his or her own tax advisor to determine the particular tax consequences to such shareholder of the stock split, including the applicability and effect of state, local and foreign tax laws and the possible effects of any changes in U.S. federal or other applicable tax laws.

 

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE PROPOSED TWO-FOR-ONE STOCK SPLIT CONTEMPLATED BY THE STOCK SPLIT PROPOSAL.

 

 

Proposals to be voted on at the meeting      27  


Table of Contents

Proposal 6: Ratification of the appointment of independent registered public accountants

 

 

The audit committee has selected PricewaterhouseCoopers, or PwC, as the Company’s independent registered public accountants for the fiscal year ending December 31, 2018. Services provided to the Company and its subsidiaries by PwC in fiscal 2017 and 2016 are described below under “— Fees to independent registered public accountants for fiscal 2017 and 2016.” Additional information regarding the audit committee is set forth in the “Audit committee report.”

The Articles do not require that our shareholders ratify the selection of PwC as the Company’s independent registered public accountants. However, we are requesting ratification because we believe it is a matter of good corporate practice. If the Company’s shareholders do not ratify the selection, the audit committee will reconsider whether or not to retain PwC, but may, nonetheless, retain PwC as the Company’s independent registered public accountants. Even if the selection is ratified, the audit committee in its discretion may change the appointment at any time if it determines that the change would be in the best interests of the Company and its shareholders.

The Company has been advised that representatives of PwC will be present at the Meeting where they will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.

Audit committee report

The audit committee is responsible for monitoring our financial auditing, accounting and financial reporting processes and our system of internal controls, and selecting the independent registered public accounting firm on behalf of the Board of Directors. Our management has primary responsibility for our internal controls and reporting process. Our independent registered public accounting firm, PwC, is responsible for performing an independent audit of our consolidated financial statements and the effectiveness of our internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States) and issuing an opinion thereon. In this context, the audit committee met regularly and held discussions with management and PwC. Management represented to the audit committee that the consolidated

financial statements for fiscal year 2017 were prepared in accordance with U.S. generally accepted accounting principles.

The audit committee hereby reports as follows:

 

  The audit committee has reviewed and discussed the audited consolidated financial statements for fiscal year 2017 and accompanying management’s discussion and analysis of financial condition and results of operations with our management and PwC. This discussion included PwC’s judgments about the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements.

 

  The audit committee also discussed with PwC the matters required to be discussed by Auditing Standard No. 1301, as adopted by the Public Company Accounting Oversight Board.

 

  PwC also provided to the audit committee the written disclosures and the letter required by the applicable requirements of the Public Company Accounting Oversight Board regarding PwC’s communications with the audit committee concerning independence, and the audit committee has discussed with PwC the accounting firm’s independence. The audit committee also considered whether non-audit services provided by PwC during the last fiscal year were compatible with maintaining the accounting firm’s independence.

Based on the reviews and discussions referred to above, the audit committee recommended to the Board of Directors that the audited consolidated financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2017, which have been filed with the Securities and Exchange Commission, or the SEC. The audit committee also selected PwC to serve as our independent registered public accounting firm for the year ending December 31, 2018.

AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

Richard P. Bermingham (Chairman)

Michael Montelongo

James L. Nelson

 

 

 

28    Proposals to be voted on at the meeting


Table of Contents

Fees to independent registered public accountants for fiscal 2017 and 2016

The following fees were for services provided by PwC:

 

    2017      2016  

Audit fees(1)

 

    $6,818,000        $5,883,000  

Audit-related fees(2)

 

    $211,000        $38,000  

Tax fees(3)

 

    $1,409,000        $2,185,000  

Total

 

    $8,438,000        $8,106,000  

 

(1)   Audit fees for 2017 and 2016 consist of fees for professional services rendered for the audit of the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the years ended December 31, 2017 and December 31, 2016, including the audit of internal controls required by Section 404 of the Sarbanes-Oxley Act of 2002, and the review of financial statements included in the Company’s Quarterly Reports on Form 10-Q, and for services that are normally provided by the auditor in connection with statutory and regulatory filings or engagements.

 

(2)   Audit-related fees consist of assurance and related services that were reasonably related to the performance of the audit or review of the Company’s consolidated financial statements and which are not reported under “Audit fees”.

 

(3)   Tax fees were for tax compliance and tax guidance.

 

Pre-approval policy

The audit committee has adopted pre-approval policies and procedures for audit and non-audit services which the Company’s independent auditors have historically provided. Pursuant to those policies and procedures, the Company’s external auditor cannot be engaged to

provide the Company any audit or non-audit services to the Company unless the engagement is pre-approved by the audit committee in compliance with the Sarbanes-Oxley Act of 2002. All fees and services described in the table above were pre-approved pursuant to this policy.

 

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” RATIFICATION OF THE APPOINTMENT OF PwC AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR FISCAL 2018.

 

Proposals to be voted on at the meeting      29  


Table of Contents

  Part 4

 

 

  Executive compensation

Compensation discussion and analysis

 

This section explains the Company’s 2017 executive compensation program as it relates our “named executive officers”, or NEOs:

 

Michael O. Johnson    Executive Chairman
Richard P. Goudis    Chief Executive Officer
Desmond Walsh    President
John G. DeSimone    Chief Financial Officer
David Pezzullo    Chief Operating Officer

Executive summary of our compensation program

Financial performance for purposes of our annual incentive program

The Company’s financial performance is a material factor in determining the total compensation for our NEOs. As discussed further below, top-line growth stated in terms of Volume Points and profitability stated in terms of Operating Income and EPS (each adjusted, as applicable, in the manner discussed below) are the performance metrics used for purposes of our annual incentive program.

For purposes of our 2017 annual incentive program, the targets for Operating Income and EPS were set lower than the 2016 results, primarily reflecting changes in foreign currency rates, but the Volume Point target was set above 2016 results based upon the Company’s expectations for revenue growth. In 2017, we exceeded our performance targets for Operating Income and EPS due to strong expense controls, but fell slightly short of meeting our Volume Points target primarily because of changes in the way we do business in the United States in response to the consent order entered into with the Federal Trade Commission, or the FTC Consent Order. We continued to deliver positive business performance despite facing events with macro-economic consequences, such as natural disasters including earthquakes, hurricanes and floods occurring domestically and abroad in August, September and October.

 

    

Results for Bonus Purposes

 

       
     2014      2015      2016      2017    

2017

Target

 

 

Volume Points (millions)

 

    

 

5,443

 

 

 

    

 

5,336

 

 

 

    

 

5,582

 

 

 

    

 

5,379

 

 

 

   

 

5,752

 

 

 

Operating Income ($, millions)

 

    

 

792.1

 

(1) 

 

    

 

648.0

 

(1) 

 

    

 

637.9

 

(1) 

 

    

 

575.3

 

(2) 

 

   

 

558.3

 

 

 

EPS ($) (diluted)(1)

 

    

 

5.93

 

(1) 

 

    

 

5.00

 

(1) 

 

    

 

4.83

 

(1) 

 

    

 

4.10

 

(2) 

 

   

 

3.83

 

 

 

Adjusted closing share price at year end ($)

 

    

 

37.70

 

 

 

    

 

53.62

 

 

 

    

 

48.14

 

 

 

    

 

67.72

 

 

 

   

 

N/A

 

 

 

 

(1)   Operating Income and EPS for 2014 to 2015 are adjusted to exclude the impact of re-measurement and impairment losses related to Venezuela. Operating Income and EPS for 2014 to 2016 are adjusted to exclude expenses relating to challenges to the Company’s business model. Operating Income and EPS for 2014 are also adjusted to exclude certain non-recurring expenses associated with independent member payments related to Venezuela and asset impairment charges. Operating Income and EPS for 2014 and 2015 are also adjusted to exclude the legal reserve for the Bostick case. Operating Income and EPS for 2015 are also adjusted to exclude foreign exchange gain from Euro/USD exposure on intercompany balances, and the recovery of asset impairment charges. Operating Income and EPS for 2014 to 2016 are also adjusted to exclude expenses related to regulatory inquiries, expenses incurred for the recovery of fees relating to the re-audit of our 2010 to 2012 financial statements, or the Re-audit, and non-cash interest costs associated with our convertible notes. Operating Income and EPS for 2016 are also adjusted to exclude arbitration award in connection with the Re-audit, regulatory settlements, FTC Consent Order implementation and China grant income.

 

30    Executive compensation


Table of Contents
(2)   Operating Income and EPS for 2017 are adjusted to exclude impact of the Tax Cuts and Jobs Act, or the Tax Act, non-cash interest costs associated with our convertible notes, expenses relating to FTC Consent Order implementation, expenses relating to regulatory inquiries, expenses relating to challenges to our business model, China grant income, excess tax benefit related to share-based compensation exercises, impact from changes in currency exchange rates and our share repurchases.

The following table summarizes the 2017 annual incentive awards for the NEOs. All 2017 annual incentive awards to NEOs were based solely on the calculated results to target performance levels. For a more detailed discussion of our 2017 annual incentive awards for the NEOs, please refer to the discussion below under “— Annual incentive awards.”

 

  NEO      2017 Annual Incentive         
Award Amount       

  Michael O. Johnson

 

      

 

$1,618,172       

 

 

  Richard P. Goudis

 

      

 

$735,110       

 

 

  Desmond J. Walsh

 

      

 

$437,648       

 

 

  John G. DeSimone

 

      

 

$365,597       

 

 

  David Pezzullo

 

      

 

$310,078       

 

 

 

Strategic accomplishments

In addition to the financial performance discussed above, the Company achieved key strategic accomplishments in 2017 that provided significant support for the Company’s continued growth and success. These include:

 

  completing the implementation of new procedures and enhancement of certain existing procedures in the U.S. in connection with the FTC Consent Order, including segmenting our independent member base in the U.S. into “preferred members” and “distributors”, roll out of the preferred member website and mobile receipt tools to assist distributors in documenting sales to their customers;

 

  continuing to expand the global roll-out and member acceptance of daily consumption based sales and marketing activities;

 

  conducting pilot programs with revised sales leader requalification requirements aimed at maintaining engagement of part-time sales leaders who have built businesses with small customer bases;

 

  increasing the Company’s vertical manufacturing capacity and capability for our key products;

 

  continuing execution of our “build it better” program, resulting in continuous improvement efforts throughout the Company;

 

  completing our global Oracle ERP system upgrade; and

 

  increasing the number and effectiveness of our product access points and distribution facilities.

