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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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Preliminary Proxy Statement

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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

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Definitive Proxy Statement

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Definitive Additional Materials

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Soliciting Material under §240.14a-12

 

KAR AUCTION SERVICES, INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 

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LOGO

April 23, 2021

Dear Fellow Stockholder:

Thank you for your continued investment in and support of KAR Auction Services, Inc. d/b/a KAR Global ("KAR Global" or the "Company"). You are cordially invited to attend KAR Global's 2021 annual meeting of stockholders, which will be hosted virtually. You will be able to attend the 2021 annual meeting online, vote your shares electronically and submit your questions during the meeting by visiting www.virtualshareholdermeeting.com/KAR2021.

As a KAR Global stockholder, your vote is important. The matters to be acted upon are described in the notice of annual meeting of stockholders and the proxy statement. Even if you are planning to attend the virtual meeting, you are strongly encouraged to vote your shares in advance through one of the methods described in the proxy statement.

The COVID-19 pandemic significantly challenged many economies and industries around the globe in 2020. Despite the unexpected headwinds, KAR Global quickly pivoted our operations and rapidly accelerated our digital transformation in order to keep both our Company and our customers moving forward. We are proud to have sold approximately 3.1 million vehicles and generated strong cash flow from operations of $384.4 million while extending our leadership position in digital used vehicle marketplaces. Notably, we launched Simulcast+ (ADESA's industry-first, fully-automated, auctioneerless platform powering used vehicle sales from any location); completed the acquisition of BacklotCars, a leading, fast-growing dealer-to-dealer marketplace in the U.S.; and transitioned our used vehicle marketplaces to 100% digital.

Thank you again for your continued support of KAR Global, our Board of Directors, our employees and our future.

Sincerely,


SIGNATURE

 

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James P. Hallett

 

Peter Kelly

Executive Chairman and
Chairman of the Board

 

Chief Executive Officer

This proxy statement is dated April 23, 2021 and is first being distributed to stockholders on or about April 23, 2021.


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LOGO

11299 North Illinois Street
Carmel, Indiana 46032

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
     
Date and Time:   9:00 a.m., Eastern Daylight Time, on June 4, 2021
     
Place:   Online at www.virtualshareholdermeeting.com/KAR2021
     
Admission:   To attend the 2021 annual meeting, visit www.virtualshareholdermeeting.com/KAR2021. You will need the 16-digit control number included on your Notice of Internet Availability of Proxy Materials, on your proxy card or on the instructions that accompanied your proxy materials.
     
Items of Business:   The holders of shares of Series A Convertible Preferred Stock (the "Series A Preferred Stock"), voting as a separate class, are being asked to vote on:

 

 

Proposal No. 1:  To elect the director nominee designated by Ignition Parent LP ("Apax Investor") to the Board of Directors.

 

 

The holders of shares of common stock and shares of Series A Preferred Stock, voting together as a single class, are being asked to consider and vote on the following items:

 

 

Proposal No. 2:  To elect each of the other eight director nominees to the Board of Directors.

 

 

Proposal No. 3:  To approve, on an advisory basis, executive compensation.

 

 

Proposal No. 4:  To approve an amendment and restatement of the KAR Auction Services, Inc. 2009 Omnibus Stock and Incentive Plan, as amended.

 

 

Proposal No. 5:  To ratify the appointment of KPMG LLP as our independent registered public accounting firm for 2021.

 

 

To transact any other business as may properly come before the meeting or any adjournments or postponements thereof.
     
Record Date:   You are entitled to vote at the 2021 annual meeting and at any adjournments or postponements thereof if you were a stockholder of record at the close of business on April 9, 2021. A list of stockholders entitled to vote at the 2021 annual meeting will be available for examination during ordinary business hours for 10 days prior to the meeting at the address listed above, and the list will also be available online during the meeting.
     
Voting by Proxy:   Whether or not you plan to virtually attend the 2021 annual meeting, please vote at your earliest convenience by following the instructions in the Notice of Internet Availability of Proxy Materials or the proxy card you received in the mail so that your shares can be voted at the 2021 annual meeting in accordance with your instructions. For specific instructions on voting, please refer to the instructions on your enclosed proxy card.
     

 

    On Behalf of the Board of Directors,

 

 

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April 23, 2021
Carmel, Indiana

 

Charles S. Coleman
EVP, Chief Legal Officer and Secretary


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Notice of Internet Availability of Proxy Materials for the Annual Meeting

The proxy statement for the 2021 annual meeting and the annual report to stockholders for the fiscal year ended December 31, 2020, each of which is being provided to stockholders prior to or concurrently with this notice, are also available to you electronically via the Internet. We encourage you to review all of the important information contained in the proxy materials before voting. To view the proxy statement and annual report to stockholders on the Internet, visit our website, www.karglobal.com, and click on "Investors" and then the "Financials" tab. The information on our website is not part of this proxy statement and is not deemed incorporated by reference into this proxy statement or any other public filing made with the SEC.

TABLE OF CONTENTS

PROXY STATEMENT SUMMARY   1

Annual Meeting of Stockholders

  1

Items to be Voted on at Annual Meeting of Stockholders

  1

Board Nominees

  2

2020 Business Highlights

  3

Corporate Governance Highlights

  4

Executive Compensation

  5
PROPOSALS NO. 1 & 2: ELECTION OF DIRECTORS   6

Directors Elected Annually

  6

Director Independence

  6

Board Nominations and Director Nomination Process

  6

Board Qualifications and Diversity

  7

Information Regarding the Nominees for Election to the Board

  7
BOARD STRUCTURE AND CORPORATE GOVERNANCE   13

Role of the Board

  13

Board Leadership

  13

Executive Sessions

  14

Board Meetings and Attendance

  14

Board Committees

  14

Board and Committee Evaluation Process

  16

Board's Risk Oversight

  16

Corporate Governance Documents

  18

Compensation Committee Interlocks and Insider Participation

  18

Stockholder Communications with the Board

  18
DIRECTOR COMPENSATION   19

Cash and Stock Retainers

  19

Director Deferred Compensation Plan

  20

Director Stock Ownership and Holding Guidelines

  20

Director Compensation Paid in 2020

  20

Outstanding Director Restricted Stock Awards

  21
BENEFICIAL OWNERSHIP OF COMPANY STOCK   22
PROPOSAL NO. 3: ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION   24

Proposal

  24
COMPENSATION DISCUSSION AND ANALYSIS   25

Overview

  25

Executive Summary

  27

Compensation Philosophy and Objectives

  30

The Role of the Compensation Committee and the Executive Officers in Determining Executive Compensation

  30

Elements Used to Achieve Compensation Philosophy and Objectives

  32

Compensation Policies and Other Information

  43

Results of Say On Pay Vote at 2020 Annual Meeting

  44

COMPENSATION COMMITTEE REPORT

  45
ANALYSIS OF RISK IN THE COMPANY'S COMPENSATION STRUCTURE   46
SUMMARY COMPENSATION TABLE FOR 2020   47
GRANTS OF PLAN-BASED AWARDS FOR 2020   48
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2020   49
OPTION EXERCISES AND STOCK VESTED DURING FISCAL YEAR 2020   51
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL   52

Equity-Based Awards—Omnibus Plan

  52

Annual Cash Incentive Awards—Omnibus Plan

  53
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL TABLE   54

Employment Agreements with Named Executive Officers

  57
CEO PAY RATIO   60
PROPOSAL NO. 4: APPROVAL OF AN AMENDMENT AND RESTATEMENT OF THE KAR AUCTION SERVICES, INC. 2009 OMNIBUS STOCK AND INCENTIVE PLAN   61

Proposal

  61
PROPOSAL NO. 5: RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   68

Proposal

  68

Report of the Audit Committee

  69

Fees Paid to KPMG LLP

  70

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

  70
RELATED PERSON TRANSACTIONS   71

Review and Approval of Transactions with Related Persons

  71
REQUIREMENTS, INCLUDING DEADLINES, FOR SUBMISSION OF PROXY PROPOSALS   73

Nomination of Directors and Other Business of Stockholders

  73
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING   74

Forward-Looking Statements:    This proxy statement contains information that may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, and which are subject to certain risks, trends and uncertainties. In particular, statements made that are not historical facts may be forward-looking statements. Words such as "should," "may," "will," "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," and similar expressions identify forward-looking statements. Such statements are based on management's current expectations, are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results projected, expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include those uncertainties regarding the impact of the COVID-19 pandemic on our business and the economy generally, and those other matters disclosed in the Company's SEC filings. The Company does not undertake any obligation to update any forward-looking statements.


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PROXY STATEMENT SUMMARY

This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement before voting. For more complete information regarding the 2020 performance of KAR Auction Services, Inc. (the "Company," "KAR," "KAR Auction Services" or "KAR Global"), please review the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

ANNUAL MEETING OF STOCKHOLDERS
     
Date and Time:   9:00 a.m., Eastern Daylight Time, on June 4, 2021
     
Location:   Online at www.virtualshareholdermeeting.com/KAR2021
     
Record Date:   Stockholders of record as of the close of business on the record date, April 9, 2021, are entitled to vote at the 2021 annual meeting of stockholders. On the record date, the Company had 124,761,100 shares of common stock issued and outstanding and 581,608 shares of Series A Preferred Stock issued and outstanding.
     
NYSE Symbol:   KAR
     
Registrar and
Transfer Agent:
  American Stock Transfer & Trust Company, LLC
     

ITEMS TO BE VOTED ON AT
ANNUAL MEETING OF STOCKHOLDERS

Proposal   Our Board's
Recommendation
  Page
1.   Election of the director nominee designated by the Apax Investor.   FOR
the director nominee
  6
             
2.   Election of each of the other eight director nominees.   FOR
each director nominee
  6
         
3.   Approval, on an advisory basis, of executive compensation.   FOR   24
         
4.   Approval of an amendment and restatement of the KAR Auction Services, Inc. 2009 Omnibus Stock and Incentive Plan, as amended.   FOR   61
         
5.   Ratification of the appointment of KPMG LLP as our independent registered public accounting firm for 2021.   FOR   68
         


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BOARD NOMINEES (PAGES 7–12)

Name
  Age
  Director
Since

  Independent
  Primary Occupation
  Committee
Membership***

Roy Mackenzie   49   2020   Yes   Partner of Apax Partners, LP   CC
Carmel Galvin   52   2020   Yes   Chief People Officer at
Stripe, Inc.
  CC (Chair), NCGC
James P. Hallett   68   2007   No   Executive Chairman and
Chairman of the Board of KAR
Auction Services, Inc.


