DEF 14A 1 lkbr2019_def14a.htm KBR, INC. - DEF 14A KBR, INC. - DEF 14A

UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. )

 

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KBR, INC.

 

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You are cordially invited to attend KBR’s annual stockholders’ meeting. Below is important information about the meeting, including how you can let your voice be heard through voting. Please review our Proxy Statement, Annual Report and Sustainability Report at the websites noted below and read the voting Q&A on page 88.

 

 

By Order of the Board of Directors, April 1, 2019

Adam Kramer
Secretary

DATE AND TIME:

Wednesday, May 15, 2019, 9:00 a.m. Central Daylight Time

LOCATION:

The Texas Room, 601 Jefferson Street, Houston, Texas 77002

AGENDA

The Board of Directors asks that you consider and act upon the following matters:

1.

Elect as directors the eight nominees named in the attached proxy statement.

2.

Consider and act upon an advisory vote to approve the named executive officer compensation as described in the Compensation Discussion and Analysis herein.

3.

Ratify the appointment of KPMG LLP as the independent registered public accounting firm to audit the consolidated financial statements for KBR as of and for the year ending December 31, 2019.

4.

Transact any other business that properly comes before the meeting or any adjournment or postponements of the meeting.

These items are fully described in the following pages, which are made a part of this Notice.

RECORD DATE

The Board of Directors has set Friday, March 22, 2019, at the close of business, as the record date for the determination of stockholders entitled to notice of and to vote at the meeting and at any adjournment or postponement of the meeting.

HOW TO VOTE

STOCKHOLDER OF RECORD

(Shares held directly with KBR)

BENEFICIAL OWNERS

(Shares held through a broker or bank)

 

Via the Internet at www.proxyvote.com

Via the Internet at www.proxyvote.com, if your broker or bank participates in the proxy voting program provided by Broadridge Investor Communication Services

 

Call toll-free (US/ Canada) at 1-800-690-6903

Call toll-free (US/ Canada) at 1-800-690-6903, if your broker or bank participates in the proxy voting program provided by Broadridge Investor Communication Services

 

Mail your signed proxy card See page 88 for instructions on how to attend

Mail your signed voting instruction form

See page 88 for instructions on how to attend

 
         


 

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Table of Contents

 

PROPOSAL NO. 1 - ELECTION OF DIRECTORS

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Proxy Summary

This summary highlights information contained elsewhere in this proxy statement. For more information about these topics, we encourage you to review the complete proxy statement prior to voting.

Proposals Requiring Your Vote

 

Governance highlights

We are committed to good corporate governance and to transparent communication with our stockholders and other stakeholders, which we believe is essential for the effectiveness of a dynamic corporate governance framework and for KBR’s long-term success.

Accountable

Annual director elections with majority voting standards

Annual Board governance review including investor reviews and feedback

Periodic independent director meetings with investors

Downward discretion applied to the: (a) safety performance metrics of the 2016, 2017 and 2018 short-term incentive plans and (b) payout of the 2014 long-term incentive performance cash award with the performance period ending in 2016, resulting in a zero payout


 

Independent and engaged

Independent Chairman of the Board

Significant knowledge of KBR’s industry and market including government services

Annual Board visits to KBR businesses or project sites

Annual assessment of Board leadership structure

 

22

independent Board
committee meetings

 

 

 

8

executive sessions held in
2018 without management
present

 

 

Refreshed

+1

director
over the past 3 years

 

 

 

-3

directors
over the past 3 years

 

 

 

50%

rotation of all Board
committee memberships and
chairmen over the past 3 years


 

 

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Business Highlights

Robust Strategic Vision Leads to Solid Growth Potential

In the past three years, KBR focused on delivering world-class service to our customers and winning the right work despite the challenging macroeconomic climate. Our commitment to position KBR for growth as the markets across our segments continued to strengthen and as demand grew in 2018 resulted in an upward trajectory of our business. For the second year we delivered strong operational performance, demonstrating our commitment to our robust strategic vision. We made significant progress on our strategy to grow our business by prioritizing opportunities to deliver long-term customer value and achieve success across our markets. We invested heavily in expanding and diversifying our Government Services business and realized significant synergies that support our strategy. We have exceeded our Earnings Per Share (“EPS”) targets and margins and realized 18% revenue growth. Some of our achievements in 2018 included:

 

We delivered organic growth of 17% and 10% in our Government Services and Technology businesses respectively. We created a solid foundation for growth, organically and due to our acquisitions, increasing our revenue by 18% and backlog by 28% from the previous year, the majority of which is associated with long-term, reimbursable, private finance initiative contracts with a lower risk profile and more predictable cash flows; and

We completed the acquisitions of Stinger Ghaffarian Technologies, Inc. (“SGT”) and our partner’s interest in Aspire Defence Holdings Limited (“Aspire Defence”). SGT solidifies our leadership position in human space exploration, with NASA’s Human Spaceflight program being one of several NASA programs we deliver. Aspire Defence increases our opportunities in both civil and military space. These major acquisitions, together with those from 2016, have been an important accelerator to our growth, resulting in increased revenues and value for our stakeholders.

We were awarded a task order to provide cybersecurity services for the Defense Health Agency to secure healthcare information of the U.S. Air Force, Army and Navy and their families;

The U.S. Air Force Institute of Technology Graduate School of Engineering and Management awarded us a task order to provide defense-focused graduate and professional continuing education;

We were selected by NASA as one of 13 companies to study the future of commercial enterprise in low-Earth orbit, including long-range opportunities for the International Space Station;

We were awarded a seat on the Department of Defense Information Analysis Center Research and Development contract;

Our Technology business expanded in the Middle East and Asia, with several projects ranging from ammonia and nitric acid plants revamps to licensing, engineering and proprietary equipment supply contracts, and by increasing our scope offerings. We are building our first K-SAATTM plants in China and won our first order in the U.S.; and

In our Hydrocarbons Services business, we continued our focus on opportunities for midstream LNG expansion. We secured a contract from DuPont Safety and Construction to expand capacity for the manufacture of Tyvek® nonwoven materials.

1-year total stockholder return (“TSR”)

#2

in our TSR peer
group

TSR Peer Group
(in order of TSR ranking)

- Jacobs Engineering Group Inc.

- KBR

- Quanta Services, Inc.

- EMCOR Group, Inc.

- AECOM Technology Corporation

- TechnipFMC plc

- Fluor Corporation

- Chiyoda Corporation

- McDermott International, Inc.

Our TSR Peer Group is
used to determine KBR's
TSR performance ranking among its peers during the performance periods of our
KBR Long-Term Performance Cash Awards."


 

 

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Financial Highlights

 

 

EPS and Safety Performance

 

 

 

Pay for Performance Philosophy

Our compensation program links pay to performance to align our senior executives’ interests with that of our stockholders. Consistent with our business strategy, we ensured our senior executives’ individual Key Performance Indicators (“KPIs”) focused on growth and strategic expansion while reducing cost and increasing efficiencies and cash flow performance. In order to achieve this, we set rigorous targets for 2018 for both KBR short-term and long-term incentive plans.

 

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The average short-term incentive award for 2018 that was earned by our Named Executive Officers (“NEOs”) excluding our CEO was 137.4% of target, a decrease from 150.6% in 2017. Our CEO’s short-term incentive award earned 163.3% of target, a decrease from 182.6% in 2017. The decrease in our NEOs' 2018 short-term incentive award payouts was mainly due to negative discretion applied by the Compensation Committee to our safety, cash flow, and several NEOs' individual metrics. We applied 10% negative discretion to our safety metric in 2018 due to a fatal employee incident, which resulted in a zero payout for our safety metric under the 2018 Short-Term Incentive Plan. Furthermore, we applied 6.2% negative discretion to our operating cash flow metric in 2018 to be fiscally conservative because of KBR's acquisition of SGT in April 2018. In addition, our operating cash flow metric earned 50% less than in 2017, which was primarily attributable to the 2017 operating cash flow metric achieving maximum earnings of 200% as a result of the successful resolution of our longstanding dispute with PEMEX in 2017.

While we achieved significant growth and increased our revenues and operating income in 2018, our three-year TSR from January1,2016, to December31,2018, was below threshold (discussed in the Compensation Discussion and Analysis of this proxy statement under the section titled “2018 Long-Term Performance Cash Award”). Consequently, the 50% TSR portion of the KBR Long-Term Performance Cash Awards payable for the three-year performance period ending on December31,2018, earned zero, a decline from 69% in 2017. The remaining 50% of the KBR Long-Term Performance Cash Awards that are based on our Job Income Sold (“JIS”) metric, which correlates more with revenue and operating income, earned 179% over the same three-year performance period, a decline from 186% in 2017. At the beginning of the year, our Compensation Committee established a rigorous target JIS for 2018 of $585MM, an increase of 50% from 2017 and 71% from 2016, to drive growth and expansion. Due to our strategic shift, 82% of our backlog represents lower risk, long-term government contracts combined with private financing initiatives. The JIS payout demonstrates our commitment and efforts in the past three years to win the right work and deliver on our strategy to position KBR for long-term success.

In 2018, our CEO’s base salary was increased for the first time since he was appointed in 2014, to reward him for the demonstrated success of his strategic decisions to align our businesses, focus on KBR’s strengths and drive growth across our core business segments. Our NEOs received base salary increases as well, which were generally in line with what our other employees received, except for Mr. Mackey, who received an increase based upon his increased responsibilities in 2018. Our NEOs' salaries are further discussed in the Compensation Discussion & Analysis of this proxy statement under the section titled “Base Salary.”

Our CEO’s compensation and the short-term and long-term incentive compensation of our NEOs are illustrated below:

 

 

 

 

 

 

No Significant Changes made to Compensation Programs in 2018

In 2017, the Compensation Committee made changes to our compensation program to further emphasize the link between pay and Company performance. These changes related to the short-term incentive plan and included the increase of our EPS metric weighting from 25% to 40%, decrease of the individual Key Performance Indicators (“KPIs”) weighting from 45% to 30%, addition of more financially measurable metrics to the KPIs, and CEO's KPIs being based solely on earnings before interest, tax, depreciation and amortization (“EBITDA”) targets. The Compensation Committee believed that the changes made in 2017 strongly reflect our pay for performance strategy. Accordingly, no significant changes were made to our compensation program for 2018.

 

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Zero Harm — Historical Two Months Zero Harm Record

Since the inception of Zero Harm in 2014, one of our fundamental beliefs is that Zero Harm is achievable. KBR’s safety program incorporates three dynamic components: Zero Harm, 24/7 and Courage to Care. Our regional and business segment leadership hosts at a minimum biweekly teleconferences to discuss incidents and prevention measures, which are shared globally. The outcome of these meetings is presented in the Regional and Global Incident Review Board sessions. The inclusion of safety results in our short-term incentive plan and exercising downward discretion in the payout for a fatal employee incident during the year emphasizes the importance of safety for us. On our annual Zero Harm Day, employees at all KBR offices and sites globally recognize improvements in our safety performance and reflect on the importance of being an incident-free organization with demonstrations of personal and workplace safety practices. Since the Zero Harm program was implemented, safety incidents have declined by 54%, and we are proud to announce that KBR completed the months of February and December 2018 without a single recordable injury globally. This milestone has been achieved through an all-day, every-day approach at work and at home, which has resulted in a culture of truly caring for not only ourselves but also others in a transparent, interdependent work environment.

Our CEO was recently named to the prestigious 2019 list of “CEOs Who 'Get It'” by the National Safety Council for introducing, building and cultivating a pervasive Zero Harm culture at KBR in his four and a half year tenure as CEO. Mr. Bradie was one of eight CEOs from national and international organizations to receive the annual recognition presented to leaders who go above and beyond to protect employees both on and off the job. The National Safety Council recognizes honorees that have built a safety strategy using four key components: leadership and employee engagement, safety management solutions, risk reduction and performance measurement.

 

 

 

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ASPIRE — Executive Leadership Kicks off “KBR Inc.lusion”

KBR’s ASPIRE group provides our employees with a platform to cultivate women and minority leaders and promote inclusion and diversity through a collaborative community for the benefit of all employees and KBR. At KBR we value and respect our people, and we emphasize development of each person to reach his or her full potential. ASPIRE promotes this behavior through several interactive sessions led by leadership, brown bag sessions, webinars, networking events, panel discussions and book club sessions. Each event hosts influential leaders from KBR and from the community sharing their perspective on gender diversity and equality. A periodic newsletter with inspirational leadership insights and upcoming events is shared with employees. We launched a new ASPIRE chapter in Maryland on October 11, 2018, with a joint kick-off event for our SGT and KBRwyle employees, welcoming them to KBR and enabling them to learn about our efforts to build an inclusive and diverse work environment for our employees.

In celebration of International Women’s Day on March 8, 2019, our executive leadership team kicked off “KBR Inc.lusion,” an initiative to inspire practicing inclusive behaviors, and growing a workforce and culture to support KBR’s strategic goals. Our CEO, several NEOs, and other senior executives took part in a panel discussion on how KBR is addressing changing demographics in the competition for talent.

 

 

 

 

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Sustainability — Invest in Our Future · Invest in Change · Invest in Our World

As we strongly believe that our growth should not be at the expense of the people and our planet, we have embarked on an inspiring journey to contribute more meaningfully to global progress by 2030. In 2018, we made an assessment of our stakeholders, their sustainability concerns and our internal management approach to address these concerns and help people, communities and the planet advance. In September 2018, we launched KBR’s One Ocean initiative, where we will be collaborating with local and global schools to find an engineering solution to one of the greatest environmental challenges: the elimination of plastics from the ocean. Using our expertise and knowledge, our engineers will mentor and guide the next generation, networking with local and global schools across KBR’s global footprint. Using our talented workforce we strive to encourage, engage and enlighten future generations through engineering to explore dynamic world changing solutions.

 

 

 

 

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Part One General Information Proposal No. 1 - Election of Directors 17 Our Board 17 Nominees for Director — Term Ending 2019 19 Security Ownership of Certain Beneficial Owners and Management 24 Executive Officers 25 KBR delivers full life cycle satellite operations including pre-mission support, flight operations, flight dynamics, data processing, simulations, ground system engineering and lights-out operations.

 

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Proxy Statement

General Information

The accompanying proxy is solicited by the Board of Directors of KBR, Inc. (“KBR,” the “Company,” “we” or “us”). By executing and returning the enclosed proxy or by following the enclosed voting instructions, you authorize the persons named in the proxy to represent you and vote your shares on the matters described in the Notice of Annual Meeting of Stockholders.

Subject to space availability, all stockholders as of the record date, or their duly appointed proxies, may attend the meeting. Admission to the meeting will be on a first-come, first-served basis and no guests will be admitted. Registration will begin at 8:00 a.m. CT, and the meeting will begin at 9:00 a.m CT. Please note that you may be asked to present valid picture identification, such as a driver’s license or passport, when you check in at the registration desk.

If you hold your shares in “street name” (that is, through a broker or other nominee), you are required to bring a copy of a brokerage statement or voting instruction form reflecting your stock ownership as of the record date and will need to obtain a legal proxy from the broker or other nominee holding your shares to vote at the Annual Meeting of Stockholders.

No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the meeting.

If you attend the meeting, you may vote in person. If you are not present, your shares can be voted only if you have followed the instructions for voting via the Internet or by telephone or returned a properly executed proxy, and in these cases, your shares will be voted as you specify. If no specification is made, the shares will be voted in accordance with the recommendations of the Board of Directors. You may revoke the authorization given in your proxy at any time before the shares are voted at the meeting.

The record date for determination of stockholders entitled to vote at the meeting is Friday, March 22, 2019. KBR’s common stock, par value $0.001, is the only class of capital stock that is outstanding. As of March 22, 2019, there were 141,448,558 shares of common stock outstanding. Each of the outstanding shares of common stock is entitled to one vote on each matter submitted to the stockholders for a vote at the meeting. A complete list of stockholders entitled to vote will be kept at our offices at the address specified below for ten days prior to, and will be available at the meeting.

Votes cast by proxy or in person at the meeting will be counted by the persons appointed by us to act as election inspectors for the meeting. Except as set forth below, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter will be the act of the stockholders. Except as set forth below, shares for which a holder has elected to abstain on a matter will count for purposes of determining the presence of a quorum and will have the effect of a vote against the matter.

Directors are elected by a majority of votes cast (the number of shares voted “for” a candidate must exceed the number of shares voted “against” the candidate). Shares present but not voting on the election of directors will be disregarded, except for quorum purposes, and will have no legal effect.

The election inspectors will treat shares held in street name that cannot be voted by a broker on specific matters in the absence of instructions from the beneficial owner of the shares, known as broker non-vote shares, as shares that are present and entitled to vote for purposes of determining the presence of a quorum. In determining the outcome of any matter for which the broker does not have discretionary authority to vote, however, those shares will not have any effect on that matter. Those shares may be entitled to vote on other matters for which brokers may exercise their own discretion.

The proxy solicitor, the election inspectors, and the tabulators of all proxies, ballots, and voting tabulations that identify stockholders are independent and are not employees of KBR.

On or about April1,2019, we will mail our stockholders a Notice of Internet Availability of Proxy Materials (“Notice”). The Notice includes instructions on how to access the proxy statement, the form of proxy and vote online at www.proxyvote.com. Stockholders who do not receive the Notice will continue to receive either a paper or an electronic copy of our proxy materials, which will be sent on or about April1,2019. For more information, see “Questions and Answers About Voting” on page 88. This proxy statement, the form of proxy, and voting instructions are being made available to stockholders on or about April 1, 2019, at www.proxyvote.com. You may also request a printed copy of this proxy statement and the form of proxy by any of the following methods: (a) telephone at 1-800-579-1639; (b) Internet at www.proxyvote.com; or (c) e-mail at sendmaterial@proxyvote.com. Our Annual Report to Stockholders, including financial statements, for the fiscal year ended December 31, 2018, is being made available at the same time and by the same methods. The Annual Report is not to be considered as a part of the proxy solicitation material or as having been incorporated by reference.

Our principal executive office is located at 601 Jefferson Street, Suite 3400, Houston, Texas 77002 and our website address is www.kbr.com. Information contained on our website, including information referred to in this proxy statement, is not to be considered as part of the proxy solicitation material and is not incorporated into this proxy statement.

 

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Proposal No. 1 - Election of Directors

 

At our 2019 Annual Meeting of Stockholders, eight directors are to be elected to hold office until the 2020 Annual Meeting of Stockholders. All directors are elected annually, with each nominee standing for election to a one-year term. The members of our Board of Directors hold office until their successors are elected and qualified or until their earlier resignation or removal. The size of our Board of Directors is currently set at nine members. Mr. Loren K. Carroll will retire from our Board of Directors on May15,2019, in accordance with the Board's retirement policy. It is the policy of our Board of Directors that each non-executive director will retire from the Board by the annual meeting of stockholders following his or her seventy-fifth birthday.