Compensation program that aligns pay and performance

Our executive compensation program is designed to attract, motivate and encourage a long-term commitment from talented and high-performing executives to lead the Company’s global success selling nutrition products. Our

program is further designed to advance our shareholders’ interests in a manner consistent with our Company value of “operating with integrity and transparency.” The compensation program places strong emphasis on long-term sustainable growth and enhanced value for our shareholders through an annual equity grant program that rewards executives with the ability to participate in our share price appreciation and to share equally in potential downside if key targets that drive shareholder value are not achieved. By encouraging long-term performance and enhanced shareholder value, our executives are committed to operating our business with integrity, focusing on fostering strategic growth while being mindful to mitigate against risk. In addition to emphasizing long-term growth, our compensation program attracts talented executives by offering a competitive base salary and annual cash incentives, which encourage our executives to achieve short-term financial goals. The Compensation Committee of the Board of Directors, or the Committee, has the responsibility for establishing, developing and implementing these programs while ensuring an appropriate level of risk-taking by the Company’s executives.

The direct compensation of our NEOs in 2017 consisted of base salary, annual cash incentives, and grants of equity in the form of performance stock appreciation rights, or SARs, and performance share units, or PSUs. To create, and reinforce, a pay for performance philosophy and culture and increase alignment with the expectations of investors in the Company, the annual cash incentives and equity components of compensation comprise the vast majority of the total compensation of our NEOs. In setting target compensation, the Committee annually reviews the total compensation opportunity for each executive compared to comparable executives within the Herbalife Peer Group, as defined below, along with other comparative factors. Although there is no targeted mix of

 

 

Executive compensation      31  


Table of Contents

compensation elements, the proportion of compensation designed to be delivered in variable pay versus base salary increases with the ability of the executive to influence overall Company performance.

For 2017, the percentage of targeted direct compensation provided in the form of annual and long-term incentives

tied to the Company’s performance was 87% for our current CEO and between 77% and 80% for our other NEOs. As reflected under the “2017 Summary compensation table,” actual compensation paid provided in the form of such incentives was 87% of total compensation for our current CEO and between 76% and 82% of total compensation for our other NEOs.

 

 

LOGO

 

 

Percentages may not total due to rounding.

 

In 2017, except with respect to Mr. Johnson’s pro-rated annual incentive award while serving as CEO of the Company, the Committee determined to consolidate the three performance measures previously used in annual incentive plans for our NEOs (i.e., Volume Point, Operating Income and EPS) into two key financial performance measures, Volume Point and Operating Income, to be applied to all NEOs with a weighting of 30% and 70%, respectively. The Committee made such change in order to simplify the performance measures and to align all NEOs to the same performance targets. The Committee further believes these two performance measures better drive the Company’s share value. While Mr. Johnson’s supplemental annual incentive award applicable during the time he served as CEO of the Company (as described in more detail under “— Annual incentive awards” below) was subject to the same two performance metrics, the performance measure for Mr. Johnson’s pro-rated annual cash incentive award for the period where he served as our CEO was based entirely on EPS. Each of these performance measures is more fully described in “Annual incentive awards — Targets and award determination” below.

Long-term incentives granted to our NEOs in 2017 were exclusively in the form of equity awards subject to performance targets, which provide a direct alignment with the expectations of the Company’s investors to enhance long-term shareholder value. The NEOs each received performance SARs in February 2017 as part of their long-term incentive award granted in the ordinary course. While the use of SARs in and of themselves only have value to our NEOs if our share price increases, the vesting of these SARs requires achieving sales leader retention goals (i.e., retention of the Company’s independent distributor sales leaders). The use of this sales retention metric helps management align the business strategies to ensure that marketing and sales

programs and promotions lead to enhanced retention of the Company’s most senior distributors.

As part of the Company’s “build it better” philosophy, the Committee continued to evaluate our executive compensation program during 2017 and determined to introduce PSUs as part of the long-term equity incentive program in order to:

 

  increase alignment of equity compensation with shareholder value;

 

  reward management for accelerating the Company’s growth;

 

  align executives with shareholders through share ownership (provided the PSUs are earned)

 

  broaden performance focus and accountability of our NEOs; and

 

  require sustained operating performance in order for PSUs to be earned.

Messrs. Goudis and Pezzullo received PSUs in June 2017 and August 2017, respectively, in connection with their promotions to CEO and COO, respectively.

In 2018, in furtherance of its commitment to improve the alignment of our executive compensation program with the interests of shareholders, the Committee determined to eliminate performance SARs from the design of our long-term incentive program. Beginning in 2018, grants to NEOs pursuant to our long-term incentive program will consist of PSUs (75%) and time-vesting restricted share units, or RSUs (25%). With this change, the Company’s executive compensation program will retain its most effective feature, its direct emphasis on multi-year performance, which ensures that NEO pay is aligned with

 

 

 

32    Executive compensation


Table of Contents

the Company’s performance over several years, while also aligning the interests of NEOs with our shareholders through share ownership.

Say on pay

Our shareholders have consistently expressed strong support for our executive compensation program, with over 87%, on average, of votes cast in favor of our executive compensation program since the shareholder advisory vote over our executive compensation program was sought beginning with our 2011 annual general meeting. At our 2017 annual general meeting, our shareholders continued to show their strong support, with approximately 88% of votes cast in favor of the advisory “say on pay” vote proposal in respect of our 2016 executive compensation program. When designing our 2017 executive compensation program, the Committee considered, among other things, the Company’s growth, profit and non-financial (i.e., sales leader retention) objectives, benchmarking against market practices, the Company’s financial performance, incentives that reward shareholder value creation and any shareholder feedback. The Committee determined to make the following changes, which applied to our 2017 program:

 

  Elimination of any entitlement to tax gross-ups;

 

  Increased threshold and maximum achievement levels of performance-based SARs, and clarified that such SARs vest three years from grant date (subject to potential, partial early vesting) based on achievement of established performance criteria;

 

  Revised peer group to eliminate companies with dissimilar products and notably lower revenues and added new peers;

 

  Added PSUs as part of the long-term equity incentive program;

 

  Consolidated existing three performance measures for annual incentive program for NEOS into two measures as discussed above (except with respect to Mr. Johnson’s annual incentive bonus in connection with his service as CEO of the Company, which was subject to EPS as its exclusive performance metric);

 

  Approved a severance plan to apply to NEOs other than the Executive Chairman and NEOs with existing severance agreements; and

 

  Elimination of perquisites, including the executive wellness program, executive physical and financial planning benefits effective January 1, 2017 and personal use of Company-chartered aircraft and home security monitoring services effective June 1, 2017.
 

 

 

Executive compensation      33  


Table of Contents

Things we do

   Things we dont do

Our executive compensation program is simple in design, and follows guidelines that have repeatedly proven effective in creating a “pay for performance” culture, a keen focus on profitability as well as retaining key executives. These guidelines include:

 

   tying the vast majority of the income opportunity available to our executives to long-term growth in shareholder value;

 

   incorporating a performance measure or measures relative to improving, in the case of performance SARs, sales leader retention, and, in the case of PSUs, several metrics tied to creating shareholder value, to trigger the vesting of annual equity awards for all NEOs;

 

   making annual incentive awards available only to the extent that key financial performance goals that ensure profitable and efficient business growth are achieved;

 

   imposing caps on awards payable to each NEO under our annual incentive plan;

 

   imposing two additional caps on amounts payable under our annual incentive plan: (i) aggregate payments to all employees collectively must be equal to or less than 10% of Operating Income, and (ii) total management bonus payment should not exceed the annual bonus payout to the Company’s most senior independent members;

 

   the Committee retaining and regularly consulting with an independent compensation advisor;

 

   the Committee annually reviewing current public data regarding the Herbalife Peer Group when compensation decisions are made;

 

   prohibiting pledging, hedging and other types of securities transactions intended to lock in gain on share price appreciation;

 

   subjecting our Section 16 officers to compensation “clawbacks” in the event of a financial misstatement per the Company’s clawback policy; and

 

   encouraging our NEOs to hold Common Shares and/or vested equity awards with an aggregate value equal to five times, with respect to our CEO, or two times, with respect to our other NEOs, their respective base salaries.

  

The Committee is committed to maintaining and adopting prevailing best practices with regard to executive compensation. As such, we DO NOT DO the following:

 

   we do not guarantee our executives any annual incentive award amounts — all annual bonuses require financial performance against annually established goals as established by the Committee;

 

   we do not re-price or back-date equity awards;

 

   we do not issue equity awards with below market exercise prices;

 

   we do not provide supplemental retirement benefits;

 

   we do not provide excise tax gross ups to our NEOs;

 

   we do not encourage excessive or imprudent risk taking; and

 

   we do not provide any perquisites for our NEOs (executive wellness program, executive physical and financial planning benefits ceased effective January 1, 2017, and personal use of Company-chartered aircraft and home security monitoring services ceased effective June 1, 2017).

 

34    Executive compensation


Table of Contents

2018 Compensation changes

The Committee determined to make changes to our executive compensation program for 2018 as part of the Company’s “build it better” philosophy. As part of this philosophy, we are committed to continue to improve the alignment of our compensation program with shareholder value creation, while balancing the need to retain a strong leadership team. The Committee believes the changes being made to our 2018 compensation program further improves the alignment between executive compensation and the interests of shareholders. Highlights of our 2018 changes and the primary reasons for such changes are described below:

 

 

Annual cash incentive awards

 

Change made

 

 

 

Reason for change

 

 

Amend bonus slopes applicable to NEOs as follows:

 

•      Oneslope for both Volume Points and Operating
Income metrics.

 

•      Lower minimum threshold to receive any bonus to
95% (from 100%).

 

•      Increase maximum threshold to 108% (from 106%).

 

 

•      Updated bonus slopes to reflect Company’s historical performance.

 

•      Steep slope encourages Company’s high performance culture.

 

•      Updated bonus slopes better aligned with market trends.

 

 

 

Long-term incentive awards

 

Change made

 

 

 

Reason for change

 

 

In 2017, began to replace performance-vesting SARs with PSUs as part of long-term equity incentive program. In 2018, introduced equity grant to be comprised of a mix of PSUs and time-vesting RSUs.

 

•      Beginning in 2018, total equity compensation awarded to executive employees eligible to receive equity grants will be comprised of 75% PSUs and 25% RSUs.

 

•      Performance metrics applicable to PSU portion will include Local Currency Net Sales, Adjusted EBIT and Adjusted EPS (each metric as defined below under “— Performance Shares Units”).

 

 

•      Increase alignment of equity compensation with
creating shareholder value.

 

•      Reward management for accelerating the
Company’s growth.

 

•      Align executives with shareholders through share
ownership.