 
Mark E. Hill   65   2014   Yes   Managing Partner of Collina
Ventures, LLC and Chairman
and Chief Executive Officer of
Lumavate LLC
  NCGC (Chair), RC
J. Mark Howell   56   2014   Yes   President and Chief Executive
Officer of Conexus Indiana

 
RC (Chair), AC
Stefan Jacoby   63   2019   Yes   Automotive Industry Consultant   CCNCGC
Peter Kelly   52   2021   No   Chief Executive Officer of KAR
Auction Services, Inc.

 
Michael T. Kestner*   67   2013   Yes   Building Products and
Automotive Industry Consultant
  AC (Chair), RC
Mary Ellen Smith**   61   2019   Yes   Corporate Vice President of
Worldwide Business
Operations of Microsoft
Corporation



 
CCRC
*
Lead Independent Director

**
If Ms. Smith is re-elected by the stockholders, we expect Ms. Smith to leave the Compensation Committee and join the Audit Committee immediately following the 2021 annual meeting.

***
AC=Audit Committee

CC=Compensation Committee

NCGC=Nominating and Corporate Governance Committee

RC=Risk Committee


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2020 BUSINESS HIGHLIGHTS
For the year ended December 31, 2020, the Company accelerated its digital transformation to sustain operations in the face of significant and unexpected headwinds from the global COVID-19 pandemic. Specific highlights for fiscal 2020 included:
       
       

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Transitioned operating model to a
fully digital marketplace

100% of vehicles sold via digital channels since April 2020

Launched industry-leading Simulcast+ platform

Significantly reduced cost structure to align with digital model

Registered thousands of new buyers and sellers to our digital platforms

 
       
       
       
       
  Enhanced digital offerings with the
acquisition of BacklotCars
a leading, fast-growing dealer-to-dealer platform in the U.S.
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  GRAPHIC Generated
strong cash flow from operations
of $384.4 million
 
       
       
       
  Ended year with
strong cash position of
$752.1 million
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CORPORATE GOVERNANCE HIGHLIGHTS (PAGES 13–18)

We are committed to high standards of ethical and business conduct and strong corporate governance practices. This commitment is highlighted by the practices described below as well as the information contained on our website, www.karglobal.com, which can be accessed by clicking on "Investors" and then the "Governance" tab.

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  Annual Elections: Our directors are elected annually for one-year terms.

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Majority Voting: We maintain a majority voting standard for uncontested director elections with a policy for directors to tender their resignation if less than a majority of the votes cast are in their favor.

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Director and Committee Independence: Seven of our nine director nominees are independent, and all committees of our Board of Directors (the "Board") are comprised entirely of independent directors.

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Executive Sessions: Our independent directors meet in executive session at each regularly scheduled Board meeting.

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Lead Independent Director: We have a lead independent director who presides over the executive sessions of the independent directors and serves as the principal liaison between the independent directors and the Company's CEO and Chairman of the Board.

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Gender Diversity: More than twenty percent of our director nominees are women.

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Annual Board and Committee Evaluations: The Board and its committees each evaluates its performance each year.

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Robust Equity Ownership Requirements for Non-Employee Directors: The stock ownership guideline for our non-employee directors is five times their annual cash retainer.

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Robust Equity Retention Requirements for Non-Employee Directors: All shares of our common stock granted to non-employee directors must be held for three years after vesting while serving as a director.

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Robust Equity Ownership Requirements for Executive Officers: We have stock ownership guidelines that are applicable to our executive officers. The stock ownership guideline for our CEO is five times his annual base salary, the stock ownership guideline for CEO direct reports and business unit leaders is three times annual base salary and, for the remaining executive officers, two times annual base salary. Executive officers are required to hold 60% of vested shares, net of taxes, until stock ownership guidelines are met.

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Anti-Hedging and Pledging Policies: Our directors and executive officers are prohibited from hedging or pledging Company stock.

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Annual management and CEO evaluation and succession planning review: Our Board conducts an annual evaluation and review of our CEO and each executive officer's performance, development and succession plan.

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Board Risk Oversight: The Risk Committee assists the Board in its oversight of: (i) the principal business, financial, technology, operational and regulatory risks and other material risks and exposures of the Company; and (ii) the actions, activities and initiatives of the Company to mitigate such risks and exposures. The Risk Committee provides oversight with respect to risk practices implemented by management, except for the oversight of risks that have been specifically delegated to another committee of the Board (in which case the Risk Committee may maintain oversight over such risks through the receipt of reports from such committees).


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EXECUTIVE COMPENSATION (PAGES 25–59)

We maintain a compensation program structured to achieve a close connection between executive pay and Company performance. We believe that this strong pay-for-performance orientation has served us well in recent years. For more information regarding our named executive officer compensation, see "Compensation Discussion and Analysis" and the compensation tables that follow such section.

Executive Compensation Best Practices

WHAT WE DO

Pay for performance: Our annual incentive program is 100% performance-based and our equity incentive program is heavily performance-based with 75% of our equity awards in the form of PRSUs tied to long-term performance.
Independent Compensation Committee: All of the members of our Compensation Committee are independent under NYSE rules.
Independent compensation consultant: The Compensation Committee retains its own independent compensation consultant to evaluate and review our executive compensation program and practices.
"Double-trigger" equity vesting: Accelerated vesting of assumed or replaced equity awards upon a change in control of the Company is only permitted if an executive experiences a qualifying termination of employment in connection with or following such change in control.
Robust equity ownership requirements: The stock ownership guideline for our CEO is five times his annual base salary, and two or three times annual base salary for the other executive officers. Executive officers are required to hold 60% of vested shares, net of taxes, until stock ownership guidelines are met.
Maximum payout caps: The Compensation Committee sets maximum amounts that may be payable for annual cash incentive compensation and PRSUs.
Annual compensation risk assessment: Each year we perform an assessment of any risks that could result from our compensation programs and practices.
Clawback policy: Our clawback policy provides for the recovery and cancellation of incentive compensation of an executive officer in the event we are required to prepare an accounting restatement due to such executive officer's intentional misconduct.
Stockholder alignment: We reward performance that meets or exceeds the performance goals that the Compensation Committee establishes with the objective of increasing stockholder value.

WHAT WE DON'T DO

Pay dividends on unvested equity awards: Dividend equivalents and cash are accrued on PRSUs and RSUs, respectively, but are only paid out if and to the extent the underlying PRSUs and RSUs vest.
Provide excise tax gross-ups: We do not provide "golden parachute" excise tax gross-ups. The Company and Mr. Hallett entered into a new employment agreement in 2021 eliminating the legacy tax gross-up provision contained in Mr. Hallett's prior agreement.
Provide excessive perquisites: We provide a limited number of perquisites that are designed to support a competitive total compensation package.
Guarantee incentive compensation: Our annual incentive program and our PRSU equity awards are entirely performance-based and our executive officers are not guaranteed any minimum levels of payment.
Allow hedging or pledging of the Company's securities: We prohibit hedging, pledging and short sales of Company stock by our directors and executive officers.
Reprice stock options: Stock option exercise prices are set equal to the grant date market price and cannot be repriced or discounted without stockholder approval.
Provide pension benefits or supplemental retirement plans: We do not maintain a defined benefit pension or supplemental retirement plans for our executive officers.

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DIRECTORS ELECTED ANNUALLY

The Apax Investor has designated, and our Board has nominated, Roy Mackenzie, to stand for election to the Board at the 2021 annual meeting. In addition, our Board has nominated the eight individuals named below to stand for election to the Board at the 2021 annual meeting. The Company's directors are elected each year by our stockholders at the annual meeting (with one member of the Board being elected solely by the holders of Series A Preferred Stock). We do not have a staggered or classified board. Each director's term will last until the 2022 annual meeting of stockholders and until such director's successor is duly elected and qualified, or such director's earlier death, resignation or removal. The director nominee designated by the Apax Investor must receive the affirmative vote of a majority of the votes cast by the holders of Series A Preferred Stock (voting as a separate class), and the eight other director nominees must receive the affirmative vote of a majority of the votes cast by the holders of common stock and Series A Preferred Stock, voting together as a single class, in the election of directors at the 2021 annual meeting to be elected (i.e., the number of shares voted "FOR" a director nominee must exceed the number of votes cast "AGAINST" such nominee).

DIRECTOR INDEPENDENCE

The Board is responsible for determining the independence of our directors. Under the NYSE listing standards, a director qualifies as independent if the Board affirmatively determines that the director has no material relationship with the Company. While the focus of the inquiry is independence from management, the Board is required to broadly consider all relevant facts and circumstances in making an independence determination. In making independence determinations, the Board complies with NYSE listing standards and considers all relevant facts and circumstances. Based upon its evaluation, our Board has affirmatively determined that the following directors meet the standards of "independence" established by the NYSE: David DiDomenico, Carmel Galvin, Mark E. Hill, J. Mark Howell, Stefan Jacoby, Roy Mackenzie, Michael T. Kestner, Mary Ellen Smith and Stephen E. Smith. James P. Hallett, our Executive Chairman and Chairman of the Board, and Peter J. Kelly, our CEO, are not independent directors.

BOARD NOMINATIONS AND DIRECTOR NOMINATION PROCESS

The Board is responsible for nominating members for election to the Board and for filling vacancies on the Board that may occur between the annual meetings of stockholders. The Nominating and Corporate Governance Committee is responsible for identifying, screening and recommending candidates to the Board for Board membership. When formulating its Board membership recommendations, the Nominating and Corporate Governance Committee may also consider advice and recommendations from others, including third-party search firms, current Board members, management, stockholders and other persons, as it deems appropriate. The Nominating and Corporate Governance Committee has previously retained a third-party search firm to assist with identifying, screening and evaluating potential candidates.

The Nominating and Corporate Governance Committee uses a variety of methods to identify and evaluate potential candidates. Consideration of candidates typically involves a series of internal discussions, review of candidate information, and interviews with selected candidates. The Nominating and Corporate Governance Committee will consider the candidate against the criteria it has adopted, as further discussed below, in the context of the Board's then-current composition and the needs of the Board and its committees, and will ultimately recommend qualified candidates for election to the Board. Though the Nominating and Corporate Governance Committee does not have a formal policy regarding consideration of director candidates recommended by stockholders, the Nominating and Corporate Governance Committee generally evaluates such candidates in the same manner by which it evaluates director candidates recommended by other sources. With respect to the director to be elected by the holders of shares of Series A Preferred Stock, such nominee is required to have been designated by the Apax Investor pursuant to the Apax Investment Agreement.


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As detailed in both the Nominating and Corporate Governance Committee Charter and the Corporate Governance Guidelines, director candidates are selected based upon various criteria, including experience, skills, expertise, diversity, personal and professional integrity, character, business judgment, time availability in light of other commitments, dedication, conflicts of interest and such other relevant factors that the Nominating and Corporate Governance Committee considers appropriate in the context of the needs of the Board. Director candidates are considered in light of the needs of the Board with due consideration given to the foregoing criteria. Board members are expected to prepare for, attend and participate in all Board and applicable committee meetings and the Company's annual meetings of stockholders.