Each nominee has indicated his or her willingness to serve, if elected. If any of the nominees declines to serve or becomes unavailable for any reason, or if a vacancy occurs before the election, the proxies may be voted for such substitute nominee as we may designate. We have no reason to believe that any of the nominees will be unable to serve if elected. If a quorum is present, the nominees for director receiving the majority of votes will be elected directors.

Our Board

A top priority of the Board and the Nominating and Corporate Governance Committee is ensuring that the Board of Directors is composed of directors who bring a variety of skills relevant to our business, provide expertise that is useful to KBR and complementary to the background and experience of other Board members, and effectively represent the long-term interests of our stockholders. Below is a summary of our Board of Directors qualifications.

 

 

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For additional information regarding the qualifications the Nominating and Corporate Governance Committee and the Board consider in the nomination process, see “Corporate Governance — Nominating and Corporate Governance Committee — Qualifications of Directors.”

The Board of Directors recommends that you vote FOR the election of all the director nominees listed below. Properly dated and signed proxies, and proxies properly submitted over the Internet and by telephone, will be so voted unless stockholders specify otherwise.

Directors are elected by a majority of votes cast (the number of shares voted “For” a candidate must exceed the number of shares voted “Against” the candidate). Shares present but not voting on the election of directors will be disregarded, except for quorum purposes, and will have no effect on the election of directors.

The following biographical information is furnished with respect to each of the director nominees for election at the meeting. The information includes age as of March 22, 2019, present position, if any, with KBR, period served as director, and other business experience during at least the past five years.

Nominees for Director — Term Ending 2019

MARK E. BALDWIN

Key Qualifications and Skills:

 

Age: 65

Director since:

October 2014

 

Board Committees: Audit Committee (Chair) and Health, Safety, Security, Environment and Social Responsibility Committee

Other Public Company Boards: Nine Energy Service, Inc. (Audit Chair) and TETRA Technologies, Inc. (Audit Chair)

 

Prior Business Experience

Education

 

Executive Vice President and Chief Financial Officer of Dresser-Rand Group, Inc.

Executive Vice President, Chief Financial Officer, and Treasurer of Veritas DGC Inc.

Operating Partner at First Reserve Corporation

Executive Vice President and Chief Financial Officer for NextiraOne

Chairman of the Board and Chief Executive Officer for Pentacon Inc.

Variety of finance and operations positions with Keystone International Inc., including Treasurer,
Chief Financial Officer, and President of the Industrial Valves and Controls Group

B.S. (Mechanical Engineering), Duke University

M.B.A., Tulane University

Graduate of the Stanford Executive Program

       

 

JAMES R. BLACKWELL

Key Qualifications and Skills:

Age: 60

Director since:

August 2014

 

Board Committees: Compensation Committee and Nominating and Corporate Governance Committee

Other Public Company Boards: None

Current Memberships: Harbour Energy Ltd. (Director)

Previous Memberships: Center for Strategic and International Studies (“CSIS”) U.S.-Association of Southeast Asian Nations Strategy Commission (Commissioner); CSIS U.S.-China Policy Advisory Roundtable (Member); National Action Council for Minorities in Engineering, Inc. (Director); National Bureau of Asian Research (Director); and Saint Mary’s College of California (Trustee)

Prior Business Experience

Education

Executive Vice President, Technology and Services for Chevron

President, Chevron Asia Pacific Exploration and Production Company

Various positions of increasing responsibility following start of career as an offshore roustabout for Gulf Oil

B.S. (Biology and Environmental Technology), University of Southern Mississippi

M.S. (Petroleum Engineering), Tulane University

Graduate of the Columbia Senior Executive Program

       

 

Finance

Leadership

Risk Management

Industry / Market

Government

Global

 

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STUART J. B. BRADIE

Key Qualifications and Skills:

Age: 52

Director since:

October 2014

President and

Chief Executive

Officer for KBR,

Inc. since:

June 2014

 

Board Committees: None (the CEO may not serve on any committees of the Board)

Other Public Company Boards: None

Prior Business Experience

Education

Group Managing Director — Operations and Delivery for WorleyParsons

Managing Director across Europe, Africa, Asia and the Middle East for WorleyParsons

Managing Director for PT Kvaerner Indonesia

Country Manager for Kvaerner Philippines

Global experience across over 40 countries in the hydrocarbons, mining and chemicals, power and infrastructure sectors

B.S. (Mechanical Engineering), Aberdeen University

M.B.A., Edinburgh Business School, Heriot-Watt University

       

 

GENERAL LESTER L. LYLES, USAF (RET.)

Key Qualifications and Skills:

Age: 72

Director since:

November

2007

 

Board Committees: Nominating and Corporate Governance Committee (Chair) and Compensation Committee

Other Public Company Boards: General Dynamics Corporation (Audit)

Current Memberships: Battelle Memorial Institute (Director); NASA Advisory Council (Member); and United Services Automobile Association (Chair)

Previous Memberships: Defense Science Board in the Pentagon (Member); International Security Advisory Board at the U.S. Department of State (Member); Precision Castparts Corp. (Director); and President’s Intelligence Advisory Board in the White House (Member)

Prior Business Experience

Education

Independent Consultant (current)

Retired Four-Star General of the U.S. Air Force

Commander of the U.S. Air Force Materiel Command

Vice Chief of Staff of the Headquarters of the U.S. Air Force

Director of the Ballistic Missile Defense Organization

Commander of the Space and Missile Systems Center

B.S. (Mechanical Engineering), Howard University

M.S. (Mechanical and Nuclear Engineering), Air Force Institute of Technology Program, New Mexico State University

Defense Systems Management College, Fort Belvoir, Virginia

Armed Forces Staff College, Norfolk, Virginia

National War College, Fort Lesley J. McNair, Washington, D.C.

National and International Security Management Course at Harvard University

Honorary Doctor of Laws degrees from New Mexico State University and Urbana University

Inducted into the National Academy of Engineering

       

 

Finance

Leadership

Risk Management

Industry / Market

Government

Global

 

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GENERAL WENDY M. MASIELLO, USAF (RET.)

Key Qualifications and Skills:

Age: 60

Director since:

August 2017

 

Board Committees: Audit Committee and Health, Safety, Security, Environment and Social Responsibility Committee

Other Public Company Boards: None

Current Memberships: EURPAC Services, Inc. (Director); National Contract Management Association (Board of Advisors); Public Spend Forum (Board of Advisors); and Rawls College, Texas Tech University (Advisory Council)

Prior Business Experience

Education

Independent Consultant (current)

Retired Three-Star General of the U.S. Air Force

Director of the Defense Contract Management Agency

Deputy Assistant Secretary (Contracting), Office of the Assistant Secretary of the Air Force for Acquisition

Program Executive Officer for the Air Force’s
$65 billion Service Acquisition portfolio

Deployment to Iraq to lead contracting support for military forces in Iraq and Afghanistan

B.B.A. (Marketing), Texas Tech University

M.S. (Logistics Management), Air Force Institute of Technology

Defense Systems Management College, Fort Belvoir, Virginia

M.S. (National Resource Strategy), Industrial College of the Armed Forces, Fort Lesley J. McNair, Washington, D.C.

Senior Acquisition Course, Industrial College of the Armed Forces, Fort Lesley J. McNair, Washington, D.C.

Joint and Combined Warfighting School, Joint Forces Staff College, Norfolk, Virginia

Harvard Kennedy School’s Senior Managers in Government

       

JACK B. MOORE 

Key Qualifications and Skills:

Age: 65

Director since:

January 2012

 

Board Committees: Compensation Committee (Chair) and Nominating and Corporate Governance Committee

Other Public Company Boards: Occidental Petroleum Corporation; ProPetro Holding Corp.; and Rowan Companies plc

Current Memberships: MAM (Director); United Way of Greater Houston (Executive Committee); and University of Houston System Board of Regents (Member)

Previous Memberships: American Petroleum Institute (Director); Cameron International Corporation (Chair); and University of Houston’s Board of Visitors (Director)

Prior Business Experience

Education

Chairman, President and Chief Executive Officer for Cameron International Corporation

President and Chief Operating Officer for Cameron International Corporation

President, Western Hemisphere of Drilling & Production Systems group for Cameron International Corporation

Vice President and General Manager, Western Hemisphere of Drilling & Production Systems group for Cameron International Corporation

Various management positions at Baker Hughes Incorporated

B.B.A., University of Houston

Graduate of the Advanced Management Program at Harvard Business School

       

 

Finance

Leadership

Risk Management

Industry / Market

Government

Global

 

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ANN D. PICKARD

Key Qualifications and Skills:

Age: 63

Director since:

December

2015

 

Board Committees: Health, Safety, Security, Environment and Social Responsibility Committee (Chair) and Audit Committee

Other Public Company Boards: Woodside Petroleum Ltd. (Sustainability Chair)

Current Memberships: The University of Wyoming Foundation (Budget/Audit) and Chief Executive Women (Member)

Previous Memberships: Advisory Council of the Eurasia Foundation (Member); Catalyst (Board of Advisors); Global Agenda Council on the Arctic for the World Economic Forum (Member); and Westpac Banking Corporation (Director)

Prior Business Experience

Education

Executive Vice President, Arctic for Royal Dutch Shell plc

Executive Vice President and Country Chair, Australia, for Royal Dutch Shell plc

Regional Executive Vice President, Sub Saharan Africa for Royal Dutch Shell plc

Director, Global Businesses and Strategy and a member of the Shell Gas & Power Executive Committee for Royal Dutch Shell plc

11-year tenure with Mobil prior to its merger with Exxon

Significant business experience throughout South America, Australia, the countries of the former Soviet Union, the Middle East, and Africa

B.A., University of California San Diego

M.A., University of Pennsylvania

       

UMBERTO DELLA SALA

Key Qualifications and Skills:

Age: 70

Director since:

January 2015

 

Board Committees: Compensation Committee and Health, Safety, Security, Environment and Social Responsibility Committee

Other Public Company Boards: Trevi Finanziaria Industriale SPA

Current Memberships: FSI SPA (Industrial Partner); and Kedrion SPA (Director)

Previous Memberships: Ansaldo Energia SPA (Chair and Director); Foster Wheeler AG (Director); and Stork Technical Services (Supervisory Board)

Prior Business Experience

Education

President and Chief Operating Officer for Foster Wheeler AG

Interim Chief Executive Officer for Foster Wheeler AG

Various positions of increasing responsibility following start of career as process engineer of Foster Wheeler’s environmental division

Laurea in Chemical Engineering from Politecnico di Milano

       

 

The Following Director with a Term Ending in 2019 will Not Stand for Re-Election Due to the Board’s Retirement Policy

LOREN K. CARROLL

Key Qualifications and Skills:

Age: 75

Director since:

April 2007

Chairman of

the Board

 

Board Committees: Audit Committee

Other Public Company Boards: None

Current Memberships: Petroleum Equipment Suppliers' Association (Former Chair) and President's Leadership Council, Brigham Young University (Member)

Previous Memberships: American Petroleum Institute; CGG (Audit); Dean's Business Advisory Council, California State University at Long Beach; Forest Oil Corporation (NCG Chair and Compensation); Independent Petroleum Association of America; and Institute of Management Accountants (Chair)

Prior Business Experience

Education

Independent Consultant and Business Advisor (current)

President and Chief Executive Officer of M-I SWACO

Executive Vice President and Chief Financial Officer of Smith International, Inc.

Managing Partner with Arthur Andersen & Co.

B.S. (Accounting), California State University at Long Beach

       

 

Finance

Leadership

Risk Management

Industry / Market

Government

Global

 

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Security Ownership of Certain Beneficial Owners and Management

The table below sets forth certain information, as of March 15, 2019, regarding the beneficial ownership of KBR’s common stock by persons known by KBR to beneficially own more than five percent of its outstanding common stock, each director or nominee, each of the named executive officers referenced in the Summary Compensation Table contained in this Proxy Statement, and all directors and executive officers as a group. Information regarding five percent stockholders in the table and footnotes is based on the most recent Statement on Schedule 13G or 13D or amendment thereto filed by each such person with the Securities and Exchange Commission (the “SEC”), except as otherwise known to KBR. To our knowledge, except as otherwise noted in the footnotes to this table or as provided by applicable community property laws, each individual has sole voting and investment power with respect to the shares of common stock listed in the second column below as beneficially owned by the individual.

Name and Address of Beneficial Owner(1)

 

Shares of KBR Common Stock Beneficially Owned

Number of Shares(2)

 

Percentage of Class

BlackRock, Inc.(3)

55 East 52nd Street, New York City, New York 10055

 

16,142,470

 

11.5

%

The Vanguard Group(4)

100 Vanguard Boulevard, Malvern, Pennsylvania 19355

 

12,890,634

 

9.15

%

Frontier Capital Management Co., LLC.(5)

99 Summer Street, Boston, Massachusetts 02110

 

7,163,208

 

5.07

%

Stuart J. B. Bradie(6)(7)

 

412,189

 

*

 

J. Jay Ibrahim(6)(7)

 

64,662

 

*

 

Ian J. Mackey(6)(7)

 

60,675

 

*

 

Farhan Mujib(6)(7)

 

177,625

 

*

 

Mark W. Sopp(6)(7)

 

40,016

 

*

 

Mark E. Baldwin(6)(7)

 

37,343

 

*

 

James R. Blackwell(6)(7)

 

36,754

 

*

 

Loren K. Carroll(6)(7)

 

62,038

 

*

 

Lester L. Lyles(6)(7)

 

52,691

 

*

 

Wendy M. Masiello(6)(7)

 

14,601

 

*

 

Jack B. Moore(6)(7)

 

43,057

 

*

 

Ann D. Pickard(6)(7)

 

29,824

 

*

 

Umberto della Sala(6)(7)

 

31,565

 

*

 

ALL DIRECTORS AND EXECUTIVE OFFICERS
AS A GROUP (18 PERSONS)(6)(7)(8)

 

1,298,025

 

*

 

*

Less than one percent (1%).

(1)

The address of each of the named executive officers and directors is c/o KBR, Inc., 601 Jefferson Street, Suite 3400, Houston, Texas 77002.

(2)

Beneficial ownership means the sole or shared power to vote, or to direct the voting of, shares of KBR common stock, or investment power with respect to KBR common stock, or any combination of the foregoing. Each director and executive officer and the directors and executive officers as a group beneficially own less than 1% of the outstanding shares of KBR common stock.

(3)

Based solely on a Schedule 13G filed February 11, 2019, BlackRock, Inc. is deemed to be the beneficial owner of 16,142,470 shares as a result of being a parent holding company or control person in accordance with §240.13d-1(b)(1)(ii)(G).

(4)

Based solely on a Schedule 13G filed February 11, 2019, The Vanguard Group is deemed to be the beneficial owner of 12,890,634 shares as a result of being an investment adviser in accordance with §240.13d-1(b)(1)(ii)(E).

(5)

Based solely on a Schedule 13G filed February 11, 2019, Frontier Capital Management Co., LLC. is deemed to be the beneficial owner of 7,163,208 shares as a result of being an investment advisor in accordance with §240.13d-1(b)(1)(ii)(E).

(6)

Includes the following shares of restricted stock and/or restricted stock units that have vested or will vest on or before May 14, 2019: Mr.Bradie, 289,013; Mr. Ibrahim, 42,472; Mr.Mackey, 36,039; Mr.Mujib, 89,427; Mr.Sopp, 25,016; Mr.Baldwin, 37,343; Mr.Blackwell, 36,754; Mr.Carroll, 62,038; GeneralLyles, 52,691 (13,361 of which were deferred into the nonqualified elective deferral plan for non-executive directors); GeneralMasiello, 14,601; Mr.Moore, 43,057; Ms.Pickard, 29,824; Mr. dellaSala, 31,565; and all executive officers as a group, 327,558. Includes the following shares that may be acquired upon the exercise of options that are exercisable or will become exercisable on or before May 14, 2019: Mr.Bradie, 123,176; Mr. Ibrahim, 22,190; Mr.Mackey, 24,636; Mr.Mujib, 88,198; and all executive officers as a group, 235,405. Includes 15,000 shares of common stock purchased by Mr.Sopp on March 7, 2017, and March 8, 2017.

(7)

Does not include the following shares of restricted stock units as to which the holder has no voting power and no investment power, but which convert to common stock on a 1-to-1 ratio upon vesting, which for some restricted stock units requires that certain performance measures be met: Mr. Bradie, 245,288; Mr. Ibrahim, 32,709; Mr.Mackey, 38,482; Mr. Mujib, 53,872; Mr.Sopp, 49,344; and all executive officers and directors as a group, 642,420.

(8)

All directors and executive officers as a group refers to the current 9 directors (GeneralMasiello, Ms. Pickard, General Lyles, and Messrs. Baldwin, Blackwell, Bradie, Carroll, Moore, and dellaSala) and the current 9 executive officers, excluding Mr.Bradie (Ms.Akerson and Messrs. Bright, Carney, Conlon, Derbyshire, Ibrahim, Mackey, Mujib, and Sopp).

 

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Executive Officers

The following biographical information is furnished with respect to each of KBR’s executive officers. The information includes age as of March 22, 2019, present position, KBR employment history, and other business experience.

EILEEN G. AKERSON

Age: 53

Joined KBR in:

1999

Executive Vice

President and

General

Counsel

 

Current Position since: November 2014

Prior Business Experience

Education

KBR Senior Vice President, Commercial responsible for project commercial management and oversight of the review and approval process for significant transactions and joint venture relationships

KBR Vice President — Legal & Chief Counsel responsible for managing the legal functions for the Hydrocarbons Business Group

KBR advisor and counselor to senior management on company policies affecting ethics and compliance matters

Attorney for Spriggs & Hollingsworth in Washington D.C.

B.A., Catholic University of America

J.D., Catholic University of America Columbus School of Law

Member of the bars of Texas, Connecticut and the District of Columbia

       

W. BYRON BRIGHT, JR.

Age: 45

Joined KBR in:

2010

President, KBR

Government

Services U.S.

 

Current Position since: May 2018

Prior Business Experience

Education

KBR President, KBRwyle

KBR Senior Vice President of Operations for
U.S. Government Services

KBR Vice President of Business Development for
U.S. Government Services

Supported the government services business at Jacobs Engineering Group Inc.

Officer in the U.S. Air Force primarily working in the Developmental Test and Engineering career field supporting weapons development and rotary wing aircraft flight testing

B.S. (Engineering and Mechanics), distinguished graduate, U.S. Air Force Academy

M.S. (Mechanical Engineering), Georgia Institute of Technology

Graduated from the U.S. Air Force Test Pilot School and has flown in over 25 different aircraft as a Flight Test Engineer

       

RAYMOND L. CARNEY, JR.

Age: 51

Joined KBR in:

2017

Vice President

and Chief

Accounting

Officer

 

Current Position since: May 2017

Prior Business Experience

Education

Chief Accounting Officer and Vice President of Exterran Corporation

Chief Accounting Officer, Vice President and Controller of Dresser-Rand Group Inc.

Group Controller for Global Rolled Products, Hard Alloy Extrusions and Asia of Alcoa Inc.