 

•      Align with prevalent market practices.

 

•      Broaden performance focus and accountability of
our NEOs.

 

•      Require multi-year performance in order for PSUs
to be earned.

Executive compensation program objectives

As a leader in the nutritional products industry, generally manufacturing approximately 65% of our own products that are sold through a direct selling distribution channel and generating approximately 80% of our net sales outside the United States for the year ended December 31, 2017, we operate in an environment of challenging regulatory, economic and geopolitical uncertainty. Our success depends on the leadership of a highly-talented, adaptive and dedicated executive team. Our compensation program for our NEOs provides competitive rewards to executives who contribute to our annual success in achieving growth in revenues and profitability, as well as making strategic decisions that should lead to increasing shareholder returns over time.

The Committee believes that shareholder interests are advanced if the Company assembles, motivates and rewards a high-performing management team. To promote this objective, the Committee developed its executive compensation program guided by a “pay for performance” organizing framework and the resulting underlying principles listed below:

 

  Principle

 

  

Implication on HLF Program

 

  

Rationale

 

 

 

The program must attract and encourage a long-term commitment from talented executives necessary to lead our global nutrition business and advance shareholders’ interests in a manner consistent with our company value of “operating with integrity and transparency.”

  

•  Strong emphasis on long-term incentives and shareholder value creation.

 

•  Performance considerations reflect the Company’s values and strategy and an appropriate balance of risk and reward.

 

  

 

•  Focus on long-term performance and shareholder value helps mitigate risk and encourages growth.

 

•  Operating with integrity and transparency is a key corporate value that must be central to how we conduct our business.

 

Executive compensation      35  


Table of Contents

  Principle

 

  

Implication on HLF Program

 

  

Rationale

 

Compensation opportunities must be competitive with the pay practices of companies that operate in global markets and able to attract and retain high-performing, highly-employable executive talent with similar executive skills and capabilities.

  

•  Peer group reflects the market in which we reasonably compete for executive talent.

 

•  We reference both proxy-sourced market data from our peer group as well as general industry survey data from Mercer (a nationally recognized compensation survey).

 

•  The Committee’s independent advisor provides the Committee with the 25th, 50th and 75th percentiles of market data to understand the scope of the market, with target compensation for top executives spanning from the 25th percentile to the 75th percentile based on a variety of factors, including individual performance, internal equity, succession planning and business strategy.

 

•  Overall, our executives are within a competitive range.

 

 

  

•  The Company recruits high-performing executives with known track-records in competitive, complex and global businesses.

 

•  To attract the talent the Company needs to lead its business, compensation opportunities must be as or more attractive than opportunities at our peers.

 

 

A majority of total compensation is at-risk and tied to achievement of annual financial and non-financial performance goals and improvement in long-term shareholder value.

  

 

•  87% of actual 2017 compensation for our CEO and between 72% and 82% of actual 2017 compensation for our other NEOs were incentive-based directly linked to performance.

 

•  100% of long-term incentives awarded in 2017 were performance based — no time-vesting equity.

 

•  Value of SARs and PSUs align with sustained long-term shareholder value and vesting requires achievement of performance goals that support our business.

 

  

 

•  Annual and long-term incentive plans use growth objectives, profit objectives, non-financial objectives (e.g., sales leader retention), are forward-looking and backward-looking, to ensure a comprehensive set of metrics are used to consider overall performance of the Company and our executive team.

 

36    Executive compensation


Table of Contents

  Principle

 

  

Implication on HLF Program

 

  

Rationale

 

Incentive compensation must provide superior pay for superior performance that meets or exceeds the expectations of our shareholders.

  

•  Superior performance expectations are built into performance targets and ranges of our incentive plans such that when incentive targets are met, the Company is exceeding peer financial performance and meeting shareholder expectations.

 

•  Our incentive plans are calibrated to deliver above-median compensation for meeting superior performance targets, with the majority of those incentives deriving value through share price appreciation, in the case of SARs, and deriving value through increased shareholder value, in the case of PSUs.

 

 

  

•  The only way for our executives to earn above-market compensation is by meeting or exceeding financial and non-financial goals.

 

 

Incentive compensation should reflect a balanced time horizon between annual and long-term performance in order to promote sustainable growth in the value of the enterprise.

  

 

•  Annual incentive is paid in cash based on achievement of annual financial performance targets.

 

•  SARs, which have a 10 year term, are earned based on achievement of sales leader retention expectations – a key forward-looking non-financial measure, and which over that time derives value only from share price appreciation.

 

•  PSUs awarded in 2017 are earned based on achievement of the following three metrics over a performance period from July 1, 2017 to December 31, 2019: Volume Points, Adjusted EBIT and Adjusted EPS.

 

•  PSUs awarded in 2018 will be earned based on achievement of the following three metrics over a three-year performance period as determined by the Committee: Local Currency Net Sales, Adjusted EBIT and Adjusted EPS.

 

  

 

•  A mix of cash and equity compensation is a competitive practice.

 

•  Paying a mix of cash and equity based on a “portfolio” of equity vehicles and performance metrics also help balance risk within the pay program.

Long-term incentives should be provided in Company equity, where allowed by local law, to encourage executives to plan and act with the perspective of shareholders and with the Company’s vision, mission and values in mind, and be rewarded for the successful implementation of our growth strategies.

  

•  100% of the long-term incentives granted to NEOs in 2017 delivered in performance SARs and, with respect to Messrs. Goudis and Pezzullo, PSUs.

 

•  In 2018, long-term incentive awards to be granted to NEOs will consist of 75% PSUs and 25% RSUs

 

•  The Company has competitive stock ownership guidelines.

 

 

  

•  SARs, PSUs and RSUs align executive rewards with the Company’s long term performance and shareholder value creation.

 

•  Encouraging equity ownership further aligns executives with sustained performance and shareholder value.

 

Executive compensation      37  


Table of Contents

Purpose of compensation elements

The compensation and benefits program for our NEOs consists of and is designed to achieve the following:

 

  Direct pay component

 

   Purpose

Base salary

  

Provide a competitive foundation for total compensation to each executive in consideration of job scope and responsibilities, demonstrated sustained performance, capabilities and experience.

 

Annual cash incentives

  

Reward executives for the achievement of challenging annual financial targets that drive growth in shareholder value.

 

Long-term incentives (performance-based SARs and PSUs)

  

Provide incentive for executives to develop strategic plans, and make tactical decisions that will enhance shareholder value, reward executives with participation in the creation of long-term shareholder value and encourages successful executives to remain with the Company.

 

  Indirect pay (benefits)

 

    

Retirement benefits

  

Encourage executives to build retirement resources by providing a match on deferred compensation in the Company’s 401(k) plan and Senior Executive Deferred Compensation Plan.

 

Life insurance benefits

  

Provide a competitive benefit in the event of death of an executive.

 

Severance benefits

  

Enable each executive to focus his or her full time and attention on meeting the financial and operating objectives set by the Committee without fear of the financial consequences of an unexpected termination of employment.

 

Change in control benefits

  

Enable executives to focus on shareholder interests when considering strategic alternatives.

 

Establishing CEO compensation

The Chair of the Committee, with input from the independent compensation advisor, recommends the CEO’s compensation to the Committee in an executive session not attended by the CEO. Once a recommendation has been established by the Committee, the CEO’s compensation is reviewed with, and approved by, the independent members of the Board.

Role of executive officers in executive compensation decisions

The CEO reviews compensation data gathered from a group of peer companies, approved by the Committee and described below under “— Peer Group”, or the Herbalife Peer Group, and, along with general industry compensation surveys, considers each executive officer’s performance and scope of responsibility, and makes a recommendation to the Committee on changes to base salary, annual incentive awards and equity awards for each executive officer other than himself. The CEO participates in Committee meetings at the Committee’s request to provide relevant background information regarding the Company’s strategic objectives and to evaluate the performance of and compensation recommendations for the other executive officers. The Committee utilizes the information provided by the CEO along with input from its independent compensation advisor and the knowledge and experience of Committee members in making compensation decisions.

 

38    Executive compensation


Table of Contents

Base salaries

Base salaries for our NEOs are intended to reflect the scope of their responsibilities, performance, skills and experience as compared with relevant and comparable market talent. When establishing base salaries for NEOs, the Committee considers market data and positions target pay for the NEOs based on a number of factors, including experience and tenure of the executive, scope of responsibilities, business performance and individual performance.

The Committee reviews base salaries of our NEOs annually, generally in February. In its annual review of the base salaries for our NEOs for 2017, the Committee determined to have the base salaries of our NEOs

remain generally unchanged. On June 1, 2017, Mr. Johnson transitioned to the role of Executive Chairman and Mr. Goudis transitioned to the role of CEO. On August 1, 2017, Mr. Pezzullo became the Chief Operating Officer of the Company. In connection with these transitions, the Committee approved changes to each of their base salaries. The chart below shows the 2015 and 2016 base salaries for the NEOs, the base salaries approved by the Committee for 2017, the current base salaries as of December 31, 2017, and the rationale for the applicable salary changes.

In connection with the elimination of the executive wellness program, executive physical and financial planning benefits, the base salaries of our NEOs increased by approximately 3% effective January 1, 2017.

 

 

  NEO   2015 Salary     2016 Salary     2017 Salary    

Current Salary (as

of December 31,

2017)

 

   

Rationale for Change

 

  Michael O. Johnson     $1,236,000       $1,236,000       $1,236,000 (1)      $650,000         

Ø Transition to Executive     Chairman

 

  Richard P. Goudis

 

   

 

$675,680

 

 

 

   

 

$675,680

 

 

 

   

 

$675,680

 

 

 

   

 

$1,000,000     

 

 

 

 

Ø Appointed to CEO

 

  Desmond Walsh

 

   

 

$675,680

 

 

 

   

 

$675,680

 

 

 

   

 

$694,680

 

 

 

   

 

$694,680     

 

 

 

 

Ø 3% increase

 

  John G. DeSimone

 

   

 

$600,000

 

 

 

   

 

$600,000

 

 

 

   

 

$619,000

 

 

 

   

 

$619,000     

 

 

 

 

Ø 3% increase

 

  David Pezzullo     $438,626       $438,626       $457,626       $525,000         

Ø Appointed to Chief     Operating Officer

 

 

(1)   This annual salary amount was effective for the period of time Mr. Johnson served as CEO of the Company, which was January 1, 2017 through May 31, 2017.