In addition, a stockholder may nominate candidates for election as a director, provided that the nominating stockholder follows the procedures set forth in Article II, Section 5 of the Company's Second Amended and Restated By-Laws for nominations by stockholders of persons to serve as directors, including the requirements of timely notice and certain information to be included in such notice. Deadlines for stockholder nominations for next year's annual meeting are included in the "Requirements, Including Deadlines, for Submission of Proxy Proposals" section on page 73.

Pursuant to our employment agreements with James P. Hallett, our Executive Chairman and Chairman of the Board, and Peter J. Kelly, our Chief Executive Officer, the Company will nominate each of Messrs. Hallett and Kelly to serve as a member of the Board during his respective period of employment under such agreement.

BOARD QUALIFICATIONS AND DIVERSITY

The Nominating and Corporate Governance Committee and the Board believe that diversity along multiple dimensions, including opinions, skills, perspectives, personal and professional experiences, and other differentiating characteristics, is an important element of its nomination recommendations. The Nominating and Corporate Governance Committee has not identified any specific minimum qualifications which must be met for a person to be considered as a candidate for director. However, Board candidates are selected based upon various criteria including experience, skills, expertise, diversity, personal and professional integrity, character, business judgment, time availability in light of other commitments, dedication, conflicts of interest and such other relevant factors that the Nominating and Corporate Governance Committee considers appropriate in the context of the needs of the Board. Although the Board does not have a formal diversity policy, the Nominating and Corporate Governance Committee and Board review these factors, including diversity of gender, race, ethnicity, age, cultural background and professional experience, in considering candidates for Board membership.

INFORMATION REGARDING THE NOMINEES FOR ELECTION
TO THE BOARD

The following information is furnished with respect to each nominee for election as a director. All of the nominees are currently directors. The nominees were elected by the stockholders at last year's annual meeting, except for Mr. Mackenzie. Mr. Mackenzie was originally appointed to our Board on June 10, 2020 for a term expiring at the 2021 annual meeting pursuant to the terms of the Apax Investment Agreement. For so long as the Apax Investor meets certain beneficial ownership conditions as detailed in the Apax Investment Agreement, the Apax Investor has the right to designate one director to the Board. The Apax Investor has designated Roy Mackenzie for election in 2021 for a term expiring at the 2022 annual meeting. Consistent with the Apax Investment Agreement, our Board now nominates, and recommends, Mr. Mackenzie for election in 2021 for a term expiring at the 2022 annual meeting. The appointment of the Apax Investor designee will be voted on by the holders of Series A Preferred Stock at each annual meeting until the Apax Investor ceases to meet certain beneficial ownership conditions as detailed in the Apax Investment Agreement.

Each of the nominees has consented to being named in this proxy statement and to serve as a director if elected. If Roy Mackenzie shall not be available for election as a director at the 2021 annual meeting, it is intended that shares represented by the accompanying proxy will be voted for the election of a substitute nominee designated by the Apax Investor. If any of the other eight nominees is unavailable to stand for election as a director, your proxy holders will have the authority and discretion to vote for another nominee proposed by the Board or the Board may reduce the number of directors to be elected at the 2021 annual meeting. The ages of the nominees are as of the date of the 2021 annual meeting, June 4, 2021.


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Nominees for Election as Directors to Be Elected by Holders of Series A Preferred Stock

  Roy Mackenzie            

 

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Independent Director
since June 2020
Age: 49

Current Board Committees:
Compensation Committee

 

 

 

 

 

Career Highlights

 

 

 

 

 


Partner at Apax Partners,  LP ("Apax"), a private equity advisory firm, since January 2003, and also serves on the Investment Committees for the Apax Buyout Funds and Apax Global Alpha.


 

 

 

 
 

Director of Trade Me Ltd, Vyaire Medical, Inc., and Duck Creek Technologies, Inc., each in connection with investments by funds advised by Apax.

       

 


Previously served as a director of several companies in connection with investments by funds advised by Apax, including Sophos Group plc, King Digital Entertainment plc, Exact Software NV, Epicor Software, Inc., and NXP Semiconductors NV.


 

 

 

 

 

Other Public and Registered Investment Company Directorships in Last Five Years: Director of Duck Creek Technologies, Inc. since April 2016. Partner at Apax since 2003. Director of Sophos Group PLC from May 2015 to March 2020.

 

 

 

 

 

Skills and Qualifications

 

 

 

 

 


Extensive experience working closely with management teams to build successful technology companies.


 

 

 

 

 


Substantial experience in evaluating companies' strategies, operations and financial performance, which provides important perspectives and insights.


 

 

 

 

 


Deep technology expertise.


 

 

 

 

 


Current and prior public board service brings valuable skills and perspectives to our Board.


 

 

 

 

 

Mr. Mackenzie is a director who was designated by the Apax Investor under the terms of the Apax Investment Agreement. Only the holders of Series A Preferred Stock may vote on the election of Mr. Mackenzie as a director at the 2021 annual meeting.

 

 

 

 

 

  The Board of Directors recommends a vote FOR the election of the foregoing nominee to the Board of Directors.
    Proxies solicited by the Board of Directors will be voted "FOR" the election of the director nominee named in this proxy statement and on the proxy card unless stockholders specify a contrary vote.


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Nominees for Election as Directors to Be Elected by Holders of Common Stock and Series A Preferred Stock, Voting Together as a Single Class

Carmel Galvin    

GRAPHIC

 

Independent Director
since February 2020
Age: 52

Current Board Committees:
Compensation Committee (Chair) and Nominating and Corporate Governance Committee
James P. Hallett    

GRAPHIC

 

Director
since April 2007
Age: 68

Executive Chairman and Chairman of the Board
Career Highlights

Chief People Officer at Stripe, Inc., a payment software services and solutions company, since January 2021.

Chief Human Resources Officer ("CHRO") and Senior Vice President, People and Places, at Autodesk, Inc., a multinational software corporation, from March 2018 to January 2021.

CHRO and Senior Vice President at Glassdoor, Inc., a job listing platform, from April 2016 to February 2018.

CHRO and Senior Vice President at Advent Software, Inc., an investment management software company, from October 2014 to April 2016.

Vice President of Talent & Culture Development for Deloitte New-venture Accelerator (DNA), from May 2013 to October 2014.

Provided human resources consulting services from January 2011 to April 2013 at Front Arch, Inc. and from September 2009 to December 2011 at Corporate Leadership Council (CLC), Corporate Executive Board.

Managing Director, Global Head of Human Resources at Moody's Analytics (formerly Moody's KMV) from November 2004 to March 2008 and Vice President, Global Head of Human Resources at Barra, Inc. from September 1995 to June 2002.

Graduate of Trinity College Dublin (BA) and University College Dublin (MBS).


Skills and Qualifications

More than 25 years of talent and culture leadership experience with global organizations in the technology and online sectors.

Extensive experience in helping transform global companies, including leading diversity and inclusion, employee engagement and culture management efforts at companies with varied locations, languages and cultures.

Significant experience with executive compensation programs and practices, including working directly with boards and compensation committees on compensation, talent and succession planning initiatives.

Provides diverse international perspective.

Career Highlights

Executive Chairman of the Company since April 2021 and Chairman of the Company since December 2014. Chief Executive Officer of the Company from September 2009 to March 2021.

Chief Executive Officer and President of ADESA from April 2007 to September 2009, a wholly owned subsidiary of the Company.

President of Columbus Fair Auto Auction, a large independent automobile auction located in Columbus, Ohio, from May 2005 to April 2007.

After selling his auctions to ADESA in 1996, Mr. Hallett held various senior executive leadership positions with ADESA between 1996 and 2005, including President and Chief Executive Officer of ADESA.

Founded and owned two automobile auctions in Canada from 1990 to 1996.

Managed and then owned a number of new car franchise dealerships for 15 years.

Winner of multiple industry awards, including NAAA Pioneer of the Year in 2008 and the Ed Bobit Industry Icon award in 2018.

Recognized as the EY Entrepreneur of the Year 2014 National Services Award Winner and one of Northwood University's 2015 Outstanding Business Leaders.

Graduate of Algonquin College.


Skills and Qualifications

Committed and deeply engaged leader with over 20 years of experience in key leadership roles throughout the Company and over 40 years of experience in the industry.

As the former Chief Executive Officer and now Executive Chairman, Mr. Hallett has a thorough and in-depth understanding of the Company's business and industry, including its employees, business units, customers and investors, which provides an additional perspective to our Board.

Utilizes strong communication skills to guide Board discussions and keep our Board apprised of significant developments in our business and industry; including our risk management practices, strategic planning and development.


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Mark E. Hill    

GRAPHIC

 

Independent Director
since June 2014
Age: 65

Current Board Committees:
Nominating and Corporate Governance
Committee (Chair) and Risk Committee
J. Mark Howell    

GRAPHIC

 

Independent Director
since December 2014
Age: 56

Current Board Committees:
Risk Committee (Chair) and Audit Committee
Career Highlights

Managing Partner of Collina Ventures, LLC, a private investment company that invests in software and technology companies, since 2006; and Chairman and Chief Executive Officer of Lumavate LLC, a company that provides a platform for building cloud-based mobile applications, since November 2017.

Co-founder and Chairman of Bluelock, LLC, a privately held infrastructure-as-a-service company, from 2006 to March 2018.

Co-Founder, President and Chief Executive Officer of Baker Hill Corporation, a banking industry software and services business, from 1985 to 2006. Baker Hill Corporation was acquired by Experian PLC, a global information solutions company, in 2005.

Graduate of the University of Notre Dame (BBA) and Indiana University (MBA).


Other Public Company Directorships in Last Five Years: Director of Interactive Intelligence Group, Inc. from 2004 to 2016.

Skills and Qualifications

Significant executive leadership and management experience leading and owning a software and technology-based business provides our Board with expertise in technology, innovation, and strategic investments.

Extensive experience as an investor and mentor to numerous early stage software and technology companies provides entrepreneurial perspective to the Board.

Key leadership experience in numerous central Indiana business and community service organizations, including TechPoint, the Central Indiana Community Foundation, the Orr Fellowship and the local Teach For America board.

Public company board experience, including serving as a lead independent director.

Career Highlights

President and Chief Executive Officer of Conexus Indiana, Indiana's advanced manufacturing and logistics initiative sponsored by Central Indiana Corporate Partnership, Inc., since January 2018.

Chief Operating Officer of Angie's List, Inc., a national local services consumer review service and marketplace, from March 2013 to September 2017. Angie's List, Inc. was acquired in 2017 and merged into ANGI Homeservices Inc.