Manager of Financial Transactions of Alcoa Inc.

Various leadership positions at EY responsible for client projects including public filings, acquisitions and audit engagements

B.S. (Accounting), Pennsylvania State University

Certified Public Accountant

       

 

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GREGORY S. CONLON

Age: 50

Joined KBR in:

2016

Chief Digital

and

Development

Officer

 

Current Position since: January 2019

Prior Business Experience

Education

KBR Executive Vice President and Chief Development Officer responsible for Strategy, Global Business Development, Marketing, and Mergers & Acquisitions

KBR President, Asia-Pacific (“APAC”) responsible for Engineering & Construction (“E&C”) and Government Services (“GS”) in this region

KBR President, E&C APAC

Executive Vice President leading business development globally for the WorleyParsons Services business line, the largest business within WorleyParsons

Mr. Conlon has over 25 years of experience in the E&C business, with global experience across a range of subsectors from hydrocarbons to specialist infrastructure.

Throughout his career, Mr. Conlon pursued challenging project execution and management opportunities in the energy and resources sector and held positions in Australia, Canada, China, Indonesia, Singapore, Thailand, and the United Kingdom.

B.S. (Mechanical Engineering), Royal Melbourne Institute of Technology

       

 

JOHN T. DERBYSHIRE

Age: 68

Joined KBR in:

2008

President,

Technology

 

Current Position since: May 2011

Prior Business Experience

Education

KBR President, Technology & Consulting

KBR President, KBR Technology responsible for KBR’s global technology licensing business, delivering technology, proprietary equipment, engineering, and consulting services to the refining, petrochemical, coal monetization, and synthesis gas segments

KBR Senior Vice President, Commercial Management for the Technology Business Unit

Vice President and General Manager of Invensys Process Systems global solutions business

Various executive leadership roles at Aspen Technology

Vice President, Sales and Marketing at ABB Process Automation

B.S. (Chemical Engineering), University of Salford in the United Kingdom

       

 

 

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J. JAY IBRAHIM

Age: 58

Joined KBR in:

2015

President,

Energy

Services

 

Current Position since: February 2018

Prior Business Experience

Education

KBR President, Europe, Middle East and Africa (“EMEA”) and APAC responsible for E&C and GS in these regions

KBR President, EMEA responsible for E&C and GS in this region

KBR President, E&C EMEA

Mr. Ibrahim has over 22 years of E&C and GS experience across the globe, having served in a variety of engineering, project management, business development, and business management roles for Parsons E&C/WorleyParsons.

Mr. Ibrahim brings to KBR a wealth of senior project and construction management experience within the hydrocarbon, infrastructure, and government services sectors as well as broad experience in complex contract negotiations, business analysis, and long-range strategic planning in both domestic and international markets.

B.S. (Mechanical Engineering), Wichita State University

M.S. (Mechanical Engineering), Wichita State University

Diploma in Advanced Management, Harvard University

       

IAN J. MACKEY

Age: 53

Joined KBR in:

2015

Executive Vice

President, Chief

Corporate

Officer

 

Current Position since: January 2016

Prior Business Experience

Education

KBR Executive Vice President, Global Human Resources

Global People Director at WorleyParsons Services where he was responsible for the overall strategy and delivery of all human resources activities for the company

Director of Human Resources at Carillion PLC

Ashridge Management College — Tarmac Executive Programme

Carillion Accelerated Leadership Programme — Corporate Top 20 Development Programme

       

FARHAN MUJIB

Age: 55

Joined KBR in:

1988

President,

Delivery

Solutions

 

Current Position since: May 2018

Prior Business Experience

Education

KBR President, Hydrocarbons Services Americas

KBR President, E&C Americas

KBR Executive Vice President, Commercial

KBR Executive Vice President, Operations

During his 30-year career with KBR, Mr. Mujib has worked in Africa, Australia, Asia, Europe, the Americas, and the Middle East, employing his in-depth knowledge of international project requirements, cultural sensitivities, and business practices to manage a number of major developments.

B.S. (Civil Engineering), University of Engineering and Technology in Lahore, Pakistan

Master of Engineering from the Asian Institute of Technology in Bangkok, Thailand

M.B.A., Macquarie University in Sydney, Australia

Fellow, Institution of Engineers, Australia

Chartered Professional Engineer

       

 

 

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MARK W. SOPP

Age: 53

Joined KBR in:

2017

Executive Vice

President and

Chief Financial

Officer

 

Current Position since: February 2017

Prior Business Experience

Education

Chief Financial Officer and Executive Vice President for Leidos Holdings, Inc., previously Science Applications International Corporation, one of the largest publicly-traded government contractors in the U.S. with significant technically-focused commercial professional services operations, including serving energy markets

Various executive positions with Titan Corporation, also involved in government contracting and commercial business areas

B.S. (Accounting), New Mexico State University

Completed the Executive Program at UCLA Anderson School

       

 

 

 

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Part Two Corporate Governance Corporate Governance 30 Corporate Governance Materials 30 Role of the Board of Directors 30 Independence Standards 30 Board of Directors Leadership Structure 31 Risk Oversight Role of the Board of Directors 31 Directors’ Meetings and Stockholder Communications with Directors 32 Management Succession Planning 32 The Board of Directors and Standing Committees of Directors 33 Anti-Hedging Policy 37 Code of Ethics 37 Contact the Board 38 Compensation Discussion and Analysis 39 Executive Summary 39 Elements of Compensation 45 Other Compensation Elements 56 Impact of Executive Conduct or a Restatement of Earnings on Compensation (Clawback Policy) 57 Impact of Accounting, Regulatory, and Tax Requirements on Compensation 57 Stock Ownership Guidelines for Officers 58 No Pledging 58 Minimum Holding Period for Restricted Stock Units and Stock Options 58 Anti-Hedging Policy 59 Conclusion 59 Compensation Committee Report 60 Compensation Committee Interlocks and Insider Participation 60 The Hubble Space Telescope produces scientific data that leads to some of our most important findings about the universe. KBR supports Flight Operations, Spacecraft Systems Engineering and System Administration for the critical ground system computers that operate the Hubble Space Telescope. (Photo courtesy of NASA)

 

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Corporate Governance

Corporate Governance Materials

We are committed to good corporate governance and to effective communication with our stockholders. The roles, duties and responsibilities of the Board of Directors and each committee of the Board of Directors are summarized below. To ensure that our stockholders have access to our governing documents, we provide copies of our Code of Business Conduct and Corporate Governance Guidelines and the charters of each of the committees of our Board of Directors on our website at www.kbr.com. Copies will be provided to any stockholder who requests them by writing to our Investor Relations Department at: 601 Jefferson Street, Suite 3400, Houston, Texas 77002.

Role of the Board of Directors

The Board of Directors represents the interests of our stockholders in perpetuating a successful business. It is the responsibility of the Board of Directors to provide oversight of the effectiveness of management’s policies and decisions, including the execution of its strategies, with a commitment to enhancing stockholder value over the long term. To this end, Board members are expected to act in the best interests of all stockholders, be knowledgeable about our businesses, exercise informed and independent judgment and maintain an understanding of general economic trends and conditions as well as trends in corporate governance. In addition, it is our Board’s policy that Board members are expected to make every effort to attend the meetings of the Board and committees of the Board upon which they serve, as well as stockholder meetings. All of KBR’s directors attended greater than 80% of the aggregate of all meetings of the Board and of committees on which they served during the periods that they served during 2018.

Our Corporate Governance Guidelines provide that all Directors should attend our annual stockholder meetings, and all of our directors attended our 2018 Annual Meeting of Stockholders.

Independence Standards

At this time, all of our directors are independent, as set forth in our Corporate Governance Guidelines and outlined below, except our President and Chief Executive Officer, Mr. Bradie, who does not qualify as an independent director.

A director will be considered independent under our Corporate Governance Guidelines if he or she:

has no material relationship with KBR;

has not been employed by us or any affiliate of ours during the preceding three years, and no member of the director’s immediate family has been employed as an executive officer of ours or any of our affiliates during the preceding three years;

has not received, and does not have an immediate family member who has received, during any twelve-month period within the preceding three years, more than $100,000 in direct compensation from KBR, other than director’s fees, committee fees or pension or deferred compensation for prior service;

is not a partner or an employee of KBR’s independent auditor, and was not during the past three calendar years a partner or employee of KBR’s independent auditor who personally worked on KBR’s audit;

does not have an immediate family member who is a partner of KBR’s independent auditor or an employee of KBR’s independent auditor who participates in that firm’s audit, assurance or tax compliance (but not tax planning) practice or was during the past three calendar years a partner or employee of KBR’s independent auditor who personally worked on KBR’s audit;

is not a current employee and does not have an immediate family member who is a current executive officer of any company that has made payments to, or received payments from, KBR or any of its affiliates in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues; and

has not (and has not had a family member who) within the preceding three years served as an executive officer with a company for which a KBR executive served on its compensation committee.

The definition of independence and compliance with this policy will be reviewed periodically by the Nominating and Corporate Governance Committee. All directors complete independence questionnaires at least annually, and our Board makes determinations of the independence of its members under the listing standards of the NYSE and the SEC requirements for Audit Committee members. Our Board believes that its membership should include no more than two directors who are also employees of KBR. While this number is not an absolute limitation, other than the Chief Executive Officer, who should at all times be a member of the Board, employee directors should be limited only to those officers whose positions or potential make it appropriate for them to sit on the Board.

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Board of Directors Leadership Structure

Since March 31, 2014, Mr. Carroll, the Company’s former Lead Director, began serving as non-executive Chairman of the Board. Our non-executive Chairman leads the Board. Mr. Carroll has significant board experience, as described in his biographical information in this proxy statement, and works closely with Mr. Bradie and the Board on risk oversight and governance matters. Prior to being non-executive Chairman of the Board, Mr. Carroll served as the Company’s Lead Director, as well as Chairman of the Nominating and Corporate Governance Committee, since 2012, and a director since April 2007. Upon Mr. Carroll's retirement on May 15, 2019, General Lyles will assume the role of non-executive Chairman of the Board. General Lyles brings substantial board experience to the position of Chairman, as described in his biographical information in this proxy statement. Our CEO is responsible to the Board for the overall management and functioning of the Company.

KBR’s Corporate Governance Guidelines provide for the Chairman of the Board, if the Chairman of the Board is independent, to perform a strong role in the leadership of the Board, as follows:

The Chairman of the Board presides at executive sessions of the non-executive directors at each regular Board meeting and sets the agenda for these sessions.

The Chairman of the Board approves meeting agendas for each regular Board and committee meeting and approves the information to be sent to the directors with respect to each meeting.

The Chairman of the Board presides at the executive session of the Board to evaluate the performance of our CEO. In addition, he has a key role in communicating to the CEO, after approval by the Compensation Committee, the evaluation and compensation of the CEO for the next full year and the results of the Board’s review and approval of management succession plans and development programs.

KBR’s Corporate Governance Guidelines provide for the following checks and balances regarding the role of the CEO:

The CEO may not serve on any committees of the Board, as only non-executive directors may do so.

One of the elements of the CEO’s evaluation is the extent to which he keeps the Board informed on matters affecting the Company and its operating units.

At least two-thirds of the Board must be independent directors. In practice, our CEO has been the only executive director at KBR since its inception as an independent public company. Each of our other directors is independent, as defined under the listing standards of the NYSE.

KBR’s Board of Directors has determined that its current leadership structure is appropriate as of the date of this proxy statement, given the complexity and global nature of KBR’s business and the risks inherent in our business. The Board believes that Mr. Carroll and his successor, General Lyles, acting in the role as non-executive Chairman, are well positioned to facilitate communications with the Board of Directors and stockholders about our complex business. During Mr. Carroll’s and General Lyles's service on the Board, KBR’s business has undergone significant changes, including reorganization into more strategically-aligned business groups and evolution from a wholly-owned subsidiary with significant support from its parent company into an independent operating company.

Risk Oversight Role of the Board of Directors

KBR’s Board of Directors considers risk oversight to be an integral part of its role, and discussions regarding risks faced by the Company are part of its meetings and deliberations throughout the year. KBR’s enterprise risk management framework provides an effective tool for executive oversight of managing risks and the Board receives semi-annual reports regarding significant strategic, operational, financial, and hazard risks determined by management to have a potential significant impact on the Company as a whole. The risk report involves both current and emerging risks and is the culmination of a process involving input from all business groups and executive leadership. Management’s assessment of risk includes the likelihood and impact of specific strategic, operational, financial and hazard risks, the perceived trend for each of those specific risks — whether increasing, decreasing or stable — and the measures being taken to monitor and mitigate those risks.

In addition to the enterprise risk management process described above, the Board also engages in risk oversight through the project approval process, whereby projects reaching a threshold level of expected revenues require Board approval. Fixed-price contracts have a lower threshold level than reimbursable-type contracts because of their potential price and financial risks. In reviewing projects, the Board is presented with management’s assessment of a particular project’s cost exposure associated with operations risk, liabilities and funding risks, among others. In this manner, KBR’s Board is engaged in risk oversight at the outset of the largest projects, which could have a material effect on KBR’s operations and financial condition.

The Board also engages in risk oversight through the approval of acquisitions proposed by management where the purchase consideration exceeds a certain threshold. The review conducted by the Board includes presentations by management regarding the strategic fit of the acquired business within the Company’s existing operations and offerings; the commercial, legal, and financial risks identified in the diligence process, among others, and the measures to be implemented by management to mitigate those risks; the valuation analysis and projected returns on investment; agreement terms, including conditions to close, ability to terminate and terms of indemnification protection; details on the planned integration, including budgets and employee resources; and metrics identified for measuring the success of the acquisition. In this process, the Board engages in oversight of the various risks associated with acquiring and integrating new businesses, which, if not successfully

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performed, could have a material effect on KBR’s operations and financial condition. The Board is also engaged in risk oversight through regular reports from its Audit Committee. The Audit Committee is charged with reviewing with management the Company’s major financial risk exposures, as well as other areas of risk exposure if requested to do so by the Board, and the steps management has taken to monitor and mitigate those exposures. The Audit Committee receives periodic reports from management on these areas of potential exposure, including litigation, liquidity and capital resources, financial reporting and disclosures, regulatory and tax risks, among others. The Audit Committee also receives in-depth periodic reports from management regarding ethics and compliance issues, and our risk assessment and control framework to monitor and manage risk, such as internal controls testing, internal audits and foreign exchange risk management. Furthermore, the Audit Committee receives periodic reports from management on cybersecurity measures and assessments performed on their efficacy. The Audit Committee conducts private sessions with KBR’s Chief Financial Officer, Chief Accounting Officer, Vice President of Internal Audit and General Counsel at each regular meeting and with KBR’s independent auditors at each meeting prior to the release of quarterly and annual results. The Audit Committee Chairman provides a report of the Audit Committee’s activities to the full Board at each regular meeting and in this manner the entire Board is informed of matters that the Audit Committee determines warrant full Board discussion. Additional risk oversight reviews undertaken by the Audit Committee in 2018 are included in the Audit Committee Report on page 82.

The Compensation Committee has oversight of our compensation programs and reviews misalignment risks of our programs at least on an annual basis, internally and with external advisors.

Finally, the Health, Safety, Security, Environment and Social Responsibility Committee has the responsibility for the oversight of KBR’s activities in managing its major risk exposures within the health, safety and sustainable development areas. The Health, Safety, Security, Environment and Social Responsibility Committee receives periodic reports from KBR’s Chief HSSE Officer relating to these risk exposures and the Company’s efforts to mitigate those risks.

Directors’ Meetings and Stockholder Communications with Directors

The Board of Directors will meet each year immediately following the Annual Meeting of Stockholders to transact such business as may properly be brought before the meeting. Additional regular meetings of the Board of Directors may be held without notice at such times as the Board of Directors may determine, but shall consist of at least four other regularly scheduled meetings. Special meetings may be called by the Chairman of the Board of Directors, the Chief Executive Officer, the President, the Corporate Secretary or a majority of the directors in office. KBR’s Bylaws permit action to be taken without a meeting if all members of the Board of Directors consent to such action in writing or by electronic transmission. During 2018, the Board of Directors held twelve meetings. The Chairman of the Board presides at all Board meetings.

During each regular Board meeting, KBR’s non-executive directors, all of whom have been determined by our Board to be independent under the standards of our Corporate Governance Guidelines and the NYSE, meet in scheduled executive sessions. Our non-executive Chairman of the Board, Mr. Carroll, presides at all executive sessions of the Board. During 2018, the non-executive directors met without management eight times.

In addition, each December our non-executive directors meet in executive session to evaluate the performance of our Chief Executive Officer. In evaluating our CEO, the non-executive directors consider qualitative and quantitative elements of the CEO’s performance, including:

leadership and vision;

integrity;

keeping the Board informed on matters affecting KBR and its operating units;

performance of the business (including such measurements as total stockholder return and achievement of financial objectives and goals);

development and implementation of initiatives to provide long-term economic benefit to KBR;

accomplishment of strategic objectives; and

development of management.

In addition, the non-executive directors annually review management succession plans and development programs for senior members of executive management. The CEO’s performance evaluation and compensation for the next full year, management succession plans, and development programs will be communicated to the CEO only after review and approval by the Compensation Committee and the full Board of Directors (other than the CEO).

Management Succession Planning

The Board of Directors considers management evaluation and CEO succession planning an important responsibility of the Board. Our Corporate Governance Guidelines, which are available on our website at www.kbr.com/About/Corporate-Governance, provide that the Board’s responsibility for effective governance of the corporation includes reviewing succession plans and

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management development programs for members of executive management. The Board of Directors, with input from the Nominating and Corporate Governance Committee, the Chairman of the Board, and the CEO, regularly reviews KBR’s succession plan and management development programs for all senior management positions. The review process includes identification of internal candidates, any developmental needs for such candidates, and a determination of whether a search for external candidates would be more appropriate.

Issues relating to CEO succession planning are also addressed regularly, and no less than annually, by the entire Board. This process is led by the non-executive Chairman of the Board on behalf of the non-executive directors. While the Nominating and Corporate Governance Committee performs the initial review of the succession plans and makes recommendations to the Board as necessary, the entire Board has primary responsibility for CEO succession planning and develops both long-term and contingency plans for succession of the CEO. This process necessarily involves the development and review of criteria for the CEO position that reflect the Company’s business strategy and identifying and developing internal candidates or identifying the need for external candidates, as appropriate. Additionally, one of the elements that the CEO is evaluated upon each year by the Compensation Committee is the existence and completeness of a succession plan, including assessment and development of internal candidates for the CEO and top-level executive positions. The CEO’s evaluation and compensation for the next full year, including an evaluation of the completeness of aspects of the management succession plans and development programs that are the responsibility of the CEO, are communicated to the CEO by the non-executive Chairman of the Board after review and approval by the Compensation Committee and the full Board of Directors (other than the CEO).