 

Annual incentive awards & long-term incentive program

Annual incentive awards

Our annual cash incentive plan is designed to motivate and reward the achievement of annual financial targets that create value for our shareholders. The Committee establishes financial performance targets and goals for our annual incentive plan each year, taking into consideration that such targets and goals align with and support the Company’s business strategy, recognize current business conditions, align with the current year financial budget, align with Wall Street analysts and public investor expectations and require performance that is competitive with those of the Herbalife Peer Group. In 2017, as part of the Committee’s commitment to further strengthen a “pay for performance” culture and align our employees with the interest of our shareholders and investor expectations, the Committee consolidated the performance measures that had been used from 2009 to 2016. In this way, the Committee simplified the performance measures and aligned all the NEOs to the same targets. Except as described below under “— Pre-Transition Annual Incentive Opportunities –

January 1, 2017 through May 31, 2017,” the criteria used for 2017 consisted of targeted Volume Points, serving as a proxy for sales, and targeted Operating Income, subject to adjustments as discussed below, which ensures our executives make decisions that improve our profitability.

In addition to setting performance targets, the Committee has established two limits within the annual incentive plan that can affect the aggregate value of the awards. The first limit is the requirement that the aggregate payments made under the annual incentive plan cannot exceed 10% of the Company’s Operating Income for the year. The second limit is the requirement that the total bonus payout to all employees of the Company should not exceed the annual bonus payout to the Company’s most senior independent members.

Pre-Transition Annual Incentive Opportunities — January 1, 2017 through May 31, 2017

Prior to Mr. Johnson’s transition to the role of Executive Chairman on June 1, 2017, Mr. Johnson’s target and maximum annual incentive as a percentage of his base salary was set forth in his March 2008 employment

 

 

 

Executive compensation      39  


Table of Contents

agreement. Although Mr. Johnson’s March 2008 employment agreement provided for a “base” annual

incentive award equal to three-quarters of his total annual incentive opportunity payable to the extent the Company achieves EPS targets set by the Committee, the Committee determined to increase the percentage to 100%. Mr. Johnson’s March 2008 employment agreement also provides for a supplemental annual incentive award payable in the event of the achievement of an alternative performance target, or APT, equal to one-fourth of his total annual incentive opportunity. The APT incentive provides the Committee a degree of flexibility in incentivizing and rewarding Mr. Johnson for the achievement of key strategic and financial targets. Volume Points and Operating Income were used for the period between January 1, 2017 through May 31, 2017 to determine Mr. Johnson’s APT incentive.

Prior to Mr. Goudis’ transition to the role of Chief Executive Officer (together with Mr. Johnson’s transition to Executive Chairman, the “Transition”), the minimum and maximum target annual incentive as a percentage of base salary for Mr. Goudis was set forth in his January 2010 employment agreement. Under such agreement, Mr. Goudis’ minimum annual target bonus opportunity

could be no less than 80% of his base salary and no more than two times the annual target bonus.

Post-Transition Annual Incentive Opportunities – June 1, 2017 through December 31, 2017

Following the Transition, Mr. Johnson’s annual target bonus opportunity as a percentage of his base salary is set forth in his November 2016 employment agreement, which became effective on June 1, 2017. This agreement provides for an annual target bonus opportunity equal to 80% of Mr. Johnson’s base salary.

Following the Transition, Mr. Goudis’ annual target opportunity as a percentage of his base salary is set forth in his November 2016 employment agreement, which became effective on June 1, 2017. This agreement provides for an annual target bonus opportunity equal to 120% of Mr. Goudis’ base salary.

Subject to the limits described above, target incentives for our executives are set by the Committee depending on the employee’s position, scope of responsibilities, ability to influence Company results, and competitive pay practices among the Herbalife Peer Group.

 

 

The chart below summarizes the 2017 annual incentive plan performance measures and weightings for each NEO, which were used in calculating annual incentive awards.

 

 

  Executive

 

Weight in determining
annual incentive

  EPS

 Operating  

Income  

Volume
Points

  Michael O. Johnson (January 1, 2017 – May 31, 2017) – Base annual incentive award

 

 

 

100%

 

 

 

 

 

 

 

 

 

 

 

 

 

  Michael O. Johnson (January 1, 2017 – May 31, 2017) – APT

 

 

 

70%

 

     

 

 

 

30%

 

 

 

  Michael O. Johnson (June 1, 2017 – December 31, 2017)

 

 

 

70%

 

 

 

 

 

30%

 

 

 

  Richard P. Goudis

 

 

 

70%

 

 

 

 

 

30%

 

 

 

  Desmond Walsh

 

 

 

70%

 

 

 

 

 

30%

 

 

 

  John G. DeSimone

 

 

 

70%

 

 

 

 

 

30%

 

 

 

  David Pezzullo

 

 

 

70%

 

 

 

 

 

30%

 

 

 

 

Targets and award determination

Annual financial performance targets are aligned to what we believe to be the expectations of our investors and what we believe is achievable at the time of the annual budget review process. The annual budget review for the 2017 performance period occurred in February 2017. Budget figures are built from the “bottom up” based on input from operating regions regarding trends in their respective markets, including the general economic environment, sale and consumption of our products, sales leader activity and retention, and the degree of risk in achieving forecasted revenue and expense levels.

For purposes of our annual incentive plan, the performance measures are defined as follows:

 

  EPS is the Company’s reported fully-diluted earnings per share calculated according to U.S. Generally Accepted Accounting Principles, or GAAP, adjusted for certain items described in more detail under “2017 Annual incentive plan performance targets” below.

 

 

Volume Points are point values assigned to each of our products for use by the Company to determine an independent member’s sales achievement level. We assign a Volume Point value to a product when it is first introduced into a market and that value is unaffected by subsequent exchange rate and price changes. The

 

 

 

40    Executive compensation


Table of Contents
   

specific number of Volume Points assigned to a product, generally consistent across all markets, is based on a Volume Point to suggested retail price ratio for similar products in the market. Volume Points, which are unaffected by exchange rates or price changes, are used by management as a proxy for sales trends because in general, excluding the impact of price changes, an increase in Volume Points in a particular geographic region or country indicates an increase in our local currency net sales while a decrease in Volume Points in a particular geographic region or country typically indicates a decrease in our local currency net sales. Management is evaluating our current approach to assigning and maintaining Volume Point value for certain products or markets in order to better align qualification thresholds across markets. Any changes to this approach may have an impact on the use of Volume Points as a proxy for sales trends in future periods.

 

  Operating Income is the Company’s net sales less expenses, including royalty payments, costs of sales and general operating expenses adjusted for certain items, including without limitation currency fluctuations, which the Committee believes are not reflective of management’s performance and which are typically made public on a quarterly basis.

We believe that the Company’s financial performance is facilitated by the pay for performance design of our compensation program. Our program motivates our executives to deliver financial results, with the appropriate level of risk taking, against performance metrics in a manner that ultimately aligns with the realized growth of shareholder equity value. Our executives have the opportunity to earn annual incentive awards provided that the Company achieves aggressive growth targets in Volume Points, Operating Income and EPS.

Because we assign a Volume Point value to a product when it is first introduced into a market, which value is unaffected by subsequent exchange rate and price changes, we believe that Volume Points exhibit the most accurate available measure of organic growth or decline in the local demand for our products.

Motivating Operating Income growth ensures that Volume Point growth is achieved in a cost-effective manner and that cost efficiencies and productivity enhancements are pursued throughout the Company. Motivating EPS growth ensures that the favorable contribution from Operating Income growth is realized within an efficient capital structure.

The following table shows the performance targets set by the Committee with respect to 2017 and the Company’s performance relative to those targets.

 

 

2017 Annual incentive plan performance targets

 

 

2017      
Target       

 

2017
Results

 

2017 Results
as a % of  target

 

Target

 

EPS

 

 

 

$3.83

 

 

 

 

 

$4.10

 

(1) 

 

 

 

107.1%

 

         

 

Volume Points (millions)

 

 

 

5,751

 

 

 

 

 

5,379

 

 

 

 

 

93.5%

 

 

 

Operating income (millions)

 

 

 

$558.3

 

 

 

 

 

$575.3

 

(1) 

 

 

 

103.0%

 

 

 

 

(1)   EPS and Operating Income are presented as adjusted, as discussed below.

 

Annual incentive awards for 2017 are payable only if and to the extent EPS, Volume Points or Operating Income meet and exceed 100% of the applicable performance target. Targets are set as part of the annual budget process, and modified, if necessary, at the first Board meeting of the performance period. For 2017 annual incentive plan performance purposes, our EPS and Operating Income were calculated consistent with our adjusted EPS presentations and earnings guidance provided to the investment community, adjusting for:

 

  impact of the Tax Act;

 

  impact of non-cash interest costs associated with the company’s convertible notes;

 

  expenses relating to FTC Consent Order implementation;
  expenses related to regulatory inquiries;

 

  expenses relating to challenges to the Company’s business model; and

 

  China grant income.

Our EPS and Operating Income were further adjusted to include the following for bonus purposes:

 

  excess tax benefit related to share-based compensation exercises;

 

  benefit from changes in currency exchange rates; and

 

  impact of our share repurchases.
 

 

Executive compensation      41  


Table of Contents

For 2017, target-level bonuses were awarded for results between 100% and 106% of the applicable target, and bonus awards above 103% of target increase on a prorated basis in steps. Mr. Johnson’s APT bonus applicable during his service as CEO of the Company was awarded for results equal to or in excess of 100% of the applicable Volume Point and Operating Income targets in ratable increases above 100% of target achievement. Should the financial targets not be achieved, there is no bonus funding or payouts to the NEOs. This bonus scale is designed to encourage realistic target setting and prudent risk taking while simultaneously creating consequences for not meeting target and capping the potential payout in order to avoid excessive incentive awards as compared to performance. For 2017, annual incentive opportunities as a percentage of base salary were established as follows:

2017 Annual incentive opportunities by executive and target

 

  Performance target achievement range — % of target

 

 
  Executive    Target  

Below 

100% 

    100%     103.0%     103.5%     104.0%     104.5%     105.0%     105.5%     106.0%  
                                               

Max

 

 

Johnson (January 1, 2017 – May 31, 2017)

 

  EPS     0%       112.5     112.5     168.8     191.3     208.1     213.8     219.4     225

Johnson (January 1, 2017 – May 31, 2017)

 

 

Volume Point

Operating Income  

   

0%

0%

 

 

   

11.25

26.25


   

16.875

39.375


   

17.814

41.566


   

18.75

43.75


   

19.689

45.941


   

20.625

48.125


   

21.564

50.316


   

22.5

52.5


Johnson (June 1, 2017 – December 31, 2017)

 

 

Volume Point

Operating Income

   

0%

0%

 

 

   

24

56


   

27

63


   

38.4

89.6


   

42

98


   

44.7

104.3


   

45.6

106.4


   

46.5

108.5


   

48

112


Goudis (January 1, 2017 – May 31, 2017)/ Walsh

 

 

Volume point

Operating income

   

0%

0%

 

 

   

24

56


   

27

63


   

38.4

89.6


   

42

98


   

44.7

104.3


   

45.6

106.4


   

46.5

108.5


   

48

112


Goudis (June 1, 2017 – December 31, 2017)

 

 

Volume Point

Operating Income

   

0%

0%

 

 

   

36

84


   

40.5

94.5


   

57.6

134.4


   

63

147


   

67.05

156.45


   

68.4

159.6


   

69.75

162.75


   

72

168


DeSimone / Pezzullo

 

Volume Point

Operating income

 

   

0%

0%

 

 

   

22.5

52.5


   

25.31

59.07


   

36

84


   

39.375

91.875


   

41.91

97.78


   

42.75

99.75


   

43.59

101.72


   

45

105


                                                         

For 2018, after reviewing the Company’s historical results, the Committee determined to adjust the performance target achievement range to 95% and 108% to better align with market practices. Should 95% of the applicable financial target not be achieved, there is no bonus funding or payouts to the NEOs. The Committee determined to increase the maximum percentage to 108% in order to encourage the Company’s high performance culture.