President, Ingram Micro North America Mobility of Ingram Micro Inc., a technology distribution company, from 2012 to 2013.

President, BrightPoint Americas of BrightPoint, Inc., a distributor of mobile devices for phone companies, including Chief Operating Officer, Executive Vice President and Chief Financial Officer, from 1994 to 2012. BrightPoint, Inc. was sold to Ingram Micro Inc. in 2012.

Vice President and Corporate Controller of ADESA from August 1992 to July 1994, now a wholly owned subsidiary of the Company.

Audit Staff and Senior Staff at Ernst & Young LLP.

Graduate of the University of Notre Dame (BBA in Accounting).


Skills and Qualifications

Extensive senior leadership experience at internet-based and technology-driven companies provides valuable insight as an increasing amount of the Company's consigned vehicles are sold online (with 100% currently sold online).

Significant executive leadership experience in the public company sector.

Provides unique, in-depth knowledge of ADESA and its industry as a former employee of ADESA.

Substantial financial experience.

Certified Public Accountant with experience in public accounting and public companies.


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Stefan Jacoby    

GRAPHIC

 

Independent Director
Since June 2019
Age: 63

Current Board Committees:
Compensation Committee and Nominating and Corporate Governance Committee
Peter Kelly    

GRAPHIC

 

Director
since April 2021
Age: 52

Chief Executive Officer
Career Highlights

Consultant in the automotive industry since January 2018.

Executive Vice President of General Motors Company, a multinational company that designs, manufactures and markets vehicles worldwide, and President of GM International Operations, from August 2013 to January 2018.

Chief Executive Officer and President of Volvo Car Corporation, a multinational vehicle manufacturer and marketer, from August 2010 to October 2012.

Served in several capacities at Volkswagen AG, a multinational automotive manufacturing company, between 2004 and 2010, most recently serving as Chief Executive Officer and President of Volkswagen Group of America from 2007 to 2010 and as Executive Vice President of Group Marketing and Sales at Volkswagen AG from 2004 to 2007.

Chief Executive Officer and President of Mitsubishi Motors Europe, the European headquarters of automotive manufacturer Mitsubishi Motors, from 2001 to 2004.

Served in a variety of finance and leadership roles at Volkswagen AG from 1985 to 2001.

Graduate of the University of Cologne, Germany.


Skills and Qualifications

More than 30 years of broad international experience in the automotive industry, including senior management positions with global automakers in Germany, Japan, the Netherlands, Sweden, Singapore and the United States.

Deep insights and understanding of the macro trends and technologies rapidly transforming the automotive industry, including mobility as a service and autonomous vehicles.

Extensive knowledge of customer experience and retail structures. Expansive experience in finance, sales and marketing has given him a deep understanding of the impact of both areas on profitability and successful market growth.

Strong leadership skills in managing and motivating people for establishing momentum for growth and change, building high performance teams in transformative periods and recruiting and retaining senior management.

Career Highlights

Chief Executive Officer of the Company since April 2021.

President of the Company from January 2019 to March 2021.

President of Digital Services of the Company from December 2014 to January 2019 and Chief Technology Officer of the Company from June 2013 to January 2019.

President and Chief Executive Officer of OPENLANE, a subsidiary of the Company, from February 2011 to June 2013.

President and Chief Financial Officer of OPENLANE from February 2010 to February 2011.

Co-founded OPENLANE in 1999, and served in a number of executive roles at OPENLANE from 1999 to 2010.

Prior to his work with OPENLANE, managed engineering, construction and procurement projects for Taylor Woodrow, a U.K.-based construction and development firm, from 1989 to 1997.

Graduate of the University College Dublin (Engineering) and Stanford University (MBA).


Skills and Qualifications

More than 20 years of experience in the Company's industry, with unique insights gained as a co-founder and executive of a digital auction start-up and subsequently as a senior executive of the Company, leading our digital services and technology teams and offerings.

As former President and now Chief Executive Officer, Mr. Kelly has a thorough and in-depth understanding of the Company's business and industry, including its employees, business units, customers and digital opportunities, which provides an additional perspective to the Board. Mr. Kelly's entrepreneurial mindset provides further unique perspective.

Deep insights into the businesses and technologies rapidly transforming the Company's business and industry.

Strong leadership skills and technology expertise.


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Michael T. Kestner    

GRAPHIC

 

Independent Director
since December 2013
Lead Independent Director
since July 2019
Age: 67

Current Board Committees:
Audit Committee (Chair) and Risk Committee
Mary Ellen Smith    

GRAPHIC

 

Independent Director
since October 2019
Age: 61

Current Board Committees:
Compensation Committee and Risk Committee
Career Highlights

Consultant in the building products and automotive industry since December 2015.

Chief Financial Officer of Building Materials Holding Corporation, a building products company, from August 2013 to December 2015.

Partner in FocusCFO,  LLC, a consulting firm providing part time CFO services, from April 2012 to August 2013.

Executive Vice President, Chief Financial Officer and a director of Hilite International, Inc., an automotive supplier of powertrain parts, from October 1998 to July 2011.

Chief Financial Officer of Sinter Metals, Inc., a supplier of powder metal precision components, from 1995 to 1998.

Served in various capacities at Banc One Capital Partners, Wolfensohn Ventures LP and as a senior audit manager at KPMG LLP.

Graduated from Southeast Missouri State University.


Skills and Qualifications

Over 20 years as a CFO provides valuable experience and perspective as Chair of the Audit Committee.

Brings experience as the former CFO of a large, United States based company which includes experience with complex capital structures and mergers and acquisitions.

Extensive experience in financial analysis and financial statement preparation.

Management experience in the automotive industry both domestically and internationally provides him with additional insight into financial and business matters that are important to the Company.

Certified Public Accountant with experience in public accounting and public companies.

Career Highlights

Corporate Vice President of Worldwide Business Operations of Microsoft Corporation ("Microsoft"), a technology company, since July 2013.

Vice President, Worldwide Operations of Microsoft from 2011 to July 2013, General Manager, Worldwide Commercial Operations of Microsoft from 2010 to 2011, and General Manager and President of Microsoft Licensing, GP from 2006 to 2010.

Served in several roles at Hewlett-Packard Company from 1996 to 2006, including Vice President, Volume Direct and Teleweb, Americas Region, from 2004 to 2006, and Vice President, Worldwide Customer Operations from 2002 to 2004.

Graduate of Bowling Green State University (BS) and Wright State University (MBA). Earned certificate of completion from the Stanford Executive Program at Stanford University.


Skills and Qualifications

Over 30 years of broad and extensive operational and leadership experience in the technology industry with a deep focus on global operations strategy and execution, business transformation change management, global manufacturing, supply chain and logistics.

Deep expertise in digital business transformation, change management in transforming business processes from physical to digital supply chain and operations delivering highly impactful business model and cost improvements.

Extensive knowledge in leading through growth and expansion by building future operating performance models for new businesses in emerging markets and more broadly, worldwide.

Extensive knowledge and broad business skills supporting customer experience enhancements, compliance enhancements, oversight, risk mitigation and management. Highly skilled in finance, sales and marketing support with a deep understanding of business model operations and drivers of profitability.

Significant leadership skills leading highly impactful and performing teams and managing people. A proven leader championing diversity and inclusion in corporate culture for all dimensions of diversity.

 

  The Board of Directors recommends a vote FOR the election of each of the foregoing eight nominees to the Board of Directors.
    Proxies solicited by the Board of Directors will be voted "FOR" the election of each of the eight director nominees named in this proxy statement and on the proxy card unless stockholders specify a contrary vote.


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BOARD STRUCTURE AND CORPORATE GOVERNANCE

ROLE OF THE BOARD

The Board oversees the Company's Executive Chairman, CEO and other members of senior management in the competent and ethical operation of the Company and assures that the long-term interests of the stockholders are being served. The Board serves as the ultimate decision-making body of the Company, except for those matters reserved to or shared with the stockholders. The Company's Corporate Governance Guidelines are available on our website, www.karglobal.com, by clicking on "Investors" and then the "Governance" tab. The information on our website is not part of this proxy statement and is not deemed incorporated by reference into this proxy statement or any other public filing made with the Securities and Exchange Commission (the "SEC").

BOARD LEADERSHIP

The Company's Corporate Governance Guidelines provide that the Board shall be free to choose its Chairman in any way it deems best for the Company at any given point in time. If the Chairman is not an independent director, the independent directors are to annually appoint a Lead Independent Director. The Board believes that it should have the flexibility to make these determinations from time to time in the way that it believes best to provide appropriate leadership for the Company under then-existing circumstances.

James P. Hallett currently serves as Executive Chairman and Chairman of the Board, with Michael T. Kestner serving as the Lead Independent Director. Our Board believes that having Mr. Hallett serve as the Chairman of the Board is appropriate for the Company at this time, as it fosters clear accountability, effective decision making and alignment on corporate strategy. Given Mr. Hallett's unparalleled knowledge of the industry and the Company, the Board believes Mr. Hallett is in the best position to focus the independent directors' attention on critical business matters and to speak for and provide leadership to both the Company and the Board. In addition, the Board believes that the appointment of a Lead Independent Director helps ensure that the Company benefits from effective oversight by its independent directors. Our Lead Independent Director presides over the executive sessions of the independent directors and serves as the principal liaison between the independent directors and the Company's CEO and Chairman of the Board. Our Lead Independent Director, Mr. Kestner, has served on the Board since 2013 and as Lead Independent Director since July 2019. Mr. Kestner is a highly-engaged Lead Independent Director empowered with robust authority and responsibilities, as discussed below.

The Board has adopted a Lead Independent Director Charter, which sets forth a clear mandate with significant authority and responsibilities for the Lead Independent Director, including:

Board Meetings and Executive Sessions  

Has the authority to call meetings of the independent directors, and calls and develops the agenda for executive sessions of the independent directors.

   

Presides at all meetings of the Board at which the Chairman of the Board is not present, including executive sessions of the independent directors.

Meeting Agendas, Schedules and Materials  

Reviews, in consultation with the Chairman and CEO:

agendas for Board meetings;

   

meeting schedules to assure there is sufficient time for discussion of all agenda items; and

   

information sent to the Board, including the quality, quantity, appropriateness and timeliness of such information.

Board/Director Communications  

Serves as principal liaison on Board-wide issues among the independent directors and the Chairman and CEO and facilitates communication generally among directors.

Stockholder Communications  

If requested by stockholders, ensures that he or she is available, when appropriate, for consultation and direct communication.

Chairman and CEO Performance Evaluation  

Together with the Compensation Committee, conducts an annual evaluation of the Chairman and CEO, including an annual evaluation of his or her interactions with the independent directors.