The Board of Directors and Standing Committees of Directors

KBR’s Bylaws authorize the Board of Directors to appoint such committees as they deem advisable, with each committee having the authority to perform the duties as determined by the Board. A substantial portion of the analysis and work of the Board is done by standing Board committees. A director is expected to participate actively in the meetings of each committee to which he or she is appointed. At this time, the Board of Directors has four standing committees to which it has delegated certain duties and responsibilities: the Audit Committee, the Compensation Committee, the Health, Safety, Security, Environment and Social Responsibility Committee, and the Nominating and Corporate Governance Committee. Each of the standing committees is composed entirely of non-executive directors and, in the business judgment of the Board, independent, directors. The members and chairperson of the respective committees are indicated below:

 

Age

Director
Since

Audit
Committee

Compensation
Committee

Health, Safety, Security,
Environment and

Social Responsibility

Committee

Nominating and Corporate
Governance Committee

Mark E. Baldwin

65

2014

 

 

James R. Blackwell

60

2014

 

 

Loren K. Carroll    

75

2007

 

 

 

Lester L. Lyles

72

2007

 

 

Wendy M. Masiello

60

2017

 

 

Jack B. Moore

65

2012

 

 

Ann D. Pickard

63

2015

 

 

Umberto della Sala

70

2015

 

 

Member

Chairperson

Chairman of the Board

Financial Expert

 

The Board of Directors has approved a charter for each of the standing committees, which sets forth the duties and responsibilities delegated to each of the committees by the Board of Directors and governs each of the committee’s actions. The charter for each of the standing committees is available on KBR's website, www.kbr.com, by choosing “Our Company” under the “About” menu, then selecting “Corporate Governance” and “Board Committees.” The purpose, duties and responsibilities of each committee are briefly described below.

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Audit Committee

The Audit Committee currently comprises General Masiello, Ms. Pickard and Messrs. Baldwin and Carroll. Mr. Baldwin serves as Chairman. The Audit Committee met ten times in 2018.

The Audit Committee reviews and reports to the Board of Directors the scope and results of audits by our principal independent public accountants and our internal auditing staff and reviews with the principal independent public accountants the effectiveness of our system of internal controls. It reviews transactions between us and our directors and officers, our policies regarding those transactions and compliance with our Code of Business Conduct. The Audit Committee also engages our principal independent registered public accounting firm for each fiscal year, reviews the audit and other professional services rendered by our principal independent registered public accounting firm and periodically reviews the independence of our principal independent registered public accounting firm. Additional information about the Audit Committee and its responsibilities is included in the section of this proxy statement entitled “Audit Committee Report” and in the charter of the Audit Committee, which was adopted by the Board of Directors.

Audit Committee Financial Expert Determinations

Our Board has determined that each member of its Audit Committee is financially literate and qualifies as an “audit committee financial expert,” as defined in Item 407(d) of Regulation S-K and, as described above, that each member of the Audit Committee is independent, as defined by our Corporate Governance Guidelines, the NYSE’s listing standards and Rule 10A-3 under the Securities Exchange Act of 1934.

Compensation Committee

The Compensation Committee currently comprises Messrs. Blackwell, Lyles, Moore, and della Sala. Mr. Moore serves as Chairman. The Board of Directors has determined that each member of the Compensation Committee is independent as defined in the listing standards of the NYSE. The Compensation Committee met six times during 2018.

The Compensation Committee reviews and recommends to the Board of Directors the compensation and benefits of our executive officers, establishes and reviews general policies relating to our compensation and benefits and administers the compensation plans described in the Compensation Discussion and Analysis in this proxy statement. The Compensation Committee’s responsibilities include, but are not limited to:

evaluating and advising the Board regarding the compensation policies applicable to our executive officers, including guidance regarding the specific relationship of corporate performance to executive compensation;

reviewing and recommending to the Board: the corporate goals and objectives relevant to compensation for the CEO; the CEO’s performance in light of these established goals and objectives; the CEO’s compensation, including salary, bonus, incentive and equity compensation based on this evaluation and considering, with respect to the long-term incentive compensation component of the CEO’s compensation, KBR’s performance and relative stockholder return, the value of similar incentive awards to chief executive officers at comparable companies, the awards given to the CEO in past years and any other factors it deems relevant;

reviewing the CEO’s recommendations with respect to, and approving, the compensation to be paid to KBR’s other executive officers in accordance with the general compensation policies established by the Board;

reviewing and making recommendations to the Board with respect to incentive compensation and other stock-based plans;

assisting the full Board with respect to the administration of KBR’s incentive compensation and other stock-based plans;

maintaining appropriate, regular contact with KBR management;

reviewing and discussing with management the “Compensation Discussion and Analysis” and determining whether to recommend to the Board that it be included in KBR’s annual proxy statement or annual report on Form 10-K;

preparing and publishing, over the names of the members of the Compensation Committee, an annual executive compensation report as required by the SEC to be included in KBR’s annual proxy statement or annual report on Form 10-K;

evaluating its own performance and reviewing the adequacy of its charter, at least annually;

reviewing the risk assessment of KBR’s compensation plans to ensure that the programs do not create risks that are reasonably likely to have a material adverse effect on KBR (in 2018, our Compensation Committee determined that our compensation plans do not create risks that are reasonably likely to have a material adverse effect on KBR);

approving disclosures and making recommendations to the Board regarding the disclosures on KBR’s Advisory Vote To Approve Named Executive Officer Compensation and the Advisory Vote On The Frequency of Advisory Votes To Approve Named Executive Officer Compensation to be included in KBR’s annual proxy statement or annual report on Form 10-K in required years and to disclose on Form 8-K, if required, the frequency in which KBR will hold the Advisory Vote To Approve Named Executive Officer Compensation;

reviewing periodically the compensation paid to non-executive directors (including Board and committee chairpersons) in the form of annual retainers and meeting fees, if any, and making recommendations to the Board regarding any adjustments. In 2018, we performed a compensation review against the benchmark for our directors; and

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selecting a compensation consultant or other adviser to the Compensation Committee after considering the factors identified by the SEC (as well as any other factors identified by the NYSE) as affecting the independence of such consultant or adviser, including, but not limited to the following:

the provision of other services to KBR by the employer of the compensation consultant or other adviser;

the amount of fees received from KBR by the employer of the compensation consultant or other adviser, as a percentage of the total revenue of the employer of the compensation consultant or other adviser;

the policies and procedures of the compensation consultant or other adviser that are designed to prevent conflicts of interest;

any business or personal relationship of the compensation consultant or other adviser with a member of the Compensation Committee;

any stock of KBR owned by the compensation consultant or other adviser; and

any business or personal relationship of the compensation consultant or other advisor or the compensation consultant or other advisor’s employer with any of the executive officers of KBR.

Health, Safety, Security, Environment and Social Responsibility Committee

The Health, Safety, Security, Environment and Social Responsibility Committee currently comprises General Masiello, Ms. Pickard, and Messrs. Baldwin and della Sala. Ms. Pickard serves as Chairperson. The Health, Safety, Security, Environment and Social Responsibility Committee met twice in 2018.

The Health, Safety, Security, Environment and Social Responsibility Committee’s responsibilities include, but are not limited to:

reviewing the status of KBR’s health, safety, security, environmental, and social responsibility policies and performance, including processes to ensure compliance with applicable laws and regulations;

reviewing KBR’s health, safety, security, environmental, and social responsibility performance to determine consistency with policies and goals;

reviewing and providing input to KBR on the management of current and emerging health, safety, security, environmental, and social responsibility issues;

overseeing KBR’s activities in managing its major risk exposures within the health, safety, security, environmental, and social responsibility areas;

reviewing KBR’s political and charitable contributions and social responsibility activities; and

reviewing KBR’s public sustainability report.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee currently comprises Messrs. Blackwell, Lyles and Moore. General Lyles serves as Chairman. The Board of Directors has determined that each member of the Nominating and Corporate Governance Committee is independent as defined in the listing standards of the NYSE. The Nominating and Corporate Governance Committee met four times during 2018.

The Nominating and Corporate Governance Committee’s responsibilities include, but are not limited to:

developing, implementing and periodically reviewing KBR’s corporate governance guidelines;

developing and implementing a process to assess Board and committee effectiveness;

identifying and evaluating individuals qualified to become Board members, consistent with Board-approved criteria, the listing standards of the NYSE and any other applicable law, regulation or rule;

performing an annual evaluation of our independent directors;

determining the composition of the Board and its committees, including selection of the director nominees for the next annual meeting of stockholders, and changes to the size and composition of the Board or any of its committees; and

reviewing succession plans and management development programs for members of executive management and the CEO and providing regular reports on the progress of the succession planning and management development to the Board. 

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Stockholder Nominations of Directors

Stockholders may suggest candidates for nomination by the Nominating and Corporate Governance Committee by contacting the Committee in the manner provided below under “Contact the Board.” If selected for nomination by the Nominating and Corporate Governance Committee, as described below under “Process for the Selection of New Directors,” such candidate will be included in KBR’s proxy statement for the annual meeting of stockholders.

Nominations by stockholders may also be made at an annual meeting of stockholders in the manner provided in our Bylaws, although such nominees will not necessarily be included in KBR’s proxy statement. The Bylaws provide that a stockholder entitled to vote for the election of directors may make nominations of persons for election to the Board at a meeting of stockholders by complying with required notice procedures. Nominations shall be made pursuant to written notice to our Secretary at the address set forth on page 90 of this proxy statement and must be received at our principal executive offices not less than ninety (90) days, nor more than one hundred twenty (120) days, prior to the anniversary date of the immediately preceding annual meeting of stockholders. The notice shall set forth the information required by our Bylaws, including:

as to each person the stockholder proposes to nominate for election or reelection as a director:

the name, age, business address and residence address of the person;

the principal occupation or employment of the person;

the class and number of shares of KBR common stock that are beneficially owned by the person;

all other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended;

such person’s written consent to serve as a director if elected;

a description of all direct and indirect compensation and other material monetary or other arrangements between the stockholder and such person; and

such person’s completed director’s and officer’s questionnaire and agreement not to enter into certain arrangements; and

as to the stockholder giving the notice:

the name and record address of the stockholder;

the class and number of shares of KBR common stock that are beneficially owned by the stockholder;

a representation that the stockholder intends to appear in person or by proxy at the meeting to propose the nomination;

any hedging or other transactions entered into with the effect or intent to mitigate loss to, or manage risk or benefit of share price changes for, or to increase or decrease the voting power of, the stockholder with respect to KBR’s shares; and

a representation whether the stockholder intends to solicit proxies from the holders of at least the percentage of common stock required to elect the nominee.

The proposed nominee may be required to furnish other information as KBR may reasonably require to determine the eligibility of the proposed nominee to serve as a director. At any meeting of stockholders, the presiding officer may disregard the purported nomination of any person not made in compliance with these procedures.

Qualifications of Directors

Candidates nominated for election or re-election to the Board of Directors should possess the following qualifications:

personal characteristics:

the highest personal and professional ethics, integrity and values;

an inquiring and independent mind;

practical wisdom and mature judgment;

broad training and experience at the policy-making level in business, government, education or technology;

expertise that is useful to KBR and complementary to the background and experience of other Board members so that an optimum balance of members on the Board can be achieved and maintained;

willingness to devote the required amount of time to carrying out the duties and responsibilities of Board membership;

commitment to serve on the Board for several years to develop knowledge about KBR’s principal operations;

willingness to represent the best interests of all stockholders and objectively appraise management performance; and

involvement only in activities or interests that do not create a conflict with his or her responsibilities to KBR and its stockholders.

The Nominating and Corporate Governance Committee is responsible for assessing the appropriate mix of skills and characteristics required of Board members in the context of the needs of the Board at a given point in time and shall periodically review and update the criteria. Diversity in personal background, race, gender, age and nationality for the Board as a whole may be taken into account in considering individual candidates, but KBR does not have a policy with regard to any particular aspect of diversity of its directors.

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Process For The Selection of New Directors

The Board is responsible for filling vacancies on the Board. The Board has delegated to the Nominating and Corporate Governance Committee the duty of selecting and recommending prospective nominees to the Board for approval. The Nominating and Corporate Governance Committee considers suggestions of candidates for Board membership made by current Committee and Board members, KBR management, and stockholders. Each of the nominees for director at this meeting is an incumbent director recommended by the non-executive directors. The Committee may also retain an independent executive search firm to identify candidates for consideration. The Nominating and Corporate Governance Committee will also consider candidates nominated by the stockholders in accordance with our Bylaws. A stockholder who wishes to recommend a prospective candidate should notify KBR’s Secretary, as described in this proxy statement.

When the Nominating and Corporate Governance Committee identifies a prospective candidate, the Committee determines whether it will carry out a full evaluation of the candidate. This determination is based on the information provided to the Committee by the person recommending the prospective candidate and the Committee’s knowledge of the candidate.

This information may be supplemented by inquiries to the person who made the recommendation or to others. The preliminary determination is based on the need for additional Board members to fill vacancies or to expand the size of the Board and the likelihood that the candidate will meet the Board membership criteria listed above. The Committee will determine, after discussion with the non-executive Chairman of the Board and other Board members, whether a candidate should continue to be considered as a potential nominee. If a candidate warrants additional consideration, the Committee may request an independent executive search firm to gather additional information about the candidate’s background, experience, and reputation and to report its findings to the Committee. The Committee then evaluates the candidate and determines whether to interview the candidate. Such an interview would be carried out by one or more members of the Committee and others as appropriate. Once the evaluation and interview are completed, the Committee recommends to the Board which candidates should be nominated. The Board makes a determination of nominees after review of the recommendation and the Committee’s report.

Anti-Hedging Policy

Our anti-hedging policy prohibits all members of our Board of Directors, employees, and agents from (i) speculative trading in our securities; (ii) engaging in hedging transactions using our securities; (iii) ”short selling” our securities; and (iv) trading derivative securities, such as put options, call options, swaps, or collars related to our securities.

Code of Ethics

KBR has adopted a “code of ethics,” as defined in Item 406(b) of Regulation S-K. KBR’s code of ethics, known as the Code of Business Conduct, applies to all directors, officers, and employees of KBR, including, but not limited to, its principal executive officer, principal financial officer, principal accounting officer, and controllers, and also applies to all employees of KBR’s agents. KBR has posted its Code of Business Conduct on its website, www.kbr.com. In addition, KBR intends to satisfy the disclosure requirements regarding any amendment to, or waiver from, a provision of the Code of Business Conduct that relates to any element of the definition of code of ethics set forth in Item 406(b) of Regulation S-K, including the requirements of Item 5.05 of Form 8-K, by posting such information on its website, www.kbr.com. The most recent revisions to the Code of Ethics were approved by the Board of Directors in February 2016.

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Contact the Board

To foster better communication with our stockholders, KBR has established a process for stockholders and other interested parties to communicate with the Audit Committee and the Board of Directors. The process has been approved by our Board and its Audit Committee and is designed to meet the requirements of the NYSE and the SEC. You may communicate with our Board of Directors or the non-executive directors via mail (Board of Directors c/o Director of Business Conduct, KBR, Inc., P.O. Box 3406, Houston, Texas 77253-3406), telephone 1-855-231-7512 (toll-free from the U.S. or Canada) or 1-503-619-1884 (calling collect from any other country), or e-mail (fhoukbrbod@kbr.com). Information regarding these methods of communication is also on our website, www.kbr.com, under “Corporate Governance.”

Our Director of Business Conduct reviews all communications directed to the Audit Committee and the Board of Directors. The Chairman of the Audit Committee is promptly notified of any significant communication involving accounting, internal controls, auditing matters or any other significant communications. Communications addressed to a named director are promptly sent to the director. Communications directed to the non-executive directors are promptly sent to the non-executive Chairman of the Board. A report summarizing the significant communications is sent to each director quarterly, and copies of communications are available for review by any director, except that those designated for the non-executive directors are not available to executive directors. The process has been approved by both the Audit Committee and the Board and is designed to meet the requirements of the NYSE and the SEC. Concerns may be reported anonymously or confidentially.

 

 

 

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Compensation Discussion and Analysis

Executive Summary

Named Executive Officers

This Compensation Discussion and Analysis provides a detailed description of our compensation philosophy, objectives, policies, and practices in place during 2018, and explains the factors considered by the Compensation Committee of our Board of Directors (our “Compensation Committee” or the “Committee”) in making compensation decisions during 2018. This Compensation Discussion and Analysis focuses on the compensation of our Named Executive Officers or “NEOs” for 2018, namely:

Name

Title

Stuart Bradie

President and Chief Executive Officer

Mark Sopp

Executive Vice President and Chief Financial Officer

Farhan Mujib

President — Delivery Solutions

Jay Ibrahim

President — Energy Services

Ian Mackey

Executive Vice President, Chief Corporate Officer

These NEOs, together with the other members of our Senior Executive Management whose compensation is determined by our Compensation Committee and our Board of Directors, are referred to as our “Senior Executive Management.”

Financial and Performance Highlights

Performance Highlights

2018 marked the second consecutive year that KBR has delivered at or above expectations. We have not only met or exceeded our EPS target, but also margins, cash flow targets and revenue growth. The drivers for this outstanding level of performance start with our resilience during macroeconomic and industry challenges and endurance with which we carried out our robust strategic vision.

Our revenue growth was attributable to strong organic growth and our acquisitions of the operational management contract of our Aspire Defence project joint venture in the U.K. and SGT, a leading provider of high-value engineering, mission operations, scientific and IT software solutions in the governments services market. These acquisitions further added to our strategic shift to increase long-term predictable profits and cash flow and to position KBR for long-term growth.

Our Government Services business grew 58% in 2018, 17% organic. Our team continued to win re-competes, capture market share, drive new growth synergies and capitalize on incidental situations.

We saw on-contract growth in our logistics and engineering services business areas, strong new tasking of awards and execution in systems integration for the Army, the Air Force and the joint operations communities, ramp up of recent new awards, such as NASA Mission Systems Operations Contract, Diego Garcia and new C4ISR work for the Air Force. Lastly, we were asked by the Air Force to lead in the restoration efforts of the Tyndall Air Force Base resulting from the damage caused by Hurricane Michael. We delivered on this urgent and quite sizable project by assembling teams from both our Government Services and Hydrocarbons Services businesses demonstrating our agility and synergy across KBR.

Our Technology business continued its consistent track record of growth and strong profitability, growing 10%, all organic. The strong margins in this business resulted from bundled license, equipment, engineering and catalyst sales packages coupled with a highly-efficient overhead cost structure. Additionally, our license content mix in 2018 aided margins.

In the Hydrocarbons Services business we remained committed to our commercial discipline and strong execution, which enabled us to avoid the volatility in the industry. As a result, profits correlated much higher to revenue levels. 75% of our Hydrocarbons business' backlog represents services, which provide more stable profits and cash flow.

Our increase in backlog of 28% is underpinned by our private financing initiatives, providing greater long-term predictability.