 

42    Executive compensation


Table of Contents

The following table shows the incentive eligible earnings (i.e., 2017 base salary), target and maximum incentive percentages and amounts expressed as a percentage of base salary, and 2017 incentive awards for each NEO participating in the annual incentive plan. All 2017 awards to NEOs were based solely on the calculated results to target performance levels. For 2017, the Company exceeded its maximum funding levels for EPS and Operating Income targets, but fell slightly short of meeting its Volume Point target.

2017 Actual incentive award calculation

 

 

  Executive

  Salary    

Target

incentive

%

   

Max

incentive

%

   

Actual results (% of target)

 

    

Award

%

    

Award

Amount

 
        EPS(1)    

Volume

Point

   

Operating

income

 

       
  Michael O. Johnson     $521,260                  
  1/1/17 – 5/31/17                  

  EPS incentive

      112.5       225       107.1                    225        $1,172,835  

  APT – Volume Point portion

      11.25       22.5             93.5                     $0  

  APT – Operating Income portion

      26.25       52.5                   103.0        39.38        $205,246  
  6/1/17 – 12/31/17     $381,096                  

  Volume Point incentive

      24       48             93.5                     $0  

  Operating Income incentive

      56       112                   103.0        63        $240,090  

  Total

 

   

 

$902,356

 

 

 

                 

 

$1,618,172

 

 

 

  Richard P. Goudis     $287,388                  
  1/1/17 – 5/31/17                  

  Volume Point incentive

      24       48             93.5                     $0  

  Operating Income incentive

      56       112                   103.0        63        $181,055  
  6/1/17 – 12/31/17     $586,301                  

  Volume Point incentive

      36       72             93.5                     $0  

  Operating Income incentive

      84       168                   103.0        94.5        $554,055  

  Total

 

   

 

$873,689

 

 

 

                 

 

$735,110

 

 

 

  Desmond J. Walsh     $694,680                  
  Volume Point incentive       24       48             93.5                     $0  
  Operating Income incentive       56       112                   103.0        63        $437,648  

  Total

 

                   

 

$437,648

 

 

 

  John G. DeSimone     $619,000                  
  Volume Point incentive       22.5       48             93.5                     $0  
  Operating Income incentive       52.5       112                   103.0        59.06        $365,597  

  Total

 

                   

 

$365,597

 

 

 

  David Pezzullo     $525,000                  
  Volume Point incentive       22.5       48             93.5                     $0  
  Operating Income incentive       52.5       112                   103.0        59.06        $310,078  

  Total

 

                   

 

$310,078

 

 

 

                                                 

 

(1)   EPS and Operating Income are presented as adjusted, as discussed above.

 

Executive compensation      43  


Table of Contents

Long-term incentive awards

Each year, the Committee determines the form of equity grant. For 2017, the total grant value was made in the form of performance SARs and PSUs.

Additional details of the 2017 equity awards made to our executives can be found below and in the tabular disclosure below under “— 2017 Grants of Plan-Based Awards.”

 

2017 Long-term incentive awards — annual grant program

 

  Executive  

SAR grant

value(1)

   

Total

SARs awarded

   

PSU grant

value(1)

   

Total
PSUs awarded

 

 

 

Michael O. Johnson

 

 

 

 

 

 

$2,500,012

 

 

 

 

 

 

 

 

 

88,276

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Richard P. Goudis

 

 

 

 

 

 

$1,806,020

 

 

 

 

 

 

 

 

 

63,771

 

 

 

 

 

 

 

 

 

$3,193,983

 

 

 

 

 

 

 

 

 

45,805

 

 

 

 

 

Desmond J. Walsh

 

 

 

 

 

 

$1,806,020

 

 

 

 

 

 

 

 

 

63,771

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

John G. DeSimone

 

 

 

 

 

 

$1,735,021

 

 

 

 

 

 

 

 

 

61,264

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

David Pezzullo

 

 

 

 

 

 

$683,251

 

 

 

 

 

 

 

 

 

22,951

 

 

 

 

 

 

 

 

 

$549,976

 

 

 

 

 

 

 

 

 

8,403

 

 

 

 

                         

 

(1)   Grant values are targets set by the Committee and vary slightly from amounts set forth in the Summary Compensation Table due to share price movements between the date of Committee approval and grant date.

 

Performance SARs

Performance SARs are less dilutive to our shareholders than many forms of equity compensation. Performance SARs provide an opportunity for executives to earn additional compensation if the following criteria are achieved: (i) the Company’s sales leader retention target is achieved and (ii) our share price increases over the share price on the grant date. As a company that sells nutrition products through the direct selling channel, the success and retention of our sales leaders is critical to the financial success of our Company as a whole.

Immediately prior to the targeted grant date for 2017, the Committee established guideline grant values for the NEOs in consideration of individual performance, scope of job responsibilities, prior equity grants and competitive practices using published compensation surveys based on the Herbalife Peer Group. Using these value guidelines, our then current Chairman and CEO proposed to the Committee equity grants for each of the NEOs other than himself. At the same time, the Committee, separately and without the involvement of the Chairman and CEO, evaluated and proposed equity grants for the Chairman and CEO to the independent members of the Board of Directors for their approval. The number of SARs granted is calculated by dividing the grant value by the option value determined in accordance with financial accounting and disclosure rules under ASC Topic 718 “Share Based Payments” using our closing share price on the date of grant.

In 2017, SARs were granted to our NEOs on February 27, 2017 when the SAR fair grant value was $28.32 and our share closing price was $57.19.

 

All of the SARs awarded on February 27, 2017, or the 2017 SARs, will, subject to continued Company service, vest and become exercisable in February 2020, three years from the grant date, in the percentages set forth in the table below to the extent the Company’s average sales leader retention rate (independent members engaged in the Company’s business opportunity) from fiscal 2017 through 2019 equals or exceeds 48%. Any portion of the award that is unvested as of February 2020 will be forfeited. At exercise, the gains on SARs are settled by issuing Common Shares.

The 2017 SARs are subject to potential, partial early vesting as follows. If the Company’s sales leader retention rate for fiscal 2017 equals or exceeds 52%, then 20% of the 2017 SARs will vest in February 2018. If the Company’s sales leader retention rate for fiscal 2018 equals or exceeds 52%, then an additional 20% of the 2017 SARs will vest in February 2019.

In previous years, the Committee set the average sales leader retention performance target for SARs awarded to NEOs at 50% as an aspirational performance hurdle in light of the Company’s annual sales leader retention rates over fiscal years 2004 to 2011, during which the Company’s median annual sales leader retention rate was approximately 44% and a rate in excess of 45% was achieved only twice. Annual sales leader retention rates in excess of 50% were achieved for fiscal years 2011 to 2016. In order to drive continual improvement, the Committee determined to increase the difficulty to achieve the performance criteria of SARs for 2017 by increasing the threshold and maximum target percentage levels as set forth below.

 

 

 

44    Executive compensation


Table of Contents

 

  Average of the Company’s Annual Sales Leader Retention Rates 2017–2019

  

 

Applicable    

Percentage    

(Vesting)    

 

 

 

  52% or more

 

  

 

 

 

 

100%    

 

 

 

 

 

  50% — 51.99%

 

  

 

 

 

 

75%    

 

 

 

 

 

  48% — 49.99%

 

  

 

 

 

 

50%    

 

 

 

 

 

  Less than 48%

 

  

 

 

 

 

0%    

 

 

 

 

 

Performance Share Units

In 2017, the Committee continued to evaluate the design of our long-term incentive program, and determined to introduce PSUs as part of the program. In connection with his promotion to CEO, PSUs with a grant value of $3,193,983 were granted to Mr. Goudis on June 6, 2017 when our share price was $69.73. In connection with his promotion to COO, PSUs with a grant value of $549,976 were granted to Mr. Pezzullo on August 3, 2017 when our share price was $65.45. These grant amounts were determined based on benchmarking data from the Committee’s independent compensation consultant, Meridian Compensation Partners, or Meridian, and were in addition to the equity incentive awards previously granted to Messrs. Goudis and Pezzullo in 2017 in the ordinary course. All of such PSUs will, subject to continued Company service, vest and become exercisable on December 31, 2019, subject to the Company’s achievement of the performance targets set by the Committee as measured over the performance period beginning on July 1, 2017 and ending on December 31, 2019. Such targets were established based on the Company’s Five-Year plan that was reviewed by the Company’s Board of Directors in January 2017. The number of PSUs that will become earned and vested will be determined based on the Company’s performance against the performance targets. The maximum number of PSUs that may become earned and vested is 200% of the PSU award granted to the participant.

The number of PSUs that will become earned upon vesting is based on achievement of performance targets for the following metrics, each of which makes up one-third of the PSU award granted to the participant: Volume Points, Adjusted EBIT and Adjusted EPS, which are defined as follows:

 

  Volume Points are point values assigned to each of our products for use by the Company to determine an independent member’s qualification achievement level. Please refer to the discussion above under “— Annual incentive awards & long-term incentive program; Targets and award determination” for a more detailed discussion of Volume Points.