Outside Advisors and Consultants  

Recommends to the independent directors the retention of advisors and consultants who report directly to the Board, and, upon approval by the independent directors, retains such advisors and consultants.


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EXECUTIVE SESSIONS

The independent directors of the Company meet in executive session at every regularly scheduled Board meeting. The Company's Corporate Governance Guidelines state that the Chairman of the Board (if an independent director) or the Lead Independent Director (if the Chairman of the Board is not an independent director) shall preside at such executive sessions, or in such director's absence, another independent director designated by the Chairman of the Board or the Lead Independent Director, as applicable. Currently, Mr. Kestner, our Lead Independent Director, presides at the executive sessions of our independent directors.

BOARD MEETINGS AND ATTENDANCE

The Board held eleven meetings during 2020. All of the incumbent directors attended at least 75% of the meetings of the Board and Board committees on which they served during 2020. As stated in our Corporate Governance Guidelines, each director is expected to attend all annual meetings of stockholders. All of our directors attended last year's annual meeting of stockholders.

BOARD COMMITTEES

In 2020, the Board maintained four standing committees: the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee and the Risk Committee. Each of our committees operates pursuant to a written charter. Copies of the committee charters are available on our website, www.karglobal.com, by clicking on "Investors" and then the "Governance" tab. The information on our website is not part of this proxy statement and is not deemed incorporated by reference into this proxy statement or any other public filing made with the SEC. The following table sets forth the current membership of each committee:

Name Audit Committee Compensation
Committee
Nominating and
Corporate
Governance
Committee
Risk Committee
David DiDomenico(1) GRAPHIC GRAPHIC
Carmel Galvin   GRAPHIC  (Chair) GRAPHIC  
James P. Hallett(2)        
Mark E. Hill     GRAPHIC  (Chair) GRAPHIC
J. Mark Howell GRAPHIC GRAPHIC  (Chair)
Stefan Jacoby   GRAPHIC GRAPHIC  
Peter Kelly(2)        
Michael T. Kestner(3) GRAPHIC  (Chair)     GRAPHIC
Roy Mackenzie GRAPHIC
Mary Ellen Smith   GRAPHIC   GRAPHIC
Stephen E. Smith(1) GRAPHIC GRAPHIC

(1)
Messrs. DiDomenico and Smith are not standing for re-election at the 2021 annual meeting.

(2)
Mr. Hallett is our Executive Chairman and Chairman of the Board. Mr. Kelly is our CEO.

(3)
Mr. Kestner is our Lead Independent Director.

A description of each Board committee is set forth below.

Audit Committee

Meetings Held in 2020: 5

Primary Responsibilities: Our Audit Committee assists the Board in its oversight of the integrity of our financial statements, our independent registered public accounting firm's qualifications and independence and the performance of our independent registered public accounting firm. The Audit Committee (i) reviews the audit plans and findings of our independent registered public accounting firm and our internal audit team and tracks management's corrective action plans where necessary; (ii) reviews our financial statements, including any


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significant financial items and changes in accounting policies or practices, with our senior management and independent registered public accounting firm; (iii) reviews our financial risk and control procedures, compliance programs (including our Code of Business Conduct and Ethics) and significant tax, legal and regulatory matters; (iv) reviews and approves related person transactions; and (v) has the sole discretion to appoint annually our independent registered public accounting firm, evaluate its independence and performance and set clear hiring policies for employees or former employees of the independent registered public accounting firm.

Independence: Each member of the Audit Committee is "financially literate" under the rules of the NYSE, and each of Messrs. Howell and Kestner has been designated as an "audit committee financial expert" as that term is defined by the SEC. In addition, the Board has determined that each member of the Audit Committee meets the standards of "independence" established by the NYSE and is "independent" under the independence standards for audit committee members adopted by the SEC.

Compensation Committee

Meetings Held in 2020: 7

Primary Responsibilities: The Compensation Committee reviews and recommends policies relating to the compensation and benefits of our executive officers and employees. The Compensation Committee reviews and approves corporate goals and objectives relevant to the compensation of our CEO and other executive officers, evaluates the performance of these officers in light of those goals and objectives, and approves the compensation of these officers based on such evaluations. The Compensation Committee also administers the issuance of equity and other awards under our equity plans.

Independence: All of the members of the Compensation Committee are independent under the NYSE rules (including the enhanced independence requirements for compensation committee members).

Nominating and Corporate Governance Committee

Meetings Held in 2020: 5

Primary Responsibilities: The Nominating and Corporate Governance Committee is responsible for making recommendations to the Board regarding candidates for directorships and the size and composition of the Board. The Nominating and Corporate Governance Committee also reviews non-employee director compensation on an annual basis and makes recommendations to the Board. In addition, the Nominating and Corporate Governance Committee is responsible for overseeing our Corporate Governance Guidelines and reporting and making recommendations to the Board concerning governance matters. The Nominating and Corporate Governance Committee also assists the Board in the general oversight of the Company's environmental, social and governance (ESG) strategy, including diversity and inclusion matters. As required by the Company's Corporate Governance Guidelines, the Nominating and Corporate Governance Committee oversees an annual evaluation process of the Board and each committee of the Board, as discussed in more detail under "Board and Committee Evaluation Process" below.

Independence: All of the members of the Nominating and Corporate Governance Committee are independent under the NYSE rules.

Risk Committee

Meetings Held in 2020: 4

Primary Responsibilities: The Risk Committee assists the Board in its oversight of (i) the principal business, financial, technology, operational and regulatory risks, and other material risks and exposures of the Company and (ii) the actions, activities and initiatives of the Company to mitigate such risks and exposures. The Risk Committee also provides oversight for matters specifically relating to cyber security and other risks related to information technology systems and procedures. The Risk Committee receives quarterly reports from the Company's Chief Information Security Officer on information security matters, including, among other things, the Company's cyber risks and threats, the status of projects to strengthen the Company's information security systems, assessments of the Company's security program and the emerging threat landscape. The Risk Committee also oversees the Company's enterprise risk management ("ERM") program and has direct oversight over certain risks within the ERM framework.

Independence: All of the members of the Risk Committee are independent under the NYSE rules.


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BOARD AND COMMITTEE EVALUATION PROCESS

The Nominating and Corporate Governance Committee oversees the annual evaluation process of the Board and each of its committees. The evaluation process includes a self-evaluation by the Board, a self-evaluation by each committee of the Board, and a peer evaluation by each director of each other Board member. The Lead Independent Director also conducts a personal interview with each Board member to gather in-depth perspectives and candid insight about Board, committee and individual director effectiveness and suggestions for improvement. Once the evaluation process is complete, the Nominating and Corporate Governance Committee reports to the full Board the results, including any recommendations, which are discussed by the full Board and each committee, as applicable, and changes in practices or procedures are considered and implemented as appropriate.

The Nominating and Corporate Governance Committee periodically reviews the format of the evaluation process to ensure that actionable feedback is solicited on the operation and effectiveness of the Board, the Board committees and each Board member. The Nominating and Corporate Governance Committee also utilizes the results of this self-evaluation process in assessing and determining the characteristics and critical skills required of prospective candidates for election to the Board and making recommendations to the Board with respect to assignments of Board members to various committees.

BOARD'S RISK OVERSIGHT

Management is responsible for assessing and managing risk at the Company, including communicating the most material risks to the Board and its committees. The Board has primary responsibility for risk oversight, with a focus on the most significant risks facing the Company. Oversight of the Company's risks is carried out by the Board as a whole and by each of its committees.

The Board's leadership structure, through its committees, supports its role in risk oversight. In general, the committees oversee the following risks:

    Audit Committee: The Audit Committee maintains initial oversight over risks related to (i) the integrity of the Company's financial statements; (ii) internal control over financial reporting and disclosure controls and procedures (including the performance of the Company's internal audit function); (iii) the performance of the independent registered public accounting firm; and (iv) ethics and related issues arising from the Company's whistleblower hotline.

    Compensation Committee: The Compensation Committee maintains oversight over risks related to the Company's compensation programs and practices.

    Nominating and Corporate Governance Committee: The Nominating and Corporate Governance Committee monitors potential risks relating to the effectiveness of the Board, notably director succession, composition of the Board and the principal policies that guide the Company's governance.

    Risk Committee: The Risk Committee maintains oversight over the Company's enterprise-level risks, including with respect to cyber security and information technology systems and procedures as noted above. The Risk Committee provides oversight with respect to risk practices implemented by management, except for the oversight of risks that have been specifically delegated to another committee of the Board. Even when the oversight of a specific area of risk has been delegated to another committee, the Risk Committee may maintain oversight over such risks through the receipt of reports from the committee chairs.

The Board maintains oversight over such risks through the receipt of reports from the committee chairs at each regularly scheduled Board meeting.

As part of the risk management process, an annual risk assessment is conducted by management to identify and prioritize the most significant enterprise risks to the Company. This risk assessment is reviewed with the Risk Committee and helps guide the focus and selection of risks that are brought to the Risk Committee for review or covered by the full Board or its other committees. The reviews by the Risk Committee and other committees occur principally through the receipt of reports from management and third parties on applicable


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areas of risk, and discussions with management and third parties regarding risk assessment and risk management.

At its regularly scheduled meetings, the Board generally receives a number of reports which include information relating to risks faced by the Company. The Company's Chief Financial Officer provides a report on the Company's results of operations, its liquidity position, including an analysis of prospective sources and uses of funds, and the implications to the Company's debt covenants and credit rating, if any. The Company's Chief Legal Officer provides a privileged report which provides information regarding the status of the Company's material litigation and related matters, if any, including environmental updates and the Company's continuing compliance with applicable laws and regulations. Further, the president of each primary business unit provides information relating to strategic, operational and competitive risks. At each regularly scheduled Board meeting, the Board also receives reports from the Chair of the Risk Committee as well as other committee chairs, which may include a discussion of risks initially overseen by the committees for discussion and input from the Board. As noted above, in addition to these regular reports, the Risk Committee receives reports on specific areas of risk, such as regulatory, cyclical or other risks, and reports to the Board on these matters.

COVID-19 Risk Oversight

Since the onset of the COVID-19 pandemic in March 2020, the Board has exercised oversight of the Company's response and risk management through periodic meetings, interim calls, and regular communications with management on business performance, employee health and safety, risk mitigation efforts, and strategic planning. Actions taken at the peak of the crisis included holding weekly Board calls with key members of management.