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Our milestones in 2018 further included:

Our unwavering efforts to improve cash flow led to a decrease in our Day Sales Outstanding (“DSO”) of 10 days from the preceding year and 95% cash conversion. With increased focus on collections, distributions from joint ventures and negotiated favorable cash advances from customers, our Government Services and Technology businesses operated with negative working capital in the aggregate;

Our Government Services business received, among other awards, three NASA awards demonstrating our strong presence in the space community: 1) the Large Business Prime Contractor of the Year Award by the NASA Johnson Space Center; 2) the Large Business Prime Contractor of the Year Award by the NASA Goddard Space Flight Center; and 3) the NASA Ames award for our Mentor-Protege efforts.

Our Technology business benefited from strong market demands driven by growing global demand for consumer goods, increasing global population and changing regulations allowing for a pipeline of growing opportunities. We continued to innovate in commercializing developed leading-edge sustainable solutions by building the first K-SAATTM plant in China. We also received our first order to build a K-SAATTM plant in the U.S. Our K-SAATTM technology allows refiners to deliver high-octane motor and aviation fuels, using our efficient and proprietary catalyst. Our ROSE® technology, which removes sulfur from the heavy bottom of barrel crude is our revolutionary solution to IMO 2020 regulations.

Our Koch Enid Construction project received the 2019 Associate Builders and Constructors (“ABC”) Safety Training and Evaluation Process award for our improvements to the safety performance on the project as well as the 2019 ABC Eagle award, the top U.S. national award recognizing our safety, quality, subcontractor management, and usage of production tools in the field.

 

 

 

Pay for Performance in 2018

2018 was a year of strong financial results, which positioned KBR for long-term growth. In addition to the strong financial results noted above, our one-year TSR ranked second among our TSR Peer Group. We met or exceeded every financial goal we set in our 2018 Short-Term Incentive (“STI”) Plan. While our achievements were above expectations, our Compensation Committee exercised negative discretion on our safety and operating cash flow performance metric payouts in light of a fatal employee incident and to be fiscally conservative because of KBR's acquisition of SGT in April 2018. Our three-year Job Income Sold from January1,2016, to December31,2018, exceeded the target, resulting in a payout in 2019 of the KBR Long-Term Performance Cash Awards (“PAs”) granted in 2016. Our three-year TSR for the same performance period ranked below the median of our TSR Peer Group and earned a zero payout.

As a result, while we had our second consecutive year of increased performance and growth, our CEO’s payouts from the 2018 STI Plan and PAs granted in 2016 decreased from the previous year, which is appropriately linked to Company performance over the past three years. 2016 was the pivotal year that triggered the upward trajectory since the beginning of 2017; as such, our results in 2016, particularly when compared to that of our TSR Peer Group, were lagging. Our CEO's journey with KBR has been remarkable due to his robust strategic vision to return KBR to growth to become industry leading in the markets in which we operate. Since his appointment four and a half years ago, his vision, leadership, and actions returned KBR to its core capabilities: be cost-efficient, win our customers' trust, and build a solid foundation with great potential. To further demonstrate the link between pay and performance, due to satisfaction of applicable performance goals, our CEO earned 100% of his KBR Performance Restricted Stock Units (“PSUs”) that were scheduled to vest in June 2018. The CEO's PSUs have a performance requirement whereby KBR's stock price must have TSR of at least 6% for the twelve full calendar months prior to vesting in order for the PSUs to vest.

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Overview of Executive Compensation Philosophy, Policies and Practices

Key Considerations in Determining Executive Compensation

Our Compensation Committee regularly reviews the elements of the individual compensation packages for our CEO and Senior Executive Management. Our Compensation Committee delegates to our CEO the duty to approve and administer the individual compensation packages for other executives and employees, excluding our Senior Executive Management, subject to the Committee’s annual review of the delegation. In determining executive compensation, our Compensation Committee takes into consideration:

Alignment with stockholders’ interest;

Importance of consistent performance;

Challenging performance metrics;

Appropriate mix of short-term and long-term incentives; and

Targeting base salary, short-term incentives, long-term incentives, and total compensation levels near the 50th percentile of the competitive market for good performance and above the 50th percentile of the competitive market for consistent, outstanding performance over time, but also taking into consideration other factors, including differences in our NEOs' position responsibilities compared to comparable executive position responsibilities at our peers, experience, retention risk, and internal equity.

Our executive compensation program is regularly reviewed to ensure that the program’s components continue to align with the above objectives and that the program is administered in a manner consistent with established compensation policies.

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Policies and Practices

Below is a summary of our compensation policies and practices in place during 2018 for our Named Executive Officers:

 

 

Clawbacks

If our Committee determines that a NEO (or any other employee) has been paid incentive compensation (both cash and equity) based on restated financial results, the Committee may seek recovery of any overpayments.

Stock Ownership Guidelines

We require our CEO to own a significant amount of stock equivalent to five times his base salary and our other NEOs to own an amount of stock equivalent to three times their base salary to align their interests with our stockholders.

No Pledging

No officers may pledge Company stock.

No Hedging

No officers may hedge Company stock.

No Option Repricing

We prohibit the repricing of KBR stock options.

Market Comparison

Base salary, short-term incentives, long-term incentives and total compensation levels are generally targeted near the median of peer companies for good performance, and above the 50th percentile of the competitive market for consistent, outstanding performance over time, but also consider other factors, including differences in our position responsibilities compared to our peers, experience, retention risk, and internal equity.

Performance-Based Compensation

A majority of our NEOs’ compensation is performance-based compensation and is paid on the achievement of absolute and relative performance goals.

Double-Trigger

The severance and change-in-control agreements require a double-trigger for a change-in-control termination (i.e., the occurrence of both a change-in-control and a termination of employment within two years following the change-in-control event) in order for an executive to receive change-in-control benefits.

No Employment Agreements

No employment agreements are provided.

No Tax Gross-Ups

No excise tax gross-up agreements are provided.

No House Buyouts

No house buyouts are provided to any NEOs.

 

We encourage you to read the following detailed discussion and analysis of our executive compensation program, including the tables that follow the Compensation Discussion and Analysis.

Third-Party Consultants

Under its charter, our Compensation Committee is authorized to retain a compensation consultant and has the sole authority to approve the consultant’s fees and other retention terms. While our Compensation Committee believes that using third-party consultants is an efficient way to keep current regarding competitive compensation practices, our Compensation Committee does not accord undue weight to the advice of outside professional advisors, but instead makes changes in our compensation program in light of whether the program’s intended objectives are being achieved. In 2018, our Compensation Committee used the services of one compensation consulting firm, Meridian Compensation Partners, LLC (“Meridian”). Our Compensation Committee engaged and managed its relationship with the Meridian executive compensation consultants directly. In addition, Meridian reported directly to the Compensation Committee with respect to all executive and non-executive director compensation matters.

The nature and scope of Meridian’s engagement by the Compensation Committee included advising the Compensation Committee, as it needed, with respect to all executive compensation matters under the Compensation Committee’s purview. The material elements of the instructions or directions given to Meridian with respect to the performance of its duties to the Compensation Committee included engaging Meridian to provide the Compensation Committee with: (1) a 2018 proxy update; (2) a review of the peer groups used to assess the competitiveness of our executive compensation programs for the 2018-2019 compensation cycle; (3) regular updates of the valuation of our long-term performance cash awards; (4) a competitive market study of executive compensation for the Senior Executive Management; (5) regular updates on notable legislative and regulatory activities; (6) a review of the risk profile of the proposed long-term incentive performance metrics for 2019; (7) a review of the CEO’s 2019 executive compensation recommendations for our Senior Executive Management; (8) a review of the CEO’s compensation for 2019; and (9) a review of non-executive director compensation for 2019.

Outside of providing executive and director advisory services to our Compensation Committee, Meridian provided no other services to us or our affiliates. In May 2018, after the Compensation Committee reviewed the independence factors approved by the SEC for implementation by the NYSE in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) for compensation consultants and considered Meridian’s independence based on such factors, the Compensation Committee confirmed Meridian’s independence and lack of a conflict of interest in 2018, and approved the continued retention of Meridian.

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Core and Diversified Peer Groups

In the design and administration of our 2018 executive compensation programs for our Named Executive Officers, our Compensation Committee considered competitive market data from our Core and Diversified Peer Groups. Our Compensation Committee also used its discretion and business judgment in determining overall compensation.

The Core Peer Group is composed of 13 companies with primary operations in the provision of highly technical and professional services to the U.S. government and engineering, construction, and services industry, against which we believe KBR most competes for employees and business. The compensation data for our Core Peer Group was obtained from publicly available sources, including proxy statements and Form 4 and 8-K disclosures, and was not adjusted. The Core Peer Group used for 2018 compensation decisions consisted of the companies in the table below, which includes revenue, asset, and market cap data relevant at the time these companies were relied upon for making the decisions on 2018 compensation.

 

Data in billions — as of 12/29/2017

Company

Revenues

 

Assets

Market Cap

AECOM Technology Corporation(1)

$

18.203

 

$

14.397

$

5.856

Booz Allen Hamilton Holding Corporation(2)

$

5.804

 

$

3.373

$

5.560

CACI International Inc(3)

$

4.355

 

$

3.911

$

3.259

CH2M Hill Companies, Ltd.(4)

$

3.766

 

$

2.698

$

Chicago Bridge & Iron Company N.V.

$

6.673

 

$

5.972

$

1.637

EMCOR Group, Inc.

$

7.687

 

$

3.966

$

4.808

Fluor Corporation

$

19.521

 

$

9.328

$

7.225

Jacobs Engineering Group Inc.(5)

$

10.023

 

$

7.381

$

7.950

Leidos Holdings, Inc.

$

10.170

 

$

8.990

$

9.768

ManTech International Corporation

$

1.717

 

$

1.744

$

1.295

McDermott International, Inc.

$

2.985

 

$

3.223

$

1.869

Quanta Services, Inc.

$

9.466

 

$

6.480

$

6.051

Science Applications International Corporation(6)

$

4.450

 

$

2.042

$

3.275

Median (including KBR)

$

6.239

 

$

3.938

$

4.042

KBR, INC.

$

4.171

(7) 

$

3.674

$

2.778

 
(1)

AECOM Technology Corporation’s Revenues and Assets are as of 9/30/2017 and Market Cap is as of 12/29/2017.

 

(2)

Booz Allen Hamilton Holding Corporation’s Revenues and Assets are as of 3/31/2017 and Market Cap is as of 12/29/2017.

 

(3)

CACI International Inc.’s Revenues and Assets are as of 6/30/2017 and Market Cap is as of 12/29/2017.

 

(4)

CH2M Hill Companies, Ltd.’s Revenues and Assets are as of 9/29/2017 (unaudited). CH2M Hill Companies, Ltd.’s Market Cap is not listed above because its stock was not publicly traded.

 

(5)

Jacobs Engineering Group Inc.’s Revenues and Assets are as of 9/29/2017 and Market Cap is as of 12/29/2017. Jacobs Engineering Group Inc. acquired CH2M Hill Companies, Ltd. via a cash and stock transaction on August 2, 2017, and the acquisition was completed on December 18, 2017.

 

(6)

Science Applications International Corporation’s Revenues and Assets are as of 2/3/2017 and Market Cap is as of 12/29/2017.

 

(7)

KBR’s revenue does not include our share of revenue from our unconsolidated joint ventures, which was approximately $2.4 billion in 2017.

In addition to publicly-available data for the Core Peer Group, a supplemental group of companies was selected to provide additional data for assessing the competitiveness and reasonableness of our compensation programs for our Named Executive Officers. The Diversified Peer Group consisted of 21 companies that were participants in the Equilar Executive Compensation Survey (which was used by Meridian to analyze peer company compensation data that was not publicly available), crossing multiple manufacturing and operations-focused industries of similar size and scope as KBR. The companies were generally selected based on company revenue, size, complexity and performance, and the nature of their principal business operations with specific emphasis on engineering and construction, heavy industrial, manufacturing, and government services. Special consideration was also given to companies based in Houston. The Compensation Committee believes the Diversified Peer Group appropriately represents both the local Houston and the broader market for key management and technical talent. The companies that comprised the Diversified Peer Group used for 2018 compensation decisions were: AECOM Technology Corporation; Boise Cascade Co; Booz Allen Hamilton Holding Corporation; CH2M Hill Companies, Ltd.; Dover Corporation; EMCOR Group, Inc.; Flowserve Corporation; Fluor Corporation; Hubbell Inc.; Leidos Holdings Inc.; Lennox International Inc.; McDermott International, Inc.; Meritor Inc.; Newell Rubbermaid Inc.; Rockwell Collins, Inc.; Stantec Inc.; Terex Corporation; Tetra Tech, Inc.; Timken Corporation; Tutor Perini Corporation; and Visteon Corporation.

During 2018, our Compensation Committee asked Meridian to review the appropriateness of the Core and Diversified Peer Groups used in the assessment of the competitiveness of our executive compensation programs. The review considered several factors relating to the companies in both our Core and

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Diversified Peer Groups, including an analysis of certain financial metrics drawn from the Equilar Executive Compensation Survey (i.e., revenue, net assets, market capitalization, enterprise value, and number of employees), the business strategies of the peer group companies, the effects of corporate transactions, and the availability of market data. As a result of the review, effective for 2019 compensation decisions, our Compensation Committee updated our Core Peer Group by removing CH2M Hill Companies, Ltd. and Chicago Bridge & Iron Company N.V. because they were acquired by Jacobs Engineering Group Inc. and McDermott International, Inc., respectively, and including Vectrus, Inc., a global government services company. Our Core Peer Group for 2019 compensation decisions includes: AECOM Technology Corporation; Booz Allen Hamilton Holding Corporation; CACI International Inc.; EMCOR Group, Inc.; Fluor Corporation; Jacobs Engineering Group Inc.; Leidos Holdings, Inc.; ManTech International Corporation; McDermott International, Inc.; Quanta Services, Inc.; Science Applications International Corporation; and Vectrus, Inc. Our Compensation Committee also made changes to our Diversified Peer Group. The changes to our Diversified Peer Group were made due to some of our peers not participating in the Equilar Executive Compensation Survey. Our Diversified Peer Group for 2019 compensation decisions includes: Boise Cascade Co; Booz Allen Hamilton Holding Corporation; Dover Corporation; EMCOR Group, Inc.; Flowserve Corporation; Harris Corporation; Hubbell Inc.; Huntington Ingalls Industries, Inc.; Leidos Holdings Inc.; Lennox International Inc.; McDermott International, Inc.; Meritor Inc.; Quanta Services, Inc.; Science Applications International Corporation; Teradata Corporation; Tetra Tech, Inc.; Timken Corporation; Unisys Corporation; Visteon Corporation; and Weatherford International plc.

Role of Compensation Committee and CEO

During 2018, our CEO made recommendations to our Compensation Committee regarding the compensation and incentives for our Senior Executive Management other than himself. Our CEO also:

recommended performance measures, target goals and award schedules for short-term and long-term incentive awards, and reviewed performance goals for consistency with our projected business plan;

reviewed competitive market data for Senior Executive Management positions; and

developed specific recommendations regarding the amount and form of equity compensation to be awarded to our Senior Executive Management.

Based on the CEO’s recommendations and in concert with him, our Compensation Committee’s role is to annually review and approve the compensation and incentive awards for our Senior Executive Management.

No Significant Changes Made in 2018 to KBR’s Compensation Program

In 2017, the Compensation Committee made changes to our compensation program to further emphasize the link between pay and Company performance. These changes related to the short-term incentive plan and included the increase of our EPS metric weighting from 25% to 40%, decrease of the individual Key Performance Indicators (“KPIs”) weighting from 45% to 30%, addition of more financially measurable metrics to the KPIs, and CEO's KPIs being based solely on earnings before interest, tax, depreciation and amortization (“EBITDA”) targets. The Compensation Committee believed that the changes made in 2017 strongly reflect our pay for performance strategy. Accordingly, no significant changes were made to our compensation program for 2018.

Stockholder Advisory Vote on Compensation

We believe we have a well-designed executive compensation program. The most recent stockholder advisory proposal on executive compensation (“Say-on-Pay Proposal”) was presented to our stockholders during the Company’s annual meeting of stockholders on May 16, 2018. At that 2018 annual meeting, approximately 93% of the votes cast (in person and by proxy) on the Say-on-Pay Proposal were voted in favor of the proposal.

Our Compensation Committee considered the results to be an affirmation of the stockholders’ support of our compensation policies and decisions. Our Company maintains a regular dialogue with our stockholders on a broad range of topics, including governance and executive compensation, and we will continue to consider the outcome of our Say-on-Pay Proposal when determining future compensation policies and decisions for our NEOs.

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Summary of 2018 Compensation to Named Executive Officers

2018 Base Salary and Target Short- and Long-Term Incentives

The table below reflects target annual compensation and is not intended to replace the more detailed information provided in the Summary Compensation Table. The target dollar amounts for restricted stock units are rounded to the next whole share upon grant.

 

 

   

 

Target 2018 Long-Term
Performance Incentives

   
 

2018 Base

Salary

Target 2018

Short-Term

Incentive

Restricted Stock
Units Target
Dollar Amount

Performance
Cash Award
Target Dollar
Amount

Total Target
Amount

Mr. Bradie

$

1,050,000

$

1,312,500

$

2,000,000

$

4,000,000

$

8,362,500

Mr. Sopp

$

652,800

$

522,240

$

333,333

$

666,667

$

2,175,040

Mr. Mujib

$

561,000

$

504,900

$

466,667

$

933,333

$

2,465,900

Mr. Ibrahim

$

519,435

$

415,548

$

283,333

$

566,667

$

1,784,983

Mr. Mackey

$

500,000

$

400,000

$

333,333

$

666,667

$

1,900,000

Performance-Based Compensation

A significant portion of our NEOs’ target annual compensation in 2018 was performance-based compensation. The following circle charts show the percentage of our CEO’s and other NEOs’ 2018 total target annual compensation that is performance-based compensation and the percentage that is not performance-based compensation. The circle charts reflect target annual compensation, except where actual is noted, and are not intended to replace the more detailed information provided in the Summary Compensation Table. “Other NEOs” includes all NEOs except for the CEO.

 

 

Elements of Compensation

Our executive compensation program has been designed to ensure that KBR is able to attract and retain ideal executives for applicable positions and that its compensation plans support KBR’s strategies, focus efforts, help achieve business success, and align with KBR’s stockholders’ interests. There is no pre-established formula for the allocation between cash and non-cash compensation or short-term and long-term compensation. Instead, each year our Compensation Committee determines, at its discretion and business judgment, the appropriate level and mix of short-term and long-term incentive compensation for our Senior Executive NEOs to reward near-term superior performance and to encourage commitment to our long-range strategic business goals. To determine the appropriate combination of elements, we consider our philosophy to condition the majority of Named Executive Officer compensation on Company performance.

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As illustrated in the below charts, our 2018 executive compensation program consisted of the following core elements (at target): base salary, short-term incentives (annual), and long-term incentives. The circle charts are not intended to replace the more detailed information provided in the Summary Compensation Table. “Other NEOs” includes all NEOs except the CEO.