 

  Adjusted EBIT is the Company’s earnings before interest or tax, adjusted to eliminate the impact of changes in currency exchange rates; tax settlement cost or accruals (non-income tax) relating to tax
   

contingencies for tax matters related to periods prior to the beginning of the applicable performance period;

long-term asset impairment charges; inventory reserves related to defective raw materials and finished goods obtained from third parties; expenses related to attacks on the Company’s business model, regulatory inquiries and regulatory settlements; litigation costs and settlements not budgeted for in the Company’s five-year plan presented to the Board in January 2017, or the Five-Year Plan; China grant income; impact from business acquisitions and dispositions; impact from new accounting pronouncements adopted; and one-time costs related to internal restructuring transactions.

 

  Adjusted EPS is the Company’s reported fully-diluted earnings per share calculated according to GAAP, adjusted for certain items such as: foreign currency fluctuations, tax settlement cost or accruals relating to tax contingencies for tax matters related to periods prior to the beginning of the applicable performance period; long-term asset impairment charges; inventory reserves related to defective raw materials and finished goods obtained from third parties; expenses related to attacks on the Company’s business model, regulatory inquiries and regulatory settlements; litigation costs and settlements not budgeted for in the Company’s Five-Year plan; China grant income; impact from business acquisitions and dispositions; impact from new accounting pronouncements adopted; one-time costs related to internal restructuring transactions; valuation allowances for income tax and prior period tax settlement cost or accruals relating to income tax; changes in debt costs, capital structure and share count from the Company’s Five-Year plan; non-cash interest costs relating to the Company’s convertible notes and prepaid forward share repurchase contract; and excess tax benefit related to share-based compensation exercises.

We believe that the grant of PSUs will increase the alignment of equity compensation with shareholder value as well as reward our NEOs for accelerating the Company’s growth. Further, provided that PSUs are earned, the NEOs will be aligned with shareholders through share ownership.

2018 Long-term Incentive program design updates

To improve the alignment of our executive compensation program with the interests of our shareholders, the

 

 

Executive compensation      45  


Table of Contents

Committee updated the equity mix and the performance measures applicable to long-term incentive awards to be granted in 2018. First, the long-term incentive awards will be comprised of 75% PSUs and 25% RSUs. The Committee determined to incorporate RSUs as a component of long-term equity compensation to the executive officers in order to align the Company’s compensation program with general market practices and align executives with shareholders through share ownership. Further, while Adjusted EBIT and Adjusted EPS will continue to serve as performance measures for the PSUs, in order to avoid using the same performance measure for both the annual incentive program and the long-term incentive program, the Committee determined to replace Volume Points as a performance measure for PSUs with Local Currency Net Sales. Local Currency Net Sales is the Company’s total reported net sales, adjusted in the same manner that the Company makes adjustments for public presentations and annual bonus purposes, including without limitation adjustments for changes attributable to mergers, acquisitions, and divestitures not assumed in the Company’s five-year plan as presented to the Board in February 2018, and adjusted to reflect currency rates assumed in such five-year plan.

Equity award grant policy

Annual long-term incentive grants of performance SARs and PSUs were made to our NEOs. It is the Company’s policy to make annual grants to our executive officers in an “open trading window,” which typically begins the second trading day following our release of quarterly financial results. We also follow a quarterly grant approval process where awards are authorized for newly-hired employees and to newly promoted executives other than our executive officers. In the case of SARs, the policy provides that the exercise price of SARs granted to executive officers and other employees, if any, will be established as the closing share price on the grant date. All equity awards made to our NEOs and other executives are made pursuant to this equity grant policy, which was approved by the Committee.

We encourage all Section 16 officers to utilize a 10b-5 plan when exercising or selling any Herbalife equity.

Hedging

Because hedging transactions often result in the establishment of a short position in company securities and limit or eliminate an employee’s ability to profit from an increase in value of a company’s securities, Company policy prohibits all employees, including Section 16 Officers, from entering into hedging transactions with respect to the Company’s Common Shares.

Pledging

Company policy prohibits executives from pledging their Common Shares as collateral for a loan or for any other purpose.

Clawback policy

The Committee has adopted a policy that enables the Committee to clawback incentive compensation earned by our Section 16 Officers and any other employee under certain circumstances as determined by the Committee.

Benefits and perquisites

The Company’s U.S.-based employees, including the NEOs, participate in a variety of savings, health and welfare and paid time-off benefits typically provided by competitors for the services of the Company’s employees. Health and welfare and paid time-off benefits help ensure that Herbalife has a healthy, productive and focused workforce.

In addition, in fiscal 2017, our NEOs were eligible to participate in the following executive benefits and perquisites:

 

  Retirement Benefits — Our NEOs participate in our tax-qualified 401(k) Plan and our Senior Executive Deferred Compensation Plan described in more detail under “— Non-Qualified Deferred Compensation Plans.” We maintain these plans for the purposes of providing a competitive benefit, allowing NEOs an opportunity to defer compensation to encourage our NEOs to save for retirement. The 401(k) plan provides an employer match on the first 1% of employee deferral at 100%. On the next 5% of employee deferral, the employer match is 50%. The annual maximum employee deferral is $18,000 plus an additional $6,000 if over the age of 50. Employer matching contributions vest 100% after two years of service.

 

  Employee Stock Purchase Plan — Our NEOs are eligible to participate in our broad- based Employee Stock Purchase Plan, or ESPP. The ESPP generally allows all U.S. based employees and officers to purchase Common Shares through payroll deductions of up to 10% of their annual, eligible compensation up to a maximum of $25,000 per year. The price of Common Shares purchased under the ESPP is equal to 85% of the fair market value of the Common Shares on the specified purchase date. We maintain the ESPP for the purpose of providing eligible employees of the Company and its subsidiaries with an opportunity to participate in the Company’s success by purchasing Common Shares through payroll deductions.

 

 

Life Insurance — We provide basic life insurance coverage of 200% of base salary up to a maximum of $1,000,000 to our executives and up to $600,000 to all

 

 

 

46    Executive compensation


Table of Contents
   

other eligible employees. This is a fully insured benefit. Employees are taxed on their imputed income from this benefit on coverage exceeding $50,000.

 

  Security — We maintain a comprehensive security program. As a component of that program, we provide residential and/or other security measures if there is a known security threat to an employee.

In 2013, we received information that led us to conclude that there were threats to our Company and certain of our executives, and specifically Mr. Johnson. Based on that information and ongoing dialogue with third-party advisors, security systems were installed and/or monitoring services were provided at the personal residences of some of our executives, including several of the NEOs. These services continued to be provided to Mr. Johnson until June 2017.

Because these services are not designed to provide a personal benefit (other than the intended security), we do not view these security arrangements as compensation to the individuals. However, we are reporting these security arrangements as perquisites

as required under applicable SEC rules. We regularly review the nature of the threat and associated vulnerabilities with security specialists and will continue to revise our security program as appropriate.

Employment and severance agreements

In order to attract highly qualified executives capable of leading the Company, we have previously entered into employment agreements with Mr. Johnson, our Executive Chairman, and Mr. Goudis, our Chief Executive Officer. Those agreements establish the terms and conditions for the employment relationship each executive has with the Company and specifies compensation, executive benefits, preservation of confidential and proprietary information, non-solicitation, non-disparagement, and other conditions. The Company has also previously entered into severance agreements with Messrs. Walsh and DeSimone. These agreements contain severance and change in control provisions as detailed further below. Further, Messrs. Goudis and Pezzullo participate in the Herbalife International of America, Inc. Executive Officer Severance Plan, or the Severance Plan, which was approved by the Committee on October 31, 2016 and effective as of November 1, 2016.

As a result of these agreements, each of the NEOs is eligible for certain benefits and payments if his employment terminates for various reasons or as a result of a change in control of the Company, as applicable. The Company has provided these benefits to these NEOs to allow them to focus on the value of strategic alternatives to shareholders without concern for the impact on their continued employment, as each of their offices is at heightened risk of turnover in the event of a change in control. Separation benefits include cash payments and

other benefits in an amount the Company believes is appropriate, taking into account the time it is expected to take a separated executive to find another job. Separation benefits are intended to ease the consequences to the executive of an unexpected termination of employment. The Company requires a general release with non-compete and non-solicitation provisions in connection with the individual separation agreements.

We consider it likely that it will take more time for higher-level employees to find new employment commensurate

with their prior experience, and therefore senior management generally are paid severance for a longer period. Additional payments may be approved by the Committee in some circumstances as a result of negotiation with executives, especially where the Company desires particular non-disparagement, cooperation with litigation, non-competition and non-solicitation terms.

The severance agreement for each of Messrs. Walsh and Mr. DeSimone and the Severance Plan specifically detail various provisions for benefits and cash payments

in the event of a separation. Generally, these agreements provide for certain benefits upon death, disability, resignation by the executive with good reason or termination by the Company without cause. They also provide for the acceleration of unvested equity awards in connection with a change in control.

The equity compensation awards granted to the NEOs contain change in control and termination provisions. In general, these arrangements provide for benefits upon a termination of such executive’s employment in connection with a change in control. These arrangements are intended to preserve morale and productivity and encourage retention in the face of the disruptive impact of a change in control of the Company. Based on a competitive analysis of the severance and change in control arrangements maintained by the corporations in the Herbalife Peer Group, the Committee believes that these benefits are customary among the Herbalife Peer Group for executives in similar positions as these three executives. Please refer to the discussion below under “— Potential Payments Upon Termination or Change in Control” for a more detailed discussion of our severance and change in control arrangements.

Compensation advisor

The Committee retained Meridian through 2017 to assist in evaluating our executive compensation programs and in setting executive officer compensation.

During its period of engagement in 2017, Meridian regularly participated in Committee meetings and advised the Committee with respect to compensation trends and best practices, plan design, competitive pay levels, CEO long-term performance equity grants, individual pay

 

 

 

Executive compensation      47  


Table of Contents

decisions with respect to our NEOs and other executive officers, and proxy statement disclosure. While Meridian regularly consulted with management in performing work requested by the Committee, Meridian did not perform any separate services for management.

The Committee has determined that Meridian is independent and that its work with the Committee during fiscal 2017 did not raise any conflict of interest.

 

 

Peer group

Our level of compensation for our NEOs was compared to compensation paid by the Herbalife Peer Group. The criteria used to identify the Herbalife Peer Group were: (1) principal operations in the U.S. with an international presence — we operate in 94 countries around the world in a highly regulated business where approximately 80% of our net sales for the year ended December 31, 2017, were generated outside of the United States; (2) financial scope — our management talent should be similar to that of companies of a similar size in terms of revenues and market capitalization; (3) industry — we compete for talent with other companies in consumer product related industries; and (4) common “peer of peers” — we examined companies that are most frequently considered peers by Herbalife’s peers. Annually, the Committee reviews the peer group and updates the group as appropriate.