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CORPORATE GOVERNANCE DOCUMENTS

The Board has adopted the following corporate governance documents:

Document   Purpose/Application
Code of Business Conduct and Ethics   Applies to all of the Company's employees, officers and directors, including those officers responsible for financial reporting.
Code of Ethics for Principal Executive and Senior Financial Officers   Applies to the Company's principal executive officer, principal financial officer, principal accounting officer and such other persons who are designated by the Board.
Corporate Governance Guidelines   Contains general principles regarding the functions of the Board and its committees.
Committee Charters   Apply to the following Board committees, as applicable: Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee and Risk Committee.
Lead Independent Director Charter   Sets forth a clear mandate and significant authority and responsibilities for the Lead Independent Director.

We expect that any amendment to or waiver of the codes of ethics that apply to executive officers or directors will be disclosed on the Company's website. The foregoing documents are available on our website, www.karglobal.com, by clicking on "Investors" and then the "Governance" tab and in print to any stockholder who requests them. Requests should be made to KAR Auction Services, Inc., Investor Relations, 11299 North Illinois Street, Carmel, Indiana 46032.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During fiscal year 2020, each of Messrs. Jacoby, Mackenzie and Smith and Mmes. Galvin and Smith served as members of the Compensation Committee. None of our executive officers serve, or in fiscal year 2020 served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our Board or our Compensation Committee. None of the individuals serving as members of the Compensation Committee during fiscal year 2020 are now or were previously an officer or employee of the Company or its subsidiaries.

STOCKHOLDER COMMUNICATIONS WITH THE BOARD

Any stockholder or other interested parties desiring to communicate with the Board, the Chairman of the Board, a committee of the Board or any of the independent directors individually or as a group regarding the Company may directly contact such directors by delivering such correspondence to the Company's Chief Legal Officer at KAR Auction Services, Inc., 11299 North Illinois Street, Carmel, Indiana 46032. Our Chief Legal Officer reviews all such correspondence and forwards to the applicable director(s) copies of all such applicable correspondence.

The Audit Committee has established procedures for employees, stockholders and others to submit confidential and anonymous reports regarding accounting, internal accounting controls, auditing or any other relevant matters.


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DIRECTOR COMPENSATION

We use a combination of cash and stock-based incentive compensation to attract and retain independent, qualified candidates to serve on the Board. The Board makes all director compensation determinations after considering the recommendations of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee reviews director compensation annually, assisted periodically by an independent compensation consultant (most recently by ClearBridge Compensation Group LLC ("ClearBridge") in October 2018).

In setting director compensation, we consider various factors including market comparison studies and trends, the responsibilities of directors generally, including committee chairs, and the significant amount of time that directors expend in fulfilling their duties. In establishing the non-employee director compensation recommendations, the Nominating and Corporate Governance Committee utilized a balance of cash and equity, with the majority of the compensation delivered through equity grants. Directors who also serve as employees of the Company do not receive payment for service as directors.

Based in part on ClearBridge's October 2018 review of our director compensation program and those of the Company's then-current proxy comparator group (which was also used in executive compensation benchmarking), in October 2018 the Nominating and Corporate Governance Committee recommended, and the Board approved, certain changes to our director compensation program effective in 2019. Based on its most recent review, the Nominating and Corporate Governance Committee recommended, and the Board agreed, that no changes should be made to director compensation for 2021. There have been no increases in compensation paid to our directors since those approved in October 2018. If stockholders approve amending and restating our Omnibus Plan (Proposal No. 4), non-employee directors will not be eligible to receive aggregate compensation, including equity awards and cash fees, exceeding $750,000 in total value in any calendar year.

During 2020, in connection with the COVID-19 pandemic, each of our non-employee directors voluntarily elected to forgo one-fourth of his or her annual cash retainer and applicable chair, membership and lead independent director fees, which was each to be paid at the end of the second quarter 2020. Mr. Mackenzie agreed not to receive compensation for his service as a director.

CASH AND STOCK RETAINERS

Non-employee directors who served for the entirety of 2020 were entitled to receive:

Components of Director Compensation Program
For 2020 Service

  Annual Amount
  Form of Payment(1)
Annual Cash Retainer(2)   $85,000   Cash
Annual Stock Retainer(3)   $130,000   Restricted Stock
Lead Independent Director Fee   $30,000   Cash
Audit Committee Chair Fee   $25,000   Cash
Compensation Committee Chair Fee   $20,000   Cash
Nominating and Corporate Governance and Risk Committee Chair Fee   $10,000   Cash
Audit Committee Membership Fee   $7,500   Cash
         

(1)
May elect to receive annual cash retainer in shares of our common stock.

(2)
One-fourth of the annual cash retainer is paid at the end of each quarter, provided that the director served as a director in such fiscal quarter.

(3)
Pursuant to our Policy on Granting Equity Awards, unless specifically provided otherwise by the Compensation Committee or the Board, annual grants for directors are effective on the date of the annual meeting at which the director was elected or re-elected. The annual restricted stock grant vests after one year (i.e., on the anniversary of the annual meeting), and is subject to forfeiture until vested. The number of shares of our common stock received is based on the value of the shares on the date of the restricted stock grant.

Annual cash and stock retainers and any applicable fees described above are prorated for non-employee directors who begin such service on a date other than the date of the Company's annual meeting of stockholders. Directors do not receive fees for attending Board or committee meetings. All of our directors are reimbursed for reasonable expenses incurred in connection with attending Board meetings, committee meetings and director education events.


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DIRECTOR DEFERRED COMPENSATION PLAN

Our Board adopted the KAR Auction Services, Inc. Directors Deferred Compensation Plan (the "Director Deferred Compensation Plan") in December 2009. Pursuant to the terms of the Director Deferred Compensation Plan, each non-employee director may elect to defer the receipt of his or her cash director fees into a pre-tax interest-bearing deferred compensation account, which account accrues interest as described in the Director Deferred Compensation Plan. Amounts under the Director Deferred Compensation Plan may also be invested in the same investment choices as are available under our 401(k) plan. Non-employee directors also may choose to receive all or a portion of their annual stock retainer in the form of a deferred share account that tracks shares of our common stock. The Director Deferred Compensation Plan provides that the amount of cash in a director's deferred cash account, plus the number of shares of our common stock equal to the number of shares in the director's deferred share account, will be delivered to a director in installments over a specified period or within 60 days following the date of the director's departure from the Board, with cash being paid in lieu of any fractional shares.

DIRECTOR STOCK OWNERSHIP AND HOLDING GUIDELINES

The Company's non-employee directors are subject to the Company's director stock ownership and holding guidelines. The stock holding guideline requires each non-employee director to hold any shares of the Company's common stock granted by the Company for at least three years post-vesting while serving as a director, subject to certain exceptions approved by the Nominating and Corporate Governance Committee.

The Company's stock ownership guideline requires each non-employee director to own a minimum of five times his or her annual cash retainer amount in shares of Company stock. All non-employee directors are in compliance with this stock ownership guideline, except for Messrs. DiDomenico, Jacoby and Howell and Mmes. Galvin and Smith due to the timing of joining the Board, the decrease in our stock price following the IAA Spin-Off (defined below) and the impact of the COVID-19 pandemic on our business.

These guidelines did not apply to Mr. Mackenzie, who agreed to waive all non-employee director compensation in 2020.

DIRECTOR COMPENSATION PAID IN 2020

The following table provides information regarding the fiscal 2020 compensation paid to our non-employee directors:

Name                    
  Fees Earned
or Paid in
Cash(1)
  Stock
Awards(2)
  Total
David DiDomenico   $92,500   $130,002   $222,502
Carmel Galvin   $81,090   $130,002   $211,092
Mark E. Hill   $95,000   $130,002   $225,002
J. Mark Howell   $102,500   $130,002   $232,502
Stefan Jacoby   $85,000   $130,002   $215,002
Michael T. Kestner   $140,000   $130,002   $270,002
Roy Mackenzie(3)      
Mary Ellen Smith   $85,000   $130,002   $215,002
Stephen E. Smith   $109,185   $130,002   $239,187
             

(1)
The amounts represent the $85,000 annual cash retainer paid to each non-employee director, plus an additional $30,000 paid to the Lead Independent Director, an additional $25,000 paid to the Chair of the Audit Committee, an additional $20,000 paid to the Chair of the Compensation Committee, an additional $10,000 paid to the Chair of the Nominating and Corporate Governance Committee and the Chair of the Risk Committee, and an additional $7,500 paid to members of the Audit Committee (other than the Chair). In connection with the COVID-19 pandemic, each


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    of our non-employee directors voluntarily elected to forgo one-fourth of his or her annual cash retainer and applicable chair, membership and lead independent director fees, which was each to be paid at the end of the second quarter 2020. Fees earned or paid in cash actually received in 2020 by each non-employee director are as follows: Mr. DiDomenico—$69,375; Ms. Galvin—$59,840; Mr. Hill—$71,250; Mr. Howell—$76,875; Mr. Jacoby—$63,750; Mr. Kestner—$105,000; Mr. Mackenzie—$0; Ms. Smith—$63,750; and Mr. Smith—$81,060.

(2)
The amounts represent the aggregate grant date fair value, computed in accordance with the Financial Accounting Standards Board Accounting Standards Codification Topic 718 ("ASC 718"), of shares of restricted stock awarded to each non-employee director as an annual stock retainer. Each non-employee director who was serving as a director after June 4, 2020, the date of our 2020 annual meeting, received 8,228 shares of restricted stock as an annual stock retainer in June 2020. Pursuant to the Director Deferred Compensation Plan, Messrs. DiDomenico, Hill, Howell, Jacoby, Kestner, and Smith and Ms. Galvin each elected to receive 100% of his or her annual stock retainer in a deferred share account. Please see "Outstanding Director Restricted Stock Awards" below for the aggregate number of stock awards outstanding at fiscal year-end for each non-employee director.

(3)
Mr. Mackenzie agreed to waive all non-employee director compensation in 2020.

Mr. Hallett was not entitled to receive any fees or other compensation for serving as a member of our Board in 2020 because he was employed by the Company.

OUTSTANDING DIRECTOR RESTRICTED STOCK AWARDS

The following table sets forth information regarding the number of unvested or deferred shares of our common stock held by each non-employee director as of December 31, 2020:

Name                    
  Unvested Shares
and Dividend
Equivalents(1)
  Deferred Phantom
Shares and
Dividend
Equivalents(2)
David DiDomenico   8,228   3,948
Carmel Galvin   8,228   2,030
Mark E. Hill   8,228   46,413
J. Mark Howell   8,228   15,356
Stefan Jacoby   8,228   2,312
Michael T. Kestner   8,228   32,011
Roy Mackenzie    
Mary Ellen Smith   8,228  
Stephen E. Smith   8,228   11,220
         

(1)
This number represents unvested shares of restricted stock and, for those directors who deferred, unvested phantom stock.

(2)
This number represents vested phantom stock and dividend equivalents which are deferred in each director's account pursuant to the Director Deferred Compensation Plan. These shares will be settled for shares of our common stock on a one-for-one basis.