 

 

 

 

 

 

 

In addition to the core elements outlined above, our 2018 executive compensation program included the following supplemental benefits: severance and change-in-control protection and other generally available benefits, which are not reflected in the circle charts. Each element of our executive compensation program is described below.

A. Base Salary

We pay our Senior Executive Management market-competitive base salaries for the skills and experience necessary to meet the requirements of the executive’s role. To determine base salary for our Senior Executive Management, our Compensation Committee relied primarily on (1) market data for comparable positions within the Core and Diversified Peer Groups, (2) individual performance, and (3) internal pay equity. In addition to considering market comparisons in making salary decisions, our Compensation Committee exercised discretion and judgment based on the following factors:

level of responsibility;

experience in current role and equitable compensation relationships among our executives;

performance and leadership; and

external factors involving competitive positioning, general economic conditions, and marketplace compensation trends.

No specific formula is applied to determine the weight of each factor, and the factors are considered by our Compensation Committee in its discretion. Salary reviews are conducted annually in which individual performance is evaluated; however, individual salaries are not necessarily adjusted each year. Our Compensation Committee generally established base salaries at competitive levels, primarily using the median pay levels of comparable positions in the Core and Diversified Peer Groups as reference points.

In 2018, the Compensation Committee made modest increases to the Named Executive Officers’ base salaries, except for Mr. Mackey. Mr. Mackey, who became our Chief Corporate Officer in December 2016 and whose responsibilities increased with acting as lead director for KBR in our Brown & Root Industrial Services (“BRIS”) joint venture and managing KBR's Information Technology, Real Estate and Travel departments in addition to Human Resources, received a larger base salary increase, as noted below.

 

The following are the base salaries for our Named Executive Officers, effective January 1,2018:

Name Increase (% of 2017
Base Salary)
  2018 Base Salary   Basis for Decision

Mr. Bradie

$

50,000 (5%)

 

$

1,050,000

 

Core Peer Group data, performance and first base salary increase since he started with KBR in 2014.

Mr. Sopp

$

12,800 (2%)

 

$

652,800

 

Core Peer Group data and performance.

Mr. Mujib

$

11,000 (2%)

 

$

561,000

 

Core Peer Group data and performance.

Mr. Ibrahim

$

10,185 (2%)

 

$

519,435

 

Core Peer Group data and performance.

Mr. Mackey

$

50,000 (11%)

 

$

500,000

 

Diversified Peer Group data, increased responsibilities, and performance.

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B. Short-Term Incentives (Annual)

Our Compensation Committee established the KBR Senior Executive Performance Pay Plan (the “Performance Pay Plan”) to reward Senior Executive Management for improving financial results for stockholders of KBR and to provide a means to link cash compensation to KBR’s short-term performance. The Performance Pay Plan is a performance program under the stockholder-approved KBR, Inc. 2006 Stock and Incentive Plan, as amended and restated (the “KBR Stock and Incentive Plan”). We provide for short-term incentives in order to motivate and reward achievement of, and performance in excess of, KBR’s annual goals.

In December 2017, our Compensation Committee met to determine the 2018 target award percentages of base salary for our Named Executive Officers under the Performance Pay Plan. The target award percentages of base salary among our Named Executive Officers were generally set to be consistent with the median target awards of similar positions within our Core and Diversified Peer Groups as provided below. The short-term incentive award opportunities were based on a percentage of base salary assuming attainment of specified threshold, target, and maximum performance levels, which were, respectively: (i) for Mr. Bradie, 31.25%, 125%, and 250%; (ii) for Mr. Mujib, 22.5%, 90%, and 180%; and (iii) for Messrs. Ibrahim, Mackey and Sopp, 20%, 80%, and 160%.

Name

Increase to Target

Short-Term Award

% of Base Salary

2018 Target

Short-Term Award

% of Base Salary

 

Basis for Decision

Mr. Bradie

0%

125%

 

Core Peer Group data and performance.

Mr. Sopp

0%

80%

 

Core Peer Group data and internal equity.

Mr. Mujib

0%

90%

 

Core Peer Group data and internal equity.

Mr. Ibrahim

0%

80%

 

Core Peer Group data and internal equity.

Mr. Mackey

0%

80%

 

Diversified Peer Group data and internal equity.

 

Fiscal year 2018 was the fourth full year after Mr. Bradie’s arrival at KBR in June 2014 and after the initiation of our strategic plan in December 2014. The metrics below reflect the continued vision and strategy of our Company. The metrics remained the same as our 2017 short-term incentive plan, which focused our NEOs on the key measures of success in connection with the execution of our strategic plan.

In addition, our Compensation Committee took measures to ensure that targets remained challenging and competitive. Our Compensation Committee adopted the following performance metrics (and weightings) for our CEO and other NEOs:

 

Performance Metric

Weighting

 

Rationale

KBR Adjusted EPS

Measures net income divided by the weighted average number of fully diluted Company shares outstanding (excluding adjustments as noted under the section titled “Non-GAAP Reconciliation: Adjusted EBITDA and Adjusted EPS” at the end of this proxy statement).

40%

 

This metric helps to align our NEOs with the interests of our stockholders because strong EPS generally increases the value of our stock. EPS was set at a challenging level given the difficult energy market. Buybacks are considered in reviewing EPS achievement to provide for an accurate comparison against the pre-established target.

KPIs

KPIs are individual performance metrics specific to each NEO. For the CEO, the KPIs are solely based on earnings before interest, tax, depreciation and amortization (“EBITDA”). The KPIs for the other NEOs are described on pages 50, 51 and 52.

30%

 

KPIs allow the Company to incentivize individual performance by rewarding individual contributions to KBR’s key strategy focus areas.

KBR Operating Cash Flow (“OCF”)

KBR OCF measures the amount of cash generated by KBR’s operations.

20%

 

KBR’s OCF Target is based on its 2018 budgeted Cash Flow from Operations. This metric was aligned with our strategic transformation plan. This metric was established to ensure that our NEOs focus on generating cash flow.

 
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Performance Metric

Weighting

 

Rationale

Completed SAFE Tours

SAFE (Shaping Accident Free Environments) Tours measure the number of SAFE tours completed by KBR leadership.

5%

 

This is intended to be a forward-looking metric to promote the safety of all Company employees and affiliates. Safety incentives also help reduce costs for the Company. KBR’s 2018 Completed SAFE Tours target number was derived from the goal to have approximately one SAFE tour per week. While we met the maximum SAFE Tours in 2017, we maintained Target at the same level as in 2017 because we believe that by maintaining the target level we emphasize the quality of the tours rather than just the quantity. Threshold is Target minus six, and Maximum is Target plus six. A SAFE Tour is a project, office, or site visit by a NEO where the NEO must ensure implementation of KBR’s Zero Harm 24/7 initiative. The objective of the SAFE Tour is to exhibit visible leadership and commitment to health, safety, security and environment from the highest level of our Company. It requires a significant commitment from each NEO.

KBR Consolidated Safety

Safety measures the total recordable incident rate (“TRIR”), which is calculated as the number of recordable incidents for every 200,000 work-hours, for consolidated KBR.

5%

 

This historic metric measures the safety of all Company employees and affiliates. Safety incentives also help reduce costs for the Company.

 

We believe the above metrics are the most important measures to drive KBR’s growth and to increase our stockholders’ value.

Target Award Level

When establishing target levels for the short-term incentive award schedule for 2018, the Compensation Committee considered, among other things, projected Company performance, strategic business objectives, and forecast general business and industry conditions. Target award levels generally reflect the objectives set by our Compensation Committee and are generally intended to approximate the 50th percentile of our Core Peer Group (using the Diversified Peer Group data for additional input) for good performance and above the 50th percentile for consistent, outstanding performance, but our Compensation Committee also considers other factors as noted earlier in this Compensation Discussion and Analysis. At the time the target levels are established, the outcome is intended to be substantially uncertain but achievable and require better than expected performance from our NEOs. Our Compensation Committee adopted target levels for our short-term incentive award schedule that maintained the same rigor as the performance targets from the prior year, especially in light of the challenging hydrocarbons market.

For KBR Adjusted EPS, our Compensation Committee set the target level at $0.02 above the midpoint of the adjusted EPS guidance of $1.35 to $1.45, which was included in Exhibit 99.1 to our Form 8-K filed on February 23, 2018. We considered an adjusted EPS of $1.42 a rigorous target level because our 2017 EPS of $3.06 included: non-cash benefits of $1.58 due to the reassessment of a valuation allowance upon achieving cumulative pretax income, $0.13 due to the tax rate change associated with the Tax Reform Act, and $0.18 due to a one-time, legacy settlement payment from PEMEX. Excluding these items, our 2017 adjusted EPS was $1.31 (see reconciliation under the section titled “Non-GAAP Reconciliation: EBITDA and Adjusted EPS” at the end of this proxy statement). Our 2018 KBR Adjusted EPS target of $1.42 reflected an 8.4% increase from the adjusted 2017 EPS of $1.31.

For KBR's Operating Cash Flow (“OCF”), our Compensation Committee set the target level at 2% above the midpoint of our OCF guidance of $125MM to $175MM, which was included in Exhibit 99.1 to our Form 8-K filed on February 23, 2018. We considered an OCF of $153.1MM to be an appropriate target level given that our 2017 OCF of $193MM included the one-time, legacy settlement payment from PEMEX of $435MM. Excluding the PEMEX settlement, the $153.1MM reflected a rigorous goal.

The 2018 target level for the Consolidated Safety TRIR performance metric was set at .214, which was slightly better than the 2017 TRIR result of .215, because with industry-leading performance, we adopt a continuous improvement goal philosophy. As noted in our 2018 proxy statement, we showed a 2017 TRIR result of .195 under our 2017 short-term incentive of award schedule because the .195 TRIR excluded safety incidents for the first six months of 2017 that were attributable to Wyle, Inc. and Honeywell Technology Solutions Inc. (“HTSI”), companies we acquired in the third quarter of 2016, to allow management time to implement our Zero Harm program within these businesses. Our 2018 target level and result for TRIR under our 2018 short-term incentive plan included Wyle, Inc. and HTSI incidents.

Our Compensation Committee established the 2018 target award levels shown on the next page in the 2018 Short-Term Incentives Table, with actual results and payouts certified in February 2019.

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2018 SHORT-TERM INCENTIVES TABLE

Weight

Performance Metric

Threshold

Target

Maximum

Actual Result

Payout

40%

KBR Adjusted EPS(1)

$1.37

$1.42

$1.47

$1.53

80.0%

20%

KBR OCF(2)

$114.8MM

$153.1MM

$191.3MM

$164.8MM

26.2%

5%

SAFE Tours Completed

49

55

61

63

10.0%

5%

Consolidated Safety (TRIR)(3)

.229

.214

.199

.168

10.0%

30%

KPIs

 

 

 

As noted below

As noted below

TOTAL PAYOUT(4)

 

 

 

126.2%

 
(1)

The 2018 EPS actual result of $1.53 relates to the achieved adjusted EPS for the year. A reconciliation of adjusted EPS to EPS is provided at the end of this proxy statement under the section titled “Non-GAAP Reconciliation: Adjusted EBITDA and Adjusted EPS.”

(2)

The 2018 OCF actual result of $164.8MM achieved a payout of 26.2%; however, the payout was reduced to 20% to be fiscally conservative because of the acquisition of SGT in April 2018 as described below.

(3)

The 2018 TRIR actual result of .168 achieved a payout of 10%; however, the payout was reduced to 0% in light of a fatal employee incident as described below. The 2018 TRIR actual result of .168 differs from the 2018 TRIR of .191 illustrated in the “KBR Total Recordable Incident Rate” graphic in the Proxy Summary of this proxy statement under the section titled “Financial Highlights” because the TRIR used to measure the Consolidated Safety TRIR for the 2018 short-term incentive plan excluded the TRIR attributable to Aspire Defence to allow management time to establish our Zero Harm initiatives and culture within that project following our acquisition of our partner's interest in Aspire Defence in April 2018.

(4)

The total payout percentage does not include the percentages earned with respect to the KPIs. The final payouts for our CEO and other NEOs are on the following three pages.

Exercise of Negative Discretion for Operating Cash Flow and Consolidated Safety (TRIR) Metrics

In 2018, our OCF was $164.8MM and fell in between our target and maximum goals for the OCF performance metric. Using linear interpolation, our OCF achieved a result of 131%, which when multiplied by the 20% weighting, resulted in a payout of 26.2%. The Compensation Committee exercised negative discretion to reduce the OCF payout from 26.2% to 20% to be fiscally conservative because of the Company's acquisition of SGT in April 2018. Our TRIR in 2018 was .168 and exceeded our maximum goal for the Consolidated Safety (TRIR) performance metric. Our TRIR achieved a result of 200%, which when multiplied by the 5% weighting, resulted in a payout of 10%. The Compensation Committee exercised negative discretion to reduce the TRIR payout from 10% to 0% in light of a fatal employee incident. This emphasizes the importance of safety to KBR and aligns with KBR’s mission to achieve Zero Harm every day. The 2018 TRIR actual result of .168 differs from the 2018 TRIR of .191 illustrated in the “KBR Total Recordable Incident Rate” graphic in the Proxy Summary of this proxy statement under the section titled “Financial Highlights” because the TRIR used to measure the Consolidated Safety TRIR for the 2018 short-term incentive plan excluded the TRIR attributable to Aspire Defence to allow management time to establish our Zero Harm initiatives and culture within that project following our acquisition of our partner's interest in Aspire Defence in April 2018.

KPIs and STI Payout for Mr. Bradie

Mr. Bradie earned 53.25% on his KPIs as provided below:

Weight

KPI

Threshold

Target

Maximum

Actual Result

Payout

15%

Grow Technology business (EBITDA) versus 2017.

7%

10%

13%

12%

23.25%

15%

Grow Government Services business (EBITDA) (excluding the acquisition of Aspire Defence) versus 2017.

2%

5%

8%

19%

30.00%

KPI PAYOUT

 

 

 

 

53.25%

Since the most recent decline in the price of a barrel of West Texas Intermediate crude oil, which dropped from over $100 per barrel in 2014 to below $50 at the end of 2018, many oil and gas companies have significantly reduced their capital expenditure budgets, which has negatively affected KBR’s business. Notwithstanding this continued challenging macro environment in the energy industry, in 2018 Mr. Bradie was able to steer KBR on a growth trajectory with 12% EBITDA growth in our Technology business and 19% EBITDA growth in our Government Services business (excluding the gain from our acquisition of Aspire Defence, which if included, would result in an approximately 25% rather than 19% gain from 2017). Not only did Mr. Bradie’s efforts help increase our EBITDA for both businesses, we saw 10% organic revenue growth in our Technology business and 17% organic revenue growth in our Government Services business. This growth helped KBR’s total fiscal year EBITDA increase from $320MM in 2017 to $504MM in 2018 (see reconciliation under the section titled “Non-GAAP Reconciliation: EBITDA and Adjusted EPS” at the end of this proxy statement). In light of these achievements, our Compensation Committee believes Mr. Bradie’s KPI results reflect the appropriate payout for his efforts in 2018.

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Mr. Bradie’s performance against his KPIs earned him the following payout:

CEO and Target

STI Payout
per Actual Metrics Results
(excluding KPIs)

Negative Discretion
for Cash Flow

and Safety

KPI Payout

Final Payout

Mr. Bradie

Target 125%

$1,656,375

126.20% of target

$(212,625)

(16.20%)

$698,906

53.25%

$2,142,656

163.25% of target

KPIs and STI Payout for Mr. Sopp

Mr. Sopp earned 25.4% on his KPIs as provided below:

Weight

KPI

Threshold

Target

Maximum

Actual Result

Payout

10%

Demonstrable progress in the expanded accounting improvement plan by reduction of post-closing adjustments in 2018 by at least 30% versus 2017.

$4MM

$5MM

$6MM

$(8MM)

0.0%

10%

Decrease in “carry over” un-remediated Sarbanes-Oxley Act deficiencies at year-end 2018 by 50% versus year-end 2017.

29

24

18

18

20.0%

10%

Cash Flow: reduce DSO in Government Services U.S. by three days from 2017.

78

74

70

76

5.4%

KPI PAYOUT

 

 

 

 

25.4%

Given the challenging energy macro environment noted above, our Compensation Committee believes Mr. Sopp’s KPI results reflect the appropriate payout for his efforts in 2018.

Mr. Sopp’s performance against his KPIs earned him the following payout:

NEO and Target

STI Payout
per Actual Metrics Results
(excluding KPIs)

Negative Discretion
for Cash Flow
and Safety

KPI Payout

Final Payout

Mr. Sopp

Target 80%

$659,067

126.20% of target

$(84,603)

(16.20%)

$132,649

25.40%

$707,113

135.40% of target

KPIs and STI Payout for Mr. Mujib

Mr. Mujib earned 10% on his KPIs as provided below:

Weight

KPI

Threshold

Target

Maximum

Actual Result

Payout

10%

Increase Hydrocarbons Services Americas backlog by $1.5B from December 2017 to December 2018.

$2,091.4MM

$2,291.4MM

$2,491.4MM

$1,249.7MM

0%

10%

Ichthys Operating Income, deliver successful start-up and execution and meet Operating Income actuals at or ahead of plan.

$28.1MM

$31.2MM

$34.3MM

$21.7MM

0%

10%

Embrace BRIS joint venture as KBR’s maintenance arm (measured via feedback from BRIS management, increased volume of joint KBR/BRIS engagements, and EBITDA performance).

$25.0MM

$27.0MM

$29.0MM

$42.0MM

20%

PRELIMINARY KPI PAYOUT

 

 

 

 

20%

NEGATIVE KPI DISCRETION

 

 

 

 

(10%)

KPI PAYOUT

 

 

 

 

10%

The actual result for Mr. Mujib's KPI “Embrace BRIS joint venture as KBR's maintenance arm” was $42.0MM, which exceeded his maximum goal and achieved a payout of 20%. The Compensation Committee exercised negative discretion to reduce the payout from 20% to 10% due to the lack of joint KBR/BRIS engagements.

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Mr. Mujib’s performance against his KPIs earned him the following payout:

NEO and Target

STI Payout
per Actual Metrics Results
(excluding KPIs)

Negative Discretion
for Cash Flow
and Safety

KPI Payout
(including
Negative KPI
Discretion)

Final Payout

Mr. Mujib

Target 90%

$637,184

126.20% of target

$(81,794)

(16.20%)

$50,490

10.00%

$605,880

120.00% of target

KPIs and STI Payout for Mr. Ibrahim

Mr. Ibrahim earned 29.2% on his KPIs as provided below:

Weight

KPI

Threshold

Target

Maximum

Actual Result

Payout

10%

Deliver organic growth in Government Services business with successful integration of Aspire Defence and Sigma Bravo.

$103.0MM

$114.5MM

$125.9MM

$134.4MM

20.0%

10%

Engineering & Construction major project wins for 2018.

$20.0MM

$30.0MM

$40.0MM

$26.3MM

7.2%

10%

Deliver 10% EBITDA organic growth across maintenance portfolio.