With respect to pay decisions regarding 2017 NEO compensation, the industry peer group was comprised of the following fourteen (14) companies. At the time the Herbalife Peer Group was established, Mead Johnson Nutrition Co. and WhiteWave Foods Co. were included in such peer group; however, Mead Johnson Nutrition Co. was acquired by Reckitt Benckiser in June 2017, and WhiteWave Foods Co. was acquired by Danone in April 2017. As a result, these companies were removed from the Peer Group in July 2017. All of the peer companies were within the range of approximately 50% and 178% of Herbalife’s trailing twelve-month revenues. The peer group median revenue of $4.0 billion and median market capitalization of $6.3 billion, in each case at the time the Herbalife Peer Group was established, were comparable to those of Herbalife. During this period, the Herbalife Peer Group consisted of the following:

 

  Company   Industry  

Revenue
(last twelve
months)
($  millions)

 

   

Market capitalization

as of 12/31/17

($ millions)

 

Avon Products Inc.

 

  Personal Products     $5,715       $946  

Campbell Soup Co

 

  Packaged Foods and Meats     $7,849       $14,462  

Church & Dwight Inc.

 

  Household Products     $3,639       $12,539  

Dr Pepper Snapple Group, Inc.

 

  Soft Drinks     $6,625       $17,523  

Edgewell Personal Care Co

 

  Personal Products     $2,298       $3,271  

GNC Holdings Inc.

 

  Specialty Stores     $2,465       $309  

Hain Celestial Group Inc.

 

  Packaged Foods and Meats     $2,880       $4,400  

International Flavors & Fragrances

 

  Specialty Chemicals     $3,307       $12,539  

The J.M. Smucker Company

 

  Packaged Foods and Meats     $7,335       $14,113  

McCormick & Co, Inc.

 

  Packaged Foods and Meats     $4,834       $13,334  

Nu Skin Enterprises Inc.

 

  Personal Products     $2,144       $3,592  

Post Holdings Inc.

 

  Packaged Foods and Meats     $5,409       $5,247  

Spectrum Brands Holdings, Inc.(1)

 

  Household Products     $5,007       $6,477  

Tupperware Brands Corp

 

  Housewares and Specialties     $2,256       $3,191  

Herbalife Ltd.

 

  Personal Products     $4,379       $5,593  
               

Data Source: Standard & Poor’s CapIQ as of December 31, 2017.

 

(1)   Spectrum Brands Holdings, Inc. was not included as part of any benchmarking study due to its pending acquisition by Energizer Holdings, Inc.

 

48    Executive compensation


Table of Contents

Tax implications

Section 162(m) of the Code

The Tax Act was signed into law on December 22, 2017. Prior to the enactment of such law, Section 162(m) of the Internal Revenue Code generally disallowed a tax deduction for compensation over $1 million paid to our NEOs who are “covered employees” under this rule. Performance-based compensation was exempt from this deduction limitation if specified requirements set forth in the Code and applicable Treasury Regulations were met. Our 2005 Stock Incentive Plan, 2014 Stock Incentive Plan, grants of stock options, SARs and PSUs were designed to be deductible (or, as applicable, permit the grant of awards that could be deductible) under Section 162(m).

Commencing with our fiscal 2018 year, the Tax Act will eliminate the performance-based compensation exception to the deductibility limitation under Section 162(m), other than with respect to certain “grandfathered” performance-based awards granted prior to November 2, 2017; provided such awards are not materially modified. The Committee will review the Tax Act and its impact on our executive compensation program; however, no assurance

can be given that compensation intended to satisfy the requirements for exemption from Section 162(m) will do so.

The Committee retains discretion and flexibility to award non-deductible compensation to our NEOs as it deems appropriate and in furtherance of its compensation philosophy and objectives.

Compensation Committee report

The Committee has reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on its review and discussion with management, the Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS

Maria Otero (Chairperson)

Richard P. Bermingham

Jonathan Christodoro

Hunter C. Gary

 

 

 

Executive compensation      49  


Table of Contents

Executive officers of the registrant

Set forth below is certain information as of the date hereof regarding each NEO.

 

  Name

 

Age   Position with the company Officer since 

Michael O. Johnson

 

  63     Executive Chairman 2003

Richard Goudis

 

  56     Chief Executive Officer 2004

Desmond Walsh

 

  61     President 2006

John G. DeSimone

 

  51     Chief Financial Officer 2009

David Pezzullo

 

  52     Chief Operating Officer 2004

 

Michael O. Johnson is the Executive Chairman of the Company and has held this position since June 2017. Prior to June 2017, Mr. Johnson was the Chairman and Chief Executive Officer of the Company. Mr. Johnson joined the Company in April 2003 as Chief Executive Officer and became Chairman of the Board in May 2007. Before joining the Company, Mr. Johnson spent 17 years with The Walt Disney Company, where he most recently served as President of Walt Disney International, and also served as President of Asia Pacific for The Walt Disney Company and President of Buena Vista Home Entertainment. Mr. Johnson has also previously served as a publisher of Audio Times magazine, and has directed the regional sales efforts of Warner Amex Satellite Entertainment Company for three of its television channels, including MTV, Nickelodeon and The Movie Channel. Mr. Johnson formerly served as a director of Univision Communications, Inc., a television company serving Spanish-speaking Americans, from 2005 until 2007, and on the Board of Regents for Loyola High School of Los Angeles. Mr. Johnson received his Bachelor of Arts in Political Science from Western State College.

Richard Goudis is Chief Executive Officer of the Company and has held this position since June 2017. Prior to June 2017, Mr. Goudis was the Chief Operating Officer of the Company and held such position since January 2010. Mr. Goudis joined the Company in June 2004 as Chief Financial Officer after serving as the Chief Operating Officer, from 1998 to 2001, of Rexall Sundown, Inc., or Rexall, a multinational manufacturer and distributor of nutritional supplements and sports nutrition products and a Nasdaq 100 company that was sold to Royal Numico in 2000. After the sale to Royal Numico, Mr. Goudis had operations responsibility for all of Royal Numico’s U.S. investments, including General Nutrition Centers, or GNC, Unicity International and Rexall. From 2002 to May 2004, Mr. Goudis was a partner at Flamingo Capital Partners, a firm he founded in 2002. Mr. Goudis also previously worked at Sunbeam Corporation and Pratt & Whitney. Mr. Goudis graduated from the University of Massachusetts with a degree in Accounting and he received his Master in Business Administration from Nova Southeastern University.

Desmond Walsh is the President of the Company and has held this position since January 2010. Mr. Walsh joined

the Company in January 2004 as Senior Vice President, Worldwide Member Sales and was promoted to Executive Vice President for Worldwide Operations and Sales in April 2008. From 2001 to 2004, Mr. Walsh served as the Senior Vice President of the commercial division of DMX Music. Prior to DMX Music, Mr. Walsh spent five years as Vice President and General Manager of Supercomm, Inc., a subsidiary of the Walt Disney Company. Mr. Walsh also previously served in management positions at MovieQuik Systems, a division of The Southland Corporation (now 7-Eleven), and at Commtron Corporation, a leading consumer electronics and video distribution company. Mr. Walsh received his Bachelor of Laws degree from the University of London.

John G. DeSimone is Chief Financial Officer of the Company and has held this position since January 2010. Mr. DeSimone joined the Company in November 2007 as Senior Vice President — Finance and was promoted to the position of Senior Vice President — Finance & Member Operations in December 2008. From June 2004 through October 2007, Mr. DeSimone served as the Chief Executive Officer of Mobile Ventures, LLC (formerly known as Autoware, Inc.), an automotive aftermarket accessory member and retailer. Prior to working at Mobile Ventures, LLC, Mr. DeSimone served as the Controller, Vice President of Finance and Chief Financial Officer of Rexall. Mr. DeSimone received his Bachelor of Science in Business Administration from Bryant College (now known as Bryant University).

David Pezzullo is the Chief Operating Officer of the Company and has held this position since August 2017. Prior to August 2017, Mr. Pezzullo was the Executive Vice President, Worldwide Operations of the Company and held such position since 2010. Mr. Pezzullo joined the Company in 2004 as the Senior Vice President of Finance and Chief Accounting Officer. Prior to joining the Company, Mr. Pezzullo served as Director of Tax and Treasury, Assistant Controller and Corporate Controller of Rexall and, after the sale of Rexall to Royal Numico, Mr. Pezzullo was Vice President of Finance for Royal Numico’s North American Operations, responsible for the financial integration of the operations, including Rexall and GNC. Mr. Pezzullo received his Bachelor of Science in Business Administration from Bryant College (now known as Bryant University).

 

 

50    Executive compensation


Table of Contents

2017 Summary compensation table

The following table sets forth the total compensation for the fiscal years ended December 31, 2017, 2016 and 2015, of the Company’s Chief Executive Officer, Chief Financial Officer, and each of the three other most highly compensated executive officers.

 

  Name and

  principal position

  Year    

Salary

($)

   

Stock
Awards

($)(1)

   

Option

awards

($)(1)

   

Non-equity

incentive plan

compensation

($)(2)

 

   

All other

compensation

($)(3)

   

Total

($)

 

Michael O. Johnson

    2017       902,356             2,500,012       1,618,172       330,392 (4)      5,350,932  

Executive Chairman

    2016       1,236,000             4,999,991       3,708,000       929,466       10,873,457  
   

 

2015

 

 

 

   

 

1,236,000

 

 

 

          4,999,996       2,781,000       836,570       9,853,566  

Richard Goudis

    2017       873,689       3,193,983       1,806,020       735,110       31,243       6,640,045  

Chief Executive Officer

    2016       675,680             1,805,997       918,925       40,249       3,440,851  
   

 

2015

 

 

 

    675,680             3,120,308       756,762       55,303       4,608,053  

Desmond Walsh

    2017       694,680             1,806,020       437,648       25,201       2,963,549  

President

    2016       675,680             1,805,997       918,925       34,287       3,434,889  
   

 

2015

 

 

 

    675,680             3,120,308       756,762       51,871       4,604,621  

John G. DeSimone

    2017       619,000             1,735,021       365,597       22,552       2,742,170  

Chief Financial Officer

    2016       600,000             1,735,009       900,000       22,860       3,257,869  
   

 

2015

 

 

 

    600,000             2,073,151       900,000       39,005       3,612,156  

David Pezzullo(5)

    2017       485,699       549,976       683,251       310,078       21,402       2,050,407  

Chief Operating Officer

                                         
   

 

 

 

 

                                   
                                           

 

(1)   Amounts represent the aggregate grant date fair value of the relevant award(s) presented in accordance with ASC Topic 718, “Compensation — Stock Compensation.” See note 9 of the notes to consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 regarding assumptions underlying valuation of equity awards. For the 2017 PSU grants, the grant date fair value of such awards, assuming performance at the maximum level, would be $6,387,965, for Mr. Goudis’ award, and $1,099,953, for Mr. Pezzullo’s award.