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BENEFICIAL OWNERSHIP OF COMPANY STOCK

The following table sets forth certain information with respect to the beneficial ownership of our common stock and Series A Preferred Stock as of April 9, 2021 of: (1) each person or entity who beneficially owns more than 5% of any class of the Company's voting securities; (2) each of our directors, director nominees and named executive officers; and (3) all of our directors, director nominees and executive officers as a group. Beneficial ownership is determined in accordance with the rules of the SEC. To our knowledge, each stockholder will have sole voting and investment power with respect to the shares indicated as beneficially owned, unless otherwise indicated in a footnote to the following table. The percentage calculations below are based on 124,761,100 shares of our common stock and 581,608 shares of Series A Preferred Stock outstanding as of April 9, 2021, rather than the percentages set forth in any stockholder's Schedule 13D or Schedule 13G filing. Unless otherwise indicated in a footnote, the business address of each person is our corporate address, c/o KAR Auction Services, Inc., 11299 North Illinois Street, Carmel, Indiana 46032.

 
  Common Stock
Beneficially Owned
  Series A Preferred Stock
Beneficially Owned
Name of Beneficial
Owner
 
Number of
Shares(1)
 
Percent of
Class(2)
 
Number of
Shares
 
Percent of
Class

5% BENEFICIAL OWNERS

               

Ignition Acquisition Holdings LP(3)

  (4)   (4)   528,736   90.91%

Periphas Kanga Holdings, LP(5)

  (4)   (4)   52,872   9.09%

Wellington Management Group LLP(6)

  17,479,860   14.01%    

BlackRock, Inc.(7)

  14,284,706   11.45%        

The Vanguard Group(8)

  12,060,409   9.67%    

The Hartford Mutual Funds, Inc.(9)

  11,032,633   8.84%        

NAMED EXECUTIVE OFFICERS, DIRECTORS AND DIRECTOR NOMINEES

David DiDomenico

  22,176   *    

Thomas J. Fisher

  13,307   *        

Carmel Galvin

  10,258   *    

James P. Hallett(10)

  675,760   *        

John C. Hammer

  24,555   *    

Mark E. Hill(11)

  103,641   *        

J. Mark Howell

  23,584   *    

Stefan Jacoby

  11,957   *        

Peter J. Kelly

  214,113   *    

Michael T. Kestner

  46,161   *        

Eric M. Loughmiller(10)

  358,117   *    

Roy Mackenzie(3)

      528,736   90.91%

Mary Ellen Smith

  18,484   *    

Stephen E. Smith

  27,137   *        

Executive officers, directors and director nominees as a group (18 persons)(12)

  1,733,656   1.39%        

* Less than one percent

(1)
The number of shares includes shares of our common stock subject to vesting requirements and options exercisable within 60 days of April 9, 2021.

(2)
Shares subject to options exercisable within 60 days of April 9, 2021 are considered outstanding for the purpose of determining the percent of the class held by the holder of such option, but not for the purpose of computing the percentage held by others.

(3)
Based solely on information disclosed in a Schedule 13D/A filed with the SEC on September 14, 2020, reporting beneficial ownership of 500,000 shares of Series A Preferred Stock which, as reported as of such date, were convertible into 28,169,000 shares of common stock, beneficially owned by Ignition Acquisition Holdings LP (which


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    excluded any accrued dividends that had not yet been declared by the Issuer as of such filing). In this filing, it was disclosed that Ignition Acquisition Holdings GP, LLC, as the general partner of Ignition Acquisition Holdings LP, Ignition Parent LP, as the sole member of Ignition Acquisition Holdings GP, LLC, Ignition GP LLC, as the general partner of Ignition Parent LP, Ignition Topco Ltd, as the sole member of Ignition GP LLC, Apax X GP Co. Limited, as investment manager of the relevant investment vehicles in the fund known as Apax X which is the sole shareholder of Ignition Topco Ltd, and Apax Guernsey (Holdco) PCC Limited Apax X Cell, as the sole parent of Apax X GP Co. Limited, may be deemed to be the beneficial owners having shared voting and investment power with respect to the securities. Based solely on information disclosed in a Registration Statement on Form S-3 filed with the SEC on February 18, 2021, Apax X GP Co. Limited is controlled by its board of directors that is comprised of the following persons: Simon Cresswell, Andrew Guille, Martin Halusa, Paul Meader and David Staples. The address of Ignition Acquisition Holdings LP, Ignition Acquisition Holdings GP, LLC, Ignition Parent LP and Ignition GP LLC is c/o Apax Partners, L.P., 601 Lexington Avenue, New York, NY 10022. The address of Ignition Topco Ltd is P.O. Box 656, East Wing, Trafalgar Court, Les Banques, St. Peter Port, Guernsey GY1 3PP, Place of Organization: Guernsey. The address of Apax X GP Co. Limited is Third Floor, Royal Bank Place, 1 Glategny Esplanade, St. Peter Port, Guernsey, GY1 2HJ. Mr. Mackenzie is a partner at Apax and is also our director. Mr. Mackenzie disclaims beneficial ownership of the shares of common stock beneficially owned by Ignition Acquisition Holdings LP.

(4)
At the close of business on April 9, 2021, the record date, (i) Ignition Acquisition Holdings LP held in the aggregate voting power equivalent to 29,787,944 shares of our common stock, approximately 19.27% of our common stock on an as-converted basis, and (ii) Periphas held in the aggregate voting power equivalent to 2,978,704 shares of our common stock, approximately 2.33% of our common stock on an as-converted basis.

(5)
Periphas Kanga Holdings GP, LLC as the general partner of Periphas Kanga Holdings, LP, SKM, LLC, as the managing member of Periphas Kanga Holdings, GP, LLC and Sanjeev Mehra, as the investment manager of SKM, LLC, may be deemed to be the beneficial owners having shared voting and investment power with respect to the securities. The principal business address of each of the individuals and entities identified in this paragraph is 667 Madison Avenue, 15th Floor, New York, NY 10065.

(6)
Based solely on information disclosed in a Schedule 13G/A filed by Wellington Management Group LLP on February 4, 2021. According to this Schedule 13G/A, Wellington Management Group LLP, Wellington Group Holdings LLP, and Wellington Investment Advisors Holdings LLP have shared voting power with respect to 15,332,275 shares, shared dispositive power with respect to 17,479,860 shares, and no sole voting or dispositive power, and Wellington Management Company LLP has shared voting power with respect to 15,259,232 shares, shared dispositive power with respect to 17,152,489 shares, and no sole voting or dispositive power. The address of Wellington Management Group LLP, Wellington Group Holdings LLP, Wellington Investment Advisors Holdings LLP and Wellington Management Company LLP is 280 Congress Street, Boston, MA 02210.

(7)
Based solely on information disclosed in a Schedule 13G/A filed by BlackRock, Inc. on January 27, 2021. According to this Schedule 13G/A, BlackRock, Inc. has sole voting power with respect to 14,033,859 shares, sole dispositive power with respect to 14,284,706 shares, and no shared voting or dispositive power. The address of BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055.

(8)
Based solely on information disclosed in a Schedule 13G/A filed by The Vanguard Group on February 10, 2021. According to this Schedule 13G/A, The Vanguard Group has sole voting power with respect to zero shares, sole dispositive power with respect to 11,816,747 shares, shared voting power with respect to 131,090 shares and shared dispositive power with respect to 243,662 shares. The address of The Vanguard Group is 100 Vanguard Blvd., Malvern, Pennsylvania 19355.

(9)
Based solely on information disclosed in a Schedule 13G filed by The Hartford Mutual Funds, Inc. on behalf of Hartford Midcap Fund on February 9, 2021. According to this Schedule 13G, The Hartford Mutual Funds, Inc. has shared voting power with respect to 11,032,633 shares, shared dispositive power with respect to 11,032,633 shares, and no sole voting or dispositive power. The address of The Hartford Mutual Funds, Inc. is 690 Lee Road, Wayne, Pennsylvania 19087.

(10)
Includes the following shares of our common stock issuable pursuant to options that are exercisable within 60 days of April 9, 2021: Mr. Hallett, 194,404; and Mr. Loughmiller, 97,204.

(11)
Includes 800 shares held in a family member's brokerage account, over which Mr. Hill holds a power of attorney. Mr. Hill disclaims beneficial ownership of these shares.

(12)
Includes an aggregate of 291,608 shares of our common stock issuable pursuant to options that are exercisable within 60 days of April 9, 2021.


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GRAPHICS

PROPOSAL

In accordance with Section 14A of the Exchange Act and related SEC rules, the Company seeks a non-binding advisory vote from its stockholders to approve the compensation of its named executive officers as described in the "Compensation Discussion and Analysis" section beginning on page 25 and the compensation tables that follow such section. The Company seeks this non-binding advisory vote from its stockholders annually, pursuant to the results of the stockholders' vote at the Company's 2017 annual meeting of stockholders selecting such frequency.

At the 2020 annual meeting, approximately 97% of the votes cast were in favor of the advisory vote to approve executive compensation.

Our executive compensation program includes certain "best practices" in governance and executive compensation, including the following:

    Pay for performance: Our 2020 annual incentive program is 100% performance-based and our equity incentive program is heavily performance-based with 75% of our equity awards in the form of PRSUs.

    Independent Compensation Committee: All of the members of our Compensation Committee are independent under NYSE rules.

    Independent compensation consultant: The Compensation Committee retains its own independent compensation consultant to review our executive compensation program and practices.

    Maximum payout caps: The Compensation Committee sets maximum amounts that may be payable for annual cash incentive compensation and PRSUs.

    Clawback policy for financial misconduct: Our clawback policy provides for the recovery and cancellation of an executive officer's incentive compensation in the event we are required to prepare an accounting restatement due to such executive officer's intentional misconduct.

    No excise tax gross-ups: The Company and Mr. Hallett entered into a new employment agreement in 2021 eliminating the legacy tax gross-up provision contained in Mr. Hallett's prior agreement.

    Double-trigger vesting provisions in equity award agreements: Our equity awards permit accelerated vesting of assumed or replaced equity awards upon a change in control only if an executive experiences a qualifying termination of employment in connection with or following such change in control.

    Robust equity ownership requirements: We have stock ownership guidelines that are applicable to our executive officers. The stock ownership guideline for our CEO is five times his annual base salary.

    Stockholder alignment: We reward performance that meets or exceeds the performance goals that the Compensation Committee establishes with the objective of increasing stockholder value.

In deciding how to vote on this proposal, the Board encourages you to read the "Compensation Discussion and Analysis" section and the compensation tables that follow. Because this vote is advisory, it will not be binding upon the Board; however, the Board and the Compensation Committee value our stockholders' opinions, and the Compensation Committee will take into account the outcome of the advisory vote when considering future executive compensation decisions.