$7.0MM

$8.2MM

$9.0MM

$8.1MM

9.2%

PRELIMINARY KPI PAYOUT

 

 

 

 

36.4%

NEGATIVE KPI DISCRETION

 

 

 

 

(7.2%)

KPI PAYOUT

 

 

 

 

29.2%

The actual result for Mr. Ibrahim's KPI “Engineering & Construction major project wins for 2018” was $26.3MM, which fell in between his threshold and target goals and achieved a payout of 7.2%. The Compensation Committee exercised negative discretion to reduce the payout from 7.2% to 0% because the project wins did not meet the desired specifications.

Mr. Ibrahim’s performance against his KPIs earned him the following payout:

NEO and Target

STI Payout
per Actual Metrics Results
(excluding KPIs)

Negative Discretion
for Cash Flow
and Safety

KPI Payout
(including
Negative KPI
Discretion)

Final Payout

Mr. Ibrahim

Target 80%

$524,422

126.20% of target

$(67,319)

(16.20%)

$121,340

29.20%

$578,443

139.20% of target

KPIs and STI Payout for Mr. Mackey

Mr. Mackey earned 45% on his KPIs as provided below:

Weight

KPI

Threshold

Target

Maximum

Actual Result

Payout

10%

Deliver BRIS EBITDA on plan for 2018.

$25.0MM

$27.0MM

$29.0MM

$42.0MM

20%

10%

Five-year Information Technology strategy approved and commenced with actual net reduction in 2018.

$4.0MM

$5.0MM

$6.0MM

$8.6MM

20%

10%

UK triennial pension valuation agreed with trustee by end of 2018 within cash flow forecast of annual increase.

$20.0MM

$15.0MM

$10.0MM

$6.3MM

20%

PRELIMINARY KPI PAYOUT

 

 

 

 

60%

NEGATIVE KPI DISCRETION

 

 

 

 

(15%)

KPI PAYOUT

 

 

 

 

45%

The actual result for Mr. Mackey's KPI “Five-year Information Technology strategy approved and commenced with actual net reduction in 2018” was $8.6MM, which exceeded his maximum goal and achieved a payout of 20%. The Compensation Committee exercised negative discretion to reduce the payout from 20% to 5% because the progression of the Information Technology strategy was behind schedule.

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Mr. Mackey’s performance against his KPIs earned him the following payout:

NEO and Target

STI Payout
per Actual Metrics Results
(excluding KPIs)

Negative Discretion
for Cash Flow
and Safety

KPI Payout
(including
Negative KPI
Discretion)

Final Payout

Mr. Mackey

Target 80%

$504,800

126.20% of target

$(64,800)

(16.20%)

$180,000

45.00%

$620,000

155.00% of target

Changes Made to KBR’s 2019 STI Plan Other Than To the Individual Annual KPIs

In 2019, our Compensation Committee made no changes to the financial and safety performance metrics of the STI plan, just as it made no changes to them in 2018, because the changes made in 2017 (such as increasing the EPS performance metric weighting from 25% to 40% and decreasing the KPI metric weighting from 45% to 30%) are still considered to be aligned with the interests of the Company and our stockholders and the goals are set at rigorous levels. However, the individual KPIs for our CEO and each NEO were updated for 2019.

C. Long-Term Performance Incentives

Under the KBR Stock and Incentive Plan, our Compensation Committee made the following grants to our Named Executive Officers in 2018: KBR Long-Term Performance Cash Awards and KBR Restricted Stock Units. A description of the KBR Stock and Incentive Plan, the methodology used by our Compensation Committee to determine the mix of awards to grant, and the KBR Long-Term Performance Cash Awards and KBR Restricted Stock Units granted under the KBR Stock and Incentive Plan is provided below.

Our internal stock award process is designed and administered to provide equity award grant dates that are prospective and not retrospective, or back-dated. Stock awards approved by our Compensation Committee are generally effective on the date of the meeting at which the approval occurs. Stock option grants, when approved by our Compensation Committee, are never issued with an exercise price below the fair market value of our common stock on the date of grant.

KBR Stock and Incentive Plan

We use long-term performance incentives to achieve the following objectives:

reward consistent achievement of value creation and operating performance goals;

align management’s interests with stockholders’ interests; and

encourage long-term perspectives and commitment.

Long-term incentives represent the largest component of total executive compensation opportunity for our executives. We believe this is appropriate given our belief that executive pay should be closely tied to stockholders’ interests.

The KBR Stock and Incentive Plan provides for a variety of cash and stock-based awards, including nonqualified and incentive stock options, restricted stock/units, performance shares/units, stock appreciation rights, and stock value equivalents, also known as phantom stock. The KBR Stock and Incentive Plan allows the Compensation Committee the discretion to select from among these types of awards to establish individual long-term incentive awards. Our Compensation Committee met in December 2017 to review the amount of shares available under the KBR Stock and Incentive Plan for future stock-based awards and to review the CEO’s recommendations on the value of the long-term incentive awards to our Senior Executive Management. In addition, the Committee met in February 2018 to review and approve the amount and appropriate mix of long-term incentive awards to be granted to our Named Executive Officers.

For purposes of establishing the target dollar value of the long-term incentive awards, our Compensation Committee engaged Meridian to review our Named Executive Officers’ long-term incentive compensation. In February 2018, the Compensation Committee elected not to increase the long-term incentive target dollar values for our Named Executive Officers, as outlined in the below table:

 

Name

Increase (% of Target 2017

Long-Term Incentive Award)

2018 Long-Term Incentive Target

Dollar Value of Award

 

Basis for Decision

Mr. Bradie

$

0 (0%)

$

6,000,000

 

Core Peer Group data.

Mr. Sopp

$

0 (0%)

$

1,000,000

 

Core Peer Group data and internal equity.

Mr. Mujib

$

0 (0%)

$

1,400,000

 

Core Peer Group data and internal equity.

Mr. Ibrahim

$

0 (0%)

$

850,000

 

Core Peer Group data and internal equity.

Mr. Mackey

$

0 (0%)

$

1,000,000

 

Diversified Peer Group data and internal equity.

 

Using the long-term incentive target dollar value of award for each Named Executive Officer listed above, our Compensation Committee granted our Named Executive Officers a mixture of 66 ⅔% performance cash awards (based on target value) and 33 ⅓% restricted stock units under the KBR Stock and Incentive Plan. The Committee concluded that this mix of performance cash awards and restricted stock units was consistent with the Company’s pay for performance objectives. Specifically, 50% of the performance cash awards are directly tied to our stock price performance and, therefore, directly to stockholder value. The other 50% of the performance cash awards focus our Named Executive Officers to improve job income sold (“JIS”) long term. In addition, our restricted stock units are tied directly to stockholder value and provide a significant incentive for our Named Executive Officers to remain with the Company. Our Compensation Committee reviewed the mix of equity awards of

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our Core Peer Group and Diversified Peer Group. Our Compensation Committee awarded a much higher percentage of performance cash awards (66 ⅔%) than either of our peer groups because our Compensation Committee believes that emphasizing job income sold and sustained TSR is more likely to increase sustained stockholder value. Our Compensation Committee decided in 2015 against granting stock options under the KBR Stock and Incentive Plan because it wanted to add more emphasis on our performance cash awards tied to our relative TSR and JIS and our restricted stock units, which are aligned directly with our stockholders. In addition, stock options were no longer as prevalent among our Core Peer Group.

KBR Long-Term Performance Cash Awards

The KBR Long-Term Performance Cash Awards are long-term incentive awards designed to provide selected executives with specified incentive opportunities contingent on the level of achievement of pre-established corporate performance objectives. When establishing target levels of corporate performance, our Compensation Committee considered, among other things, projected Company performance, strategic business objectives, and forecast general business and industry conditions. At the time the target levels were established, the outcome was intended to be substantially uncertain, but achievable. The KBR Long-Term Performance Cash Awards may only be paid in cash, which minimizes stockholder dilution.

The 2018 KBR Long-Term Performance Cash Awards were granted to our Named Executive Officers in February 2018. Each KBR Long-Term Performance Cash Award has a target value of $1.00. For the 2018 KBR Long-Term Performance Cash Awards, the Compensation Committee maintained the weightings of the two performance measures, TSR and JIS, at 50% each. JIS was moved from the short-term annual Performance Pay Plan in 2014 because the Compensation Committee believed it was more appropriate to measure JIS over a longer, three-year period given the long-term nature of our projects and to focus more weight on it due to the operational challenges we experienced before our CEO’s tenure. The long-term tracking of JIS ensures that contract amendments and scope adjustments (both increases and decreases) are captured. Given that winning the right work is one of our key strategic priorities through which we can create long-term growth and through which we can position KBR for a strong and stable future amidst economic volatility, we believe that JIS measured over three years is an appropriate metric. Because we measure JIS over a three-year period, we capture contract adjustments that may impact future earnings.

TSR and JIS are measured over a three-year performance period beginning January1,2018, and ending December 31, 2020, as indicated below:

 

 

 

Total Stockholder Return (TSR)

 

Job Income Sold (JIS)

 
 
 
 

DEFINITION

 

DEFINITION

 
 

KBR’s average quarterly TSR over the three-year performance period is compared to the average quarterly TSR of each Company of our TSR Peer Group over the same period.

 

JIS is defined as the Company’s and its consolidated subsidiaries’ job income from (i) new projects awarded and (ii) earnings growth from contract amendments or scope adjustments to existing projects.

 
 

OBJECTIVE

 

OBJECTIVE

 
 

The objective of this metric is to directly link the payout to KBR’s average TSR performance relative to its peers, promoting stockholders’ interest.

 

The objective of this metric is to measure and reward sales performance and promote growth, which is one of our key strategic priorities.

 

 

 

The Compensation Committee determined the number of KBR Long-Term Performance Cash Awards for each Named Executive Officer by multiplying the total long-term incentive target value by 66 ⅔% and dividing the product by $1.00 (the target value of each KBR Long-Term Performance Cash Award). The Compensation Committee established the amount of the total long-term incentive value as described above in the section titled “KBR Stock and Incentive Plan.” Our Compensation Committee decided to use $1.00 as the target value for each KBR Long-Term Performance Cash Award for the purpose of administering and communicating the award to participants. In addition, the use of $1.00 as a target value for each KBR Long-Term Performance Cash Award is a means of expressing the value of each award since the number of KBR Long-Term Performance Cash Awards was granted based on the total target value of long-term incentive awards. The actual value of a KBR Long-Term Performance Cash Award may increase to a maximum of 200% of $1.00, or $2.00, or decrease to below threshold to 0% of $1.00, or $0.00. The value of KBR Long-Term Performance Cash Awards for performance between threshold and target or target and maximum will be calculated using linear interpolation. A three-year performance award cycle was adopted because of the ability to provide for retention and align with long-term stockholder returns.

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TSR is measured based on a sustained approach rather than a cumulative (point-to-point) approach. The Compensation Committee believes that the cumulative approach to measure TSR did not discern sustained performance over the three-year performance period. To measure sustained performance, each peer group company’s TSR (measured with a 20-trading-day average price) is calculated every quarter during the three-year performance period, and KBR’s average quarterly indexed TSR is ranked relative to the average quarterly indexed TSR of KBR’s peers. The average TSR for a company for the three-year performance period is the sum of the TSRs of the company measured at the end of each calendar quarter during the three-year performance period, divided by 12. The Compensation Committee believes that the sustained approach is better because it does not overemphasize a single ending point, but rather considers how investors may fare at different points over the entire three-year performance period.

Our 2018 TSR Peer Group includes: AECOM Technology Corporation, Chiyoda Corporation, EMCOR Group, Inc., Fluor Corporation, Jacobs Engineering Group Inc., McDermott International, Inc., Quanta Services, Inc., and TechnipFMC plc. Our 2018 TSR Peer Group previously included Chicago Bridge & Iron Company N.V.; however this company was removed as a result of its acquisition by McDermott International, Inc.

The TSR percentage is calculated by subtracting KBR’s TSR ranking as compared to the peer group from the total number of companies in the peer group, including KBR, dividing the difference by the number of companies in the peer group excluding KBR, and multiplying the quotient by 100%. Assuming a peer group of nine companies (including KBR but excluding Chicago Bridge & Iron Company N.V. as a result of its acquisition by McDermott International, Inc.), the TSR rankings and corresponding payout percentages are shown in the table below.

 

2018 Long-Term Performance Cash Award

TSR Payout

Performance Level

TSR
Ranking

Percentile

Payout

Maximum

1

100.0%

200.0%

 

2

87.5%

193.8%

 

3

75.0%

162.5%

 

4

62.5%

131.3%

Target

5

50.0%

100.0%

 

6

37.5%

68.8%

Threshold

7

25.0%

37.5%

 

8

12.5%

0.0%

 

9

0.0%

0.0%

 

After the end of each performance award cycle, our Compensation Committee will determine the extent to which the performance goals have been achieved, and the amount of the performance award attributable to the TSR performance measure will be computed for each selected executive in accordance with the table above. For a result between threshold and target or target and maximum, the Performance Percentage earned is determined by linear interpolation between threshold and maximum based on the result achieved for the TSR performance measure.

The remaining 50% of the KBR Long-Term Performance Cash Awards will be determined based on JIS over the same three-year performance period. JIS is the Company’s and its consolidated subsidiaries’ job income from (i) new projects awarded and (ii) earnings changes from contract amendments (increases or decreases), or scope adjustments (increases or decreases) to existing projects. JIS is calculated as the average of the achievement levels of the JIS performance metric for each year during the three-year performance period. For 2018, Target JIS was $585MM, Maximum JIS was approximately 125% of Target, and Threshold JIS was approximately 75% of Target. Like the TSR portion of the 2018 KBR Long-Term Performance Cash Awards, achievement of Threshold pays out at 25%, Target at 100%, and Maximum at 200%, all weighted 50%. For the second and third years in the JIS performance period, the Compensation Committee will set the JIS target to ensure that it remains rigorous. The Compensation Committee decided to establish the JIS Target one year at a time due to the inability to forecast JIS beyond one year in the challenging hydrocarbons market. No award will be paid for JIS under the KBR Long-Term Performance Cash Awards until after the end of the three-year performance period when the average JIS earned will be calculated using the average JIS percentage achieved during each year in the three-year performance period.

In addition to the TSR and JIS performance measures, 20% of the KBR Long-Term Performance Cash Awards payout was subject to forfeiture on December 31, 2018, in the discretion of our Compensation Committee if it determined that 2018 was not a successful year for us. The 20% metric applied to the total KBR Long-Term Performance Cash Award granted in 2018. The 20% was a one-time threshold to be applied in 2018 only with permanent forfeiture if the Compensation Committee decided that 2018 was not a successful year on or before March31,2019. The 20% could not be earned back during the second and third years of the three-year performance period. In addition, there was no upside with the 20% metric. In 2018, this metric goal was met as the Compensation Committee determined that 2018 was a successful year for us and, accordingly, it did not exercise its discretion to cause a forfeiture of 20% of the award. Our Compensation Committee added this measure to allow the Compensation Committee to forfeit 20% of the KBR Long-Term Performance Cash Awards if the year did not perform as well as expected. In addition, the KBR Long-Term Performance Cash Awards that were granted to our NEOs in 2018 provide our Compensation Committee with the discretion to reduce, but not increase, by any amount (including a reduction resulting in no payout) the potential payments that would otherwise be made with respect to such awards based on the actual level of performance achieved during the performance period. This negative discretion may be exercised by the Compensation Committee at any time prior to the date of payment with respect to the award, except that it may not be exercised following the occurrence of a corporate change (as defined in the KBR Stock and Incentive Plan).

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In February 2019, our Compensation Committee certified the results for the KBR Long-Term Performance Cash Awards that were granted on March 1, 2016, which were based on TSR and JIS performance measures. The following table is a summary of the 2016 KBR Long-Term Performance Cash Awards for the January 1, 2016, to December 31, 2018, performance period and amounts actually paid for each of our Named Executive Officers. Mr. Sopp did not participate because he was not an employee of the Company when the 2016 KBR Long-Term Performance Cash Award was granted.

Payout Table for 2016-2018 KBR Long-Term Performance Cash Award Period

2016 Long-Term Incentive Payout

 

Total Stockholder Return

 

Job Income Sold

Named
Executive
Officer

Target
($)

Max
($)

Actual
Payout
($)

Target
(%)

Max
(%)

Actual
(% rank)

Actual
Payout
(%)

 

Actual
TSR
Payout
($)

Target
(Avg $
2016-
2018)

Max
(Avg $
2016-
2018)

Actual
(Avg $
2016-
2018)

Actual
Payout
(%)

Actual
JIS
Payout
($)

Mr. Bradie

3,666,667

7,333,334

3,289,000

 

50

100

14.3

0

 

0

 

438.8MM

561.7MM

548.1MM

89.7

3,289,000

Mr. Mujib

933,333

1,866,666

837,200

 

50

100

14.3

0

 

0

 

438.8MM

561.7MM

548.1MM

89.7

837,200

Mr. Ibrahim

500,000

1,000,000

448,500

 

50

100

14.3

0

 

0

 

438.8MM

561.7MM

548.1MM

89.7

448,500

Mr. Mackey

600,000

1,200,000

538,200

 

50

100

14.3

0

 

0

 

438.8MM

561.7MM

548.1MM

89.7

538,200

For the 2016 KBR Long-Term Performance Cash Awards, a TSR ranking below the 20th percentile results in zero payout, a ranking in the target 50th percentile results in target payout of 100%, and a ranking in the maximum 100th percentile results in a maximum payout. Therefore, the ranking of 14.3 percentile resulted in a 0% payout of 100% as the ranking was below the threshold for TSR.

For JIS the 2016 JIS payout ratio was above target at 184%, the 2017 JIS payout ratio exceeded the maximum, resulting in a 200% payout, and the 2018 JIS payout ratio was above target at 154%. The average JIS for the three-year performance period starting January1,2016, and ending on December31,2018, resulted in a JIS payout of 179.3%.

Based on the weighting of 50% for TSR and JIS, the total payout ratio for the 2016 KBR Long-Term Performance Cash Awards is 89.7% of target.

KBR Restricted Stock Units

During 2018, our Compensation Committee granted our Named Executive Officers restricted stock units that are subject to a three-year graded vesting schedule, based on service with the Company. In addition, dividend equivalents are paid on restricted stock units at the same time dividends are paid to common stockholders. The Compensation Committee determined the number of restricted stock units for each Named Executive Officer by multiplying the total long-term incentive target value by 33 ⅓% and dividing the product by the closing price of our common stock on the date of grant. The Compensation Committee established the amount of the total long-term incentive value as described above in the section titled “KBR Stock and Incentive Plan.” The Compensation Committee selected a three-year vesting schedule to facilitate retention and provide incentives to enhance long-term value. The three-year schedule meets the minimum vesting period generally mandated in the KBR Stock and Incentive Plan (other than with respect to a small, limited number of awards) for grants of restricted stock units.