 

(2)   Incentive plan amounts determined as more specifically discussed under “— Compensation Discussion and Analysis — Annual Incentive Awards & Long Term Incentive Program — Targets and Award Determination.”

 

(3)   Individual breakdowns of amounts set forth in “All Other Compensation” for 2017 are as follows:

 

  Name

Deferred

compensation

plan matching

contributions(A)

$

 

Executive life

insurance

$

401(k) plan –
matching
  contributions  

$

Total all other

  compensation  

$

Michael O. Johnson

 

  22,563   12,798        9,450   44,811

Richard Goudis

 

  20,893   900        9,450   31,243

Desmond Walsh

 

  14,851   900        9,450   25,201

John G. DeSimone

 

  12,202   900        9,450   22,552

David Pezzullo

 

  11,052   900        9,450   21,402

 

  (A) Represents the Company’s matching contribution earned in 2017 but credited to the NEO’s account in 2018.

 

(4)   Includes (i) $97,297 attributable to non-business use of private aircraft and (ii) $188,284 attributable home security monitoring services. Effective June 1, 2017, Mr. Johnson had no further access to Company-chartered aircraft for personal use. Further, home security monitoring services were eliminated effective June 1, 2017 for all employees unless there is a known security threat to one of the NEOs.

 

(5)   Mr. Pezzullo was an NEO for the first time in fiscal 2017. Accordingly, only information relating to his fiscal 2017 compensation is included in the compensation tables and related discussions of NEO compensation.

 

Executive compensation      51  


Table of Contents

2017 Grants of plan-based awards

The following table sets forth all grants of plan-based awards made to the NEOs during the fiscal year ended December 31, 2017. For further discussion regarding the grants see “— Compensation Discussion and Analysis — Annual Incentive Awards — Long-Term Incentive Awards.”

 

  Name   Grant Date(1)    

Estimated future

payouts under

non-equity  incentive

plan awards

   

Estimated future

payouts under equity

incentive plan

awards(1)

   

All other

option awards:

number of

securities

underlying

SARs ($)

   

Exercise or

base price of

SAR Awards

($/share)

   

Grant date

fair value of

SAR Awards

($)

 
   

Target

($)

   

Maximum

($)

   

Threshold

(#)

   

Target

(#)

 

   

Maximum

(#)

       

Michael O. Johnson

     

 

1,086,768

 

 

 

    2,173,534              
   

 

02/27/2017

 

 

 

        44,138          88,276       —          —                57.19            2,500,012  

Richard Goudis

     

 

933,473

 

 

 

    1,866,943             —               
    02/27/2017          

 

54,788   

 

 

 

    109,576       —          —                57.19            1,806,020  
   

 

06/06/2017

 

 

 

        22,902          45,805       91,610          —                —            3,193,983  

Desmond Walsh

      555,744      

 

1,111,488

 

 

 

          —               
   

 

02/27/2017

 

 

 

        31,885          63,771       —          —                57.19            1,806,020  

John G. DeSimone

      464,250      

 

928,500

 

 

 

          —               
   

 

02/27/2017

 

 

 

        30,632          61,264       —          —                57.19            1,735,021  

David Pezzullo

     

 

393,750

 

 

 

    787,500             —               
   

 

02/27/2017

 

 

 

        11,475          22,951       —          —                57.19            683,251  
     

 

08/03/2017

 

 

 

                    4,201          8,403       16,806          —                —            549,976  

 

(1)   All equity grants with a grant date of February 27, 2017 were approved by the Committee on February 8, 2017. Grants awarded to Mr. Goudis with a grant date of June 6, 2017 were approved by the Committee on June 5, 2017. Grants awarded to Mr. Pezzullo with a grant date of August 3, 2017 were approved by the Committee on July 25, 2017. All equity grants reflected in this table were made under the 2014 Stock Incentive Plan, or the Plan.

 

Narrative disclosure to summary compensation table and grants of plan-based awards

We have entered into employment agreements with each of Messrs. Johnson and Goudis, certain terms of which are summarized below. A more detailed description of payments that would be due to the NEOs in connection with certain terminations or a change in control of the Company is set forth under “— Potential Payments Upon Termination or Change in Control.”

Michael O. Johnson. Herbalife International entered into a letter agreement with Mr. Johnson effective as of June 1, 2017, or the Johnson Employment Agreement, pursuant to which he serves as the Company’s Executive Chairman. Pursuant to the Johnson Employment Agreement, Mr. Johnson receives an annual salary of $650,000 and is eligible for an annual bonus targeted at 80% of his annual salary. Under the Johnson Employment Agreement, Mr. Johnson is eligible to participate in the Company’s long-term incentive plan, with the size, form, and timing of grants, if any, subject to the approval of the independent members of the Board or the Committee.

Richard Goudis. Herbalife International also entered into an amended and restated executive employment agreement with Mr. Goudis effective as of June 1, 2017, or the Goudis Employment Agreement, pursuant to which he serves as the Company’s Chief Executive Officer. Pursuant to the Goudis Employment Agreement, Mr. Goudis receives an annual salary of $1,000,000 and, should the Company achieve certain financial targets established by the Committee, Mr. Goudis is eligible for an annual bonus targeted at 120% of his annual salary. Under the Goudis Employment Agreement, Mr. Goudis is eligible to participate in the Company’s long-term incentive plan, with the size, form, and timing of grants, if any, subject to the approval of the Committee; however, under the Company’s Principles of Corporate Governance, the CEO’s compensation is subject to the approval by the independent members of the Board. Additionally, Mr. Goudis is entitled to an award of performance share units having a grant date fair value equal to $5,000,000, reduced by the grant date fair value of the equity incentive awards previously granted to Mr. Goudis in 2017 in the ordinary course. Mr. Goudis participates in the Severance Plan in accordance with its the terms and conditions as described under “— Potential payments upon termination or change in control — Richard Goudis.”

 

 

52    Executive compensation


Table of Contents

Outstanding equity awards at 2017 fiscal year-end

The following table sets forth equity awards of the NEOs outstanding as of December 31, 2017.

 

    

Grant

Date

   

Option/Stock Appreciation Right Awards

 

   

Stock Unit Awards

 

 
   

Number of

securities

underlying

unexercised

options/SARs

(#)

exercisable

   

Equity incentive

plan awards:

number of

securities
underlying

unexercised
unearned

options/SARs

(#)

 

   

Exercise

Price

($)

   

Expiration

date

   

  Equity incentive

plan awards:

number of

unearned stock

units or other

rights that have

not vested

(#)

   

Equity incentive

plan awards:

market or payout

value of unearned

shares, units or

other rights that

have not vested

($)

 

Michael O. Johnson

    12/19/2013       151,331         79.58       12/19/2023 (1)     
    04/30/2014       192,455         59.98       04/30/2024 (1)     
    03/02/2015       163,132       244,698       30.44       03/02/2025 (2)     
    05/09/2016       33,591       134,363       62.51       05/09/2026 (2)     
    02/27/2017         88,276       57.19       02/27/2027 (3)     

Richard P. Goudis

    02/27/2009       83,333         6.82       02/27/2019 (1)     
    01/04/2010       120,000         20.67       01/04/2020 (1)     
    05/07/2010       53,093         22.94       05/07/2020 (1)     
    05/18/2011       58,009         53.29       05/18/2021 (1)     
    05/31/2012       118,426         44.79       05/31/2022 (1)     
    12/19/2013       54,661         79.58       12/19/2023 (1)     
    04/30/2014       83,402         59.98       04/30/2024 (1)     
    03/02/2015       48,940       73,409       30.44       03/02/2025 (2)     
    05/07/2015       33,300       49,950       47.80       05/07/2025 (2)     
    05/09/2016       12,133       48,532       62.51       05/09/2026 (2)     
    02/27/2017         63,771       57.19       02/27/2027 (3)     
    06/06/2017               45,805 (4)      $3,101,915  

Desmond Walsh

    06/30/2008       30,000         19.38       06/30/2018 (1)     
    02/27/2009       150,000         6.82       02/27/2019 (1)     
    01/04/2010       120,000         20.67       01/04/2020 (1)     
    05/07/2010       66,366         22.94       05/07/2020 (1)     
    05/18/2011       58,009         53.29       05/18/2021 (1)     
    05/31/2012       118,426         44.79       05/31/2022 (1)     
    12/19/2013       54,661         79.58       12/19/2023 (1)     
    04/30/2014       83,402         59.98       04/30/2024 (1)     
    03/02/2015       48,940       73,409       30.44       03/02/2025 (2)     
    05/07/2015       33,300       49,950       47.80       05/07/2025 (2)     
    05/09/2016       12,133       48,532       62.51       05/09/2026 (2)     
    02/27/2017         63,771       57.19       02/27/2027 (3)     

John G. DeSimone

    02/27/2009       50,000         6.82       02/27/2019 (1)     
    01/04/2010       80,000         20.67       01/04/2020 (1)     
    05/07/2010       30,466         22.94       05/07/2020 (1)     
    05/18/2011       41,667         53.29       05/18/2021 (1)     
    05/31/2012       79,475         44.79       05/31/2022 (1)     
    12/19/2013       45,399         79.58       12/19/2023 (1)     
    04/30/2014       57,736         59.98       04/30/2024 (1)     
    03/02/2015       35,888       53,834       30.44       03/02/2025 (2)     
    05/07/2015       20,000       30,000       47.80       05/07/2025 (2)     
    05/09/2016       11,656       46,624       62.51       05/09/2026 (2)     
    02/27/2017         61,264       57.19       02/27/2027 (3)     

David Pezzullo

    02/27/2009       50,000         6.82       02/27/2019 (1)     
    05/07/2010       19,832         22.94       05/07/2020 (1)     
    05/18/2011       10,382         53.29       05/18/2021 (1)     
    03/01/2012       3,408         67.70       03/01/2022 (1)     
    05/31/2012       31,967         44.79       05/31/2022 (1)     
    12/19/2013       14,754         79.58       12/19/2023 (1)     
    04/30/2014       18,764         59.98       04/30/2024 (1)     
    03/02/2015       21,206       31,811       30.44       03/02/2025 (2)     
    05/09/2016       4,367       17,467       62.51       05/09/2026 (2)