In addition to the service requirement for vesting of the restricted stock units, 20% of the restricted stock units were subject to forfeiture on December 31, 2018, in the discretion of our Compensation Committee if it determined on or before the first anniversary of the date of grant that 2018 was not a successful year for us. Our Compensation Committee added this measure to allow the Compensation Committee to forfeit 20% of the restricted stock units if the year did not perform as well as expected. The metric was a one-time metric that if not satisfied at the end of 2018 would result in the permanent forfeiture of 20% of the restricted stock units. In 2018, this metric was met as the Compensation Committee determined that 2018 was a successful year for us and, accordingly, it did not exercise its discretion to cause a forfeiture of the restricted stock units.

In addition to the above, our CEO continued to hold his performance restricted stock units granted in 2014. In June 2018, our CEO earned 100% of his July 2014 performance restricted stock units that were scheduled to vest in June 2018. This was the first earned vesting following three years of forfeitures, as shown below:

 

 

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Other Compensation Elements

Nonqualified Deferred Compensation

We maintain the following active nonqualified deferred compensation plans in which one or more of our Named Executive Officers participate: (1) KBR Elective Deferral Plan and (2) KBR Benefit Restoration Plan. Our Compensation Committee approved these plans in April 2007 in order to provide a continuation of benefits to our employees who were entitled to such benefits under our prior parent’s nonqualified plans. Both of these plans are available to all KBR employees who meet the limits imposed by the Internal Revenue Code or the Employee Retirement Income Security Act. Our Compensation Committee continues to maintain these plans because they are offered by many of the companies in our Core Peer Group.

KBR Elective Deferral Plan

Our Named Executive Officers may participate in the KBR Elective Deferral Plan, a nonqualified deferred compensation plan, to meet their retirement and other future income needs. No Company contributions are made to fund deferrals to the KBR Elective Deferral Plan. Deferrals are entirely employee funded. Benefits under this plan are payable upon a termination of employment (or a specified future date).

KBR Benefit Restoration Plan

Our Named Executive Officers may participate in the KBR Benefit Restoration Plan, a nonqualified plan that provides a vehicle to restore qualified plan benefits that are reduced because of limitations imposed under the Internal Revenue Code or due to participation in other Company sponsored plans. Benefits under this plan are payable upon a termination of employment.

Defined Benefit Pension Plan

Our Named Executive Officers do not participate in any KBR sponsored defined benefit pension plans.

Severance and Change-in-Control Protection

Since 2008, our Compensation Committee has offered certain members of our Senior Executive Management a severance and change-in-control agreement (the “Agreement”) with the Company for several reasons. Providing termination benefits under a severance and change-in-control agreement allows the Company to be competitive with the practices of its Core Peer Group as well as the general market. Also, the specific terms for receiving termination benefits under the Agreement provide a means to motivate and retain key employees of the Company. Non-competition and clawback provisions provide protection for the Company by ensuring that the Company’s trade secrets and confidential information are safeguarded and that the Company retains rights to recover any termination benefits paid in the event of material evidence of an executive’s malfeasance. In addition, the Compensation Committee elected for the Agreement to require a double-trigger change-in-control termination (i.e., the occurrence of both a change-in-control and a termination of employment within two years following the change-in-control event) in order for an executive to receive change-in-control benefits. In March 2009, our Compensation Committee publicly committed to rejecting any proposals that request new excise tax gross-ups. Our Compensation Committee reconfirms that commitment, which is evidenced by each new Agreement we have entered into since March 2009, none of which have provided an excise tax gross-up. None of our NEOs’ Agreements contain an excise tax gross-up.

The Compensation Committee offered the Agreement to Mr. Mujib in February 2013, Mr. Bradie in June 2014, Mr. Mackey in January 2015, Mr. Ibrahim in May 2015, and Mr. Sopp in February 2017 because each of our other members of Senior Executive Management at those times had an Agreement or to incentivize them to leave their former employer and join the Company. The Agreement will terminate automatically on the earlier of (i) the executive’s termination of employment with the Company or (ii) in the event of a change-in-control during the term of the Agreement, two years following the change-in-control. The Agreement provides for (i) severance termination benefits (prior to a change-in-control), which for some members of Senior Executive Management, including Messrs. Mackey and Sopp, are graded based on service time with the Company, (ii) double-trigger change-in-control termination benefits (on or after a change-in-control), and (iii) death, disability, and retirement benefits. As a condition of receipt of these benefits (other than the death and disability benefits), the executives must first execute a release and full settlement agreement. The Agreement contains customary confidentiality, non-competition, and non-solicitation covenants, as well as a mandatory arbitration provision. In addition, the Agreement contains a clawback provision that allows the Company to recover any benefits paid under the Agreement if the Company determines within two years after the executive’s termination of employment that his employment could have been terminated for cause as defined within the Agreement. The Agreement provides that all unvested stock options, stock appreciation rights, restricted stock, restricted stock units, and performance cash awards granted to the executive by the Company will be forfeited upon severance. Such awards, however, will fully vest upon a double-trigger change-in-control termination. The terms of the Agreements for each NEO are further described and quantified below in the section titled “2018 Potential Payments Upon Termination or Change-in-Control” and “Severance and Change-in-Control Agreements.”

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Other Benefits

Generally, our Named Executive Officers participate in the same retirement and health and welfare programs as our other employees. In 2018, our Named Executive Officers participated in the Company’s 401(k) plan. Pursuant to this plan, we made employer matching contributions equal to 5.5% of eligible compensation. Their health care and insurance coverage is the same as that provided to other active employees, except that the Named Executive Officers are eligible to receive an executive physical. Executives are provided physicals as part of our Zero Harm initiative.

Our Compensation Committee generally does not offer perquisites to our Named Executive Officers, unless generally available to other Company employees. Our executives do not have company cars or car allowances, housing, or travel allowances, except in the case of relocation-related travel, housing, and car allowances.

To allow for maximum efficiency and productive use of time, one Company-leased car and a driver is provided in Houston for use by our Named Executive Officers and others for business purposes, except that our Named Executive Officers may use the Company-leased car and a driver for limited personal use only if the car is not being used by another Named Executive Officer for business purposes at that time. In addition, Named Executive Officers are eligible to receive limited financial planning advice.

In connection with his international assignment, Mr. Ibrahim received the standard allowances for a car, housing, school, and relocation costs. In addition, Mr. Ibrahim was included in our standard tax equalization program.

Impact of Executive Conduct or a Restatement of Earnings on Compensation (Clawback Policy)

If we determine at any time within two years after the termination of employment of a Named Executive Officer that such senior executive’s employment could have been terminated for Cause, as defined in the senior executive’s Agreement, we retain the right to recover any severance benefits (both cash and equity) provided under the Agreement to such senior executive. In such case, the senior executive agrees to promptly repay such amounts to us.

In addition, our Company’s cash and equity incentive programs allow the Compensation Committee to seek recovery of any incentives that are determined to be an overpayment due to any restatement of our financial results that impact the performance metrics on which the incentive awards were calculated. The Compensation Committee will adopt all clawback provisions required by the Dodd-Frank Act.

Impact of Accounting, Regulatory, and Tax Requirements on Compensation

We apply the fair value recognition provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718-10 for share-based payments to account for and report equity-based compensation. FASB ASC 718-10 requires equity-based compensation expense to be measured based on the grant-date fair value of the award. For performance-based awards, compensation expense is measured based on the grant-date fair value of the award and the fair value of that award is re-measured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period or the vesting period are recognized as compensation cost on a straight line basis over that period. Compensation expense was recognized for restricted stock unit awards.

In the years when we grant stock option awards, the grant-date fair value of employee share options is estimated using option-pricing models. If an award is modified after the grant date, incremental compensation cost is recognized immediately before the modification. The benefits of tax deductions in excess of the compensation cost recognized for the options (excess tax benefits) are classified as addition to paid-in-capital, and cash retained as a result of these excess tax benefits is presented in the statement of cash flows as financing cash inflows.

We carefully review and take into account current tax regulations as they relate to the design of our compensation programs and related decisions. Prior to the enactment of tax reform legislation signed into law on December 22, 2017, which was originally known as the Tax Cuts and Jobs Act (the “TCJA”), Section 162(m) of the Internal Revenue Code limited a company’s ability to deduct compensation paid in excess of $1 million during any fiscal year to each of certain named executive officers, unless the compensation was performance-based as defined under federal tax laws. Subject to certain transitional rules, the TCJA has repealed the exemption for performance-based compensation from the deduction limitation of Section 162(m) of the Internal Revenue Code for taxable years beginning after 2017. Our Compensation Committee historically reviewed and considered the deductibility of our executive compensation programs and provided compensation that was not fully deductible when necessary to retain and motivate certain

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executive officers and when it was in the best interest of the Company and our stockholders. To the extent compensatory awards are not covered by the transitional rules, the performance-based exception to the deduction limitation under Section 162(m) of the Internal Revenue Code will no longer be available to the Company and annual compensation paid to our covered executives in excess of $1 million will not be deductible.

Section 304 of the Sarbanes-Oxley Act of 2002 applies to any cash or equity-based incentive compensation paid to specified executives where the payment was predicated upon the achievement of certain financial results that were subsequently the subject of restatement.

We are administering all nonqualified, deferred compensation plans and payouts applicable to our Named Executive Officers with the intent to be exempt from, or in compliance with, the provisions of Section 409A of the Internal Revenue Code added under the American Jobs Creation Act of 2004.

Stock Ownership Guidelines for Officers

The Nominating and Corporate Governance Committee of our Board of Directors determined that we should establish stock ownership guidelines for certain of our officers and officers of our subsidiaries in an effort to link more closely the financial interests of these officers with those of our stockholders.

Our Board of Directors adopted the following ownership guidelines for our common stock, $0.001 par value (“Common Stock”), for the officers at the levels indicated below:

Group

Ownership Level

CEO

5x base salary

Level 1 Executives

(Direct reports to CEO)

3x base salary

Level 2 Executives

(Direct reports to Level 1 Executives and at least a vice president)

1x base salary

 

Our Board of Directors approved that: (a) each such officer will have five years after the adoption of these guidelines or his or her appointment to an applicable office, whichever is later, to achieve the indicated ownership level; (b) all beneficially owned shares of Common Stock and vested and unvested restricted stock and restricted stock units are counted towards achievement of the ownership guideline; (c) once an officer has achieved the applicable level of Common Stock ownership he or she is not required to retain or purchase additional shares if a decline in the price for the Common Stock causes his or her holdings to be less than the applicable ownership level; (d) the value of shares of Common Stock is determined as the closing price of the Common Stock for the particular date; and (e) on and after each officer’s 60th birthday, the officer’s required ownership level is reduced to fifty percent (50%) of the ownership level provided for above; provided, however, no such adjustment will be made for the ownership levels of the CEO, Chief Operating Officer (if any), CFO, and General Counsel. All of our Named Executive Officers meet our Stock Ownership Guidelines or are on track to meet the guidelines within the five-year period described above.

No Pledging

Our Board of Directors approved as part of the stock ownership guidelines above that no officer of the Company may pledge, hypothecate, create any lien or security interest on, or enter into a margin contract secured by, any shares, options to purchase shares, or any other interest in shares of Common Stock.

Minimum Holding Period for Restricted Stock Units and Stock Options

Our Compensation Committee has reviewed whether to adopt a holding period for our restricted stock units and stock options. The Compensation Committee has elected not to adopt a minimum holding period because we have (i) strong stock ownership guidelines and (ii) adopted a long vesting schedule for our restricted stock units.

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Anti-Hedging Policy

Our anti-hedging policy prohibits all members of our Board of Directors, employees, and agents from (i) speculative trading in our securities; (ii) engaging in hedging transactions using our securities; (iii) ”short selling” our securities; and (iv) trading derivative securities, such as put options, call options, swaps, or collars related to our securities.

Conclusion

In a highly competitive market for executive talent, we believe our customers’ and employees’ interests, as well as those of our stockholders and other stakeholders, are well served by our compensation programs. These programs are reasonably positioned among our Core Peer Group, encourage and promote our compensation objectives with a strong emphasis on pay for performance, and permit the exercise of our Compensation Committee’s discretion in the design and implementation of compensation packages. Going forward, we will continue to review our compensation plans periodically to determine what revisions, if any, should be made.

 

 

 

 

 

 

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Compensation Committee Report

The foregoing report of the Compensation Committee shall not be deemed to be “soliciting material” or to otherwise be considered “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference into such filing.

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis, as provided above, with KBR’s management. Based on its review, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement. Respectfully submitted,

The Compensation Committee of Directors

Jack B. Moore, Chairman
James R. Blackwell
Lester L. Lyles
Umberto della Sala

March 20, 2019

Compensation Committee Interlocks and Insider Participation

As of the date of this proxy statement, our Compensation Committee consists of Messrs. Moore, Blackwell, Lyles, and della Sala, all of whom are independent, non-executive directors. None of our Compensation Committee members has served as an officer or employee of KBR. Further, none of KBR’s executive officers has served as a member of a board of directors or compensation committee of any entity that had one or more of its executive officers serving on the Board or the Compensation Committee of KBR.

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Part Three Executive Compensation Executive Compensation 62 Summary Compensation 62 Grants of Plan-Based Awards 64 Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table 65 Severance and Change-in-Control Agreements 72 No Employment Agreements 74 CEO Pay Ratio 74 Director Compensation 76 Certain Relationships and Related Transactions 78 Related Person Policies 78 Section 16(a) Beneficial Ownership Reporting Compliance 78 Proposal No. 2 - Advisory Vote to Approve Named Executive Officer Compensation 79 Executive Compensation 79 KBR is the Program Management Consultant for Qatar’s Expressway Program that provides critical road network links to key areas around the country, including industrial areas, airports, ports, and residential, business and tourism districts.

 

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Executive Compensation

Summary Compensation

The following table sets forth information regarding the compensation of our Named Executive Officers for the fiscal year ended December 31, 2018, and, if the individual was a NEO for the applicable fiscal year, for the fiscal years ended December 31, 2017, and 2016.

Name and
Principal Position

Year

Salary
($)(1)

Bonus
($)

Stock
Awards
($)(2)(3)

Option
Awards
($)(2)(3)

Non-Equity
Incentive Plan
Compensation
($)(4)

Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)(5)

All Other
Compensation
($)(6)

 

Total
($)

 

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

 

(j)

 

Stuart J. B. Bradie

President & CEO

2018

1,049,064

3,038,000

5,431,657

4,245

72,490

 

9,595,456

 

2017

1,000,022

3,458,010

4,793,500

2,717

63,814

 

9,318,063

 

2016

1,000,022

2,276,270

625,000

2,307

66,042

(7)

3,969,641

(7)

Mark W. Sopp(8)

EVP & CFO

2018

652,562

506,347

707,113

449

37,599

 

1,904,070

 

2017

534,167

876,349

844,800

119,573

 

2,374,889

 

Farhan Mujib

President — Delivery Solutions

2018

562,921

708,879

1,443,080

622

44,903

 

2,760,405

 

2017

547,899

806,870

1,498,950

152

118,283

 

2,972,154

 

2016

499,502

579,424

297,000

171

65,785

 

1,441,882

 

J. Jay Ibrahim

President — Energy Services

2018

518,421

430,397

1,026,943

802

331,252

 

2,307,815

 

2017

506,935

489,896

1,060,155

311

312,509

 

2,369,806

 

2016

447,706

310,404

163,688

118

260,770

 

1,182,686

 

Ian. J. Mackey

EVP & Chief Corporate Officer

2018

499,050

506,347

1,158,200

787

35,000

 

2,199,384

 

 

   
(1)

Salary equals base pay paid to each Named Executive Officer during the applicable year, including any elective deferrals into the Kellogg Brown & Root, Inc. Retirement and Savings Plan or the KBR Elective Deferral Plan. The actual salary paid may fluctuate due to the timing of payroll processing at each calendar-year end. With respect to Mr. Mujib, a portion of his 2017 salary, which should have been paid in 2017, was paid in 2018, due to a timesheet error, which is why his 2018 salary in column (c) exceeds his approved 2018 base pay of $561,000.

(2)

The amounts in columns (e) and (f) represent the aggregate grant date fair value of awards granted in 2016, 2017, and 2018, pursuant to the KBR Stock and Incentive Plan. The fair values were determined in accordance with FASB ASC 718, “Stock Compensation.” Assumptions used in the calculation of these amounts are described in note 1 under “Description of Company and Significant Accounting Policies” and note 21 under “Share-based Compensation and Incentive Plans” of our audited financial statements included in our annual report on Form 10-K for the year ended December 31, 2018, and the comparable disclosures in 2016 and 2017.

(3)

With respect to the performance cash awards granted in 2016, 2017 and 2018, which are based 50% on TSR, and to that extent are included in the value of stock awards in column (e), the assumptions assume the probable outcome of the TSR performance condition, which is computed in accordance with FASB ASC 718 (excluding the effect of estimated forfeitures). At maximum performance, each performance award unit reported in column (e) would be equal to $2.00. This would give (i) Mr. Bradie a stock awards value under column (e) of $6,000,000 in 2018, $6,000,010 in 2017, and $5,500,005 in 2016; (ii) Mr. Sopp a stock awards value under column (e) of $1,000,013 in 2018 and $1,300,016 in 2017, which comprises $1,000,000 for his annual award and $300,016 for his sign-on award; (iii) Mr. Mujib a stock awards value under column (e) of $1,400,012 in 2018, $1,400,003 in 2017, and $1,400,014 in 2016; (iv) Mr. Ibrahim a stock awards value under column (e) of $850,014 in 2018, $850,013 in 2017, and $750,004 in 2016; and (v) Mr. Mackey a stock awards value under column (e) of $1,000,013 in 2018.

(4)

Amounts reportable in column (g) relate to (i) payments under our KBR Senior Executive Performance Pay Plan for 2018, 2017, and 2016; and (ii) payments related to the 50% portion of the 2016 performance cash awards that is based on the JIS performance measure and which were granted under our KBR 2006 Stock Incentive Plan. Benefits under our KBR Senior Executive Performance Pay Plan and the KBR 2006 Stock Incentive Plan are payable by their terms during the first quarter of the following year.

 

 

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(5) The amounts shown in column (h) include the following:

Name

Year

Benefit Restoration

Total(A)

Bradie

 

2018

4,245

4,245

2017

2,717

2,717

2016

2,307

2,307

Sopp

2018

449

449

2017

Mujib

 

2018

622

622

2017

152

152

2016

171

171

Ibrahim

 

2018

802

802

2017

311

311

2016

118

118

Mackey

2018

787

787

(A)

Any amounts reportable here and in column (h) of the Summary Compensation Table are payable in connection with KBR’s nonqualified deferred compensation plans, including the KBR Benefit Restoration Plan (“Benefit Restoration”). These amounts reflect above-market or preferential earnings on nonqualified deferred compensation.

(6)

The amounts shown in column (i) above include the following:

Name

Year

Company

Retirement

Plan

Match

Benefit

Restoration

Award(A)

Goods &

Services

Differ-

ential(B)

Housing