The affirmative vote of the holders of a majority of the shares present and entitled to vote at the 2021 annual meeting is required to approve this proposal.

  The Board of Directors recommends that you vote FOR the advisory vote to approve executive compensation.
    Proxies solicited by the Board of Directors will be voted "FOR" the advisory vote to approve executive compensation unless stockholders specify a contrary vote.


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COMPENSATION DISCUSSION AND ANALYSIS

OVERVIEW

The following discussion and analysis of our compensation program for named executive officers should be read in conjunction with the tables and text elsewhere in this proxy statement that describe the compensation awarded and paid to the named executive officers.

Named Executive Officers

Our named executive officers for the last completed fiscal year were (i) our chief executive officer; (ii) our chief financial officer; and (iii) each of the three other most highly compensated executive officers who were serving as executive officers at the end of the last completed fiscal year. Our named executive officers are:

 
  Name
  Title*
    James P. ("Jim") Hallett   Chief Executive Officer and Chairman of the Board
    Eric M. ("Eric") Loughmiller   Executive Vice President and Chief Financial Officer
  Peter J. ("Peter") Kelly   President
    John C. ("John") Hammer   Chief Commercial Officer for KAR and President of ADESA
  Thomas J. ("Tom") Fisher   Executive Vice President and Chief Digital Officer
*
The titles shown for our named executive officers reflect their position during 2020. On April 1, 2021, Mr. Hallett became Executive Chairman of the Company, and Mr. Kelly became the Company's Chief Executive Officer.

This Compensation Discussion and Analysis is organized into six sections:

  GRAPHIC   Executive Summary (pages 27–29)
  GRAPHIC   Compensation Philosophy and Objectives (page 30)
  GRAPHIC   The Role of the Compensation Committee and the Executive Officers in Determining Executive Compensation (pages 30–31)
  GRAPHIC   Elements Used to Achieve Compensation Philosophy and Objectives (pages 32–42)
  GRAPHIC   Compensation Policies and Other Information (pages 43–44)
  GRAPHIC   Results of Say on Pay Votes at 2020 Annual Meeting (page 44)

2020 Executive Compensation Highlights

    During this extraordinary year, the Compensation Committee was actively involved in ensuring that the Company's compensation program remained aligned with our pay-for-performance philosophy and our stockholders' interests. The Compensation Committee focused on ensuring that the compensation program is a fair reflection of corporate and individual performance, while motivating and retaining high-performing executives, mitigating compensation-related risks, and recognizing the continued uncertainty caused by the COVID-19 pandemic.

    As part of a series of measures to better enable the Company to weather the extraordinary challenges presented by the COVID-19 pandemic, each of the Company's named executive officers voluntarily reduced or eliminated their base salaries during the second quarter of 2020.

    Payouts based on achievement of performance objectives under our Annual Incentive Program (as subsequently defined) were at 76.4% of the target award amount for the named executive officers. As described in more detail below, the Compensation Committee, in consultation with its independent compensation consultant, worked diligently to ensure that the 2020 Annual Incentive Program performance objectives were reflective of both pre-COVID-19 and post-COVID-19 goals and objectives. The Compensation Committee ultimately adjusted the threshold 2020 Adjusted EBITDA performance level and the 2020 MBOs (each as defined below) and capped any payout at target.

    We continued our heavy focus on performance-based equity awards with 75% of our 2020 equity awards being granted in the form of PRSUs tied to three-year financial performance goals. While the goals were approved prior to the impact of the COVID-19 pandemic, we have not approved adjustments to the performance goals.

These compensation highlights are discussed in more detail below.


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IAA Spin-Off

In 2019, we completed the spin-off of our former salvage auction business, IAA, Inc. ("IAA"), to our stockholders, resulting in KAR and IAA being two independent, publicly-traded companies (the "IAA Spin-Off"). In connection with the IAA Spin-Off, KAR stockholders received one share of IAA stock for every one share of KAR stock held as of June 18, 2019. All equity awards outstanding as of the IAA Spin-Off were adjusted to preserve the economic value of the awards in accordance with the Employee Matters Agreement, dated June 27, 2019, between KAR and IAA. The adjusted KAR awards and adjusted IAA awards are generally subject to the same terms and conditions, and will continue to vest on the same schedule, except as noted below. For purposes of award vesting, continued employment with KAR is treated as continued employment for both KAR and IAA awards. The following summarizes the adjustments to each type of award:

RSUs: Holders of outstanding KAR RSUs retained such KAR RSUs and also received an RSU relating to IAA common stock in respect of each KAR RSU held.

PRSUs Granted in 2018: KAR 2018 PRSUs were converted into time-based RSUs relating to KAR common stock at the target performance level, and each holder retained such KAR RSUs and received a corresponding RSU relating to IAA common stock for each KAR RSU held.

PRSUs Granted in 2019: Holders of KAR 2019 PRSUs retained such PRSUs and received a PRSU relating to IAA common stock in respect of each KAR PRSU held. The PRSUs were subject to adjusted performance criteria for the period from January 1, 2019, through December 31, 2019, which performance criteria was determined by the KAR and IAA compensation committees following the IAA Spin-Off. For both the KAR PRSUs and the IAA PRSUs, the performance-based vesting criteria applied to the 2019 performance year only, with only time-based vesting being applicable through the third anniversary of the applicable grant date for KAR PRSUs and through December 31, 2021 for IAA PRSUs.

Stock Options: Each KAR stock option was converted into two separate options, an adjusted option to purchase KAR common stock and an option to purchase IAA common stock, with the number and exercise prices of both options adjusted to maintain economic value. A conversion formula based on the pre-spin closing price of KAR and IAA was used to determine the exercise prices of the adjusted options.


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EXECUTIVE SUMMARY
For the year ended December 31, 2020, the Company accelerated its digital transformation to sustain operations in the face of significant and unexpected headwinds from the global COVID-19 pandemic. Specific highlights for fiscal 2020 included:
       
       

GRAPHIC

Transitioned operating model to a
fully digital marketplace

100% of vehicles sold via digital channels since April 2020

Launched industry-leading Simulcast+ platform

Significantly reduced cost structure to align with digital model

Registered thousands of new buyers and sellers to our digital platforms

 
       
       
       
       
  Enhanced digital offerings with the
acquisition of BacklotCars
a leading, fast-growing dealer-to-dealer platform in the U.S.
GRAPHIC  
       
       
       
       
  GRAPHIC Generated
strong cash flow from operations
of $384.4 million
 
       
       
       
  Ended year with
strong cash position of
$752.1 million
GRAPHIC  
       
       

 


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COVID-19 Impact on 2020 Compensation

In March 2020, the Company's business operations were adversely impacted by the COVID-19 pandemic. In response to the pandemic, the Company temporarily suspended many of its operations, temporarily furloughed the majority of its workforce in April 2020 and instituted wage reductions for all senior employees. Additionally, to protect the safety and welfare of its workforce, the Company also strongly encouraged all employees capable of performing their responsibilities off-site to begin working remotely.

The severe and immediate impact of the COVID-19 pandemic on businesses and consumers changed the expectations for wholesale and retail activity for 2020. In response, the Company revised its operating plans and adjusted its priorities to focus on reducing balance sheet risk, navigating the uncertainty ahead and ensuring the ability to sustain operations for an extended period of disruption. The Company simultaneously shifted resources and mobilized staff to dramatically accelerate its transformation from a primarily physical auction process to a fully-digital marketplace business for the wholesale used car industry. The pandemic required the named executive officers to take swift and significant actions to both preserve the Company and accelerate opportunities for future growth.

During this extraordinary year, the Compensation Committee was actively involved in ensuring that the Company's compensation program remained aligned with our pay-for-performance philosophy and our stockholders' interests. The Compensation Committee focused on ensuring that the compensation program is a fair reflection of corporate and individual performance, while motivating and retaining high-performing executives, mitigating compensation-related risks, and recognizing the continued uncertainty caused by the COVID-19 pandemic.

2020 Base Salaries

As part of a series of measures to better enable the Company to weather the extraordinary challenges presented by the COVID-19 pandemic, each of the Company's named executive officers voluntarily reduced or eliminated their base salaries during the second quarter of 2020.

2020 Annual Incentive Program

A combination of the Company's 2020 Adjusted EBITDA performance (80%) and each named executive officer's individual performance against his 2020 MBOs (20%) were utilized as performance metrics for 2020.

As described in detail below, the Compensation Committee, after careful review and in consultation with ClearBridge, adjusted the threshold 2020 Adjusted EBITDA performance level and the 2020 MBOs to align to the Company's performance and priorities in light of the COVID-19 pandemic. The Compensation Committee determined that any potential 2020 annual incentive award payout would be capped at target, thereby eliminating the superior opportunity. Payouts based on achievement of performance objectives under our Annual Incentive Program were at 76.4% of the target award amount for the named executive officers.

2020 Long-Term Incentive Program

PRSU awards made up 75% of the value of the aggregate long-term incentives granted to the named executive officers in 2020, with the remaining 25% being in the form of RSUs. Although the three-year performance goals were established prior to the impact of the COVID-19 pandemic, the Compensation Committee did not make adjustments to the 2020 PRSU performance goals.


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Our Executive Compensation Practices are Aligned with Stockholders' Interests

We maintain a compensation program structured to achieve a close connection between executive pay and Company performance. We believe that this strong pay for performance orientation has served us well in recent years.

WHAT WE DO

Pay for performance: Our annual incentive program is 100% performance-based and our equity incentive program is heavily performance-based with 75% of our equity awards in the form of PRSUs tied to long-term performance.
Independent Compensation Committee: All of the members of our Compensation Committee are independent under NYSE rules.
Independent compensation consultant: The Compensation Committee retains its own independent compensation consultant to evaluate and review our executive compensation program and practices.
"Double-trigger" equity vesting: Accelerated vesting of assumed or replaced equity awards upon a change in control of the Company is only permitted if an executive experiences a qualifying termination of employment in connection with or following such change in control.
Robust equity ownership requirements: The stock ownership guideline for our CEO is five times his annual base salary, and two or three times annual base salary for the other executive officers. Executive officers are required to hold 60% of vested shares, net of taxes, until stock ownership guidelines are met.
Maximum payout caps: The Compensation Committee sets maximum amounts that may be payable for annual cash incentive compensation and PRSUs.
Annual compensation risk assessment: Each year we perform an assessment of any risks that could result from our compensation programs and practices.
Clawback policy: Our clawback policy provides for the recovery and cancellation of incentive compensation of an executive officer in the event we are required to prepare an accounting restatement due to such executive officer's intentional misconduct.
Stockholder alignment: We reward performance that meets or exceeds the performance goals that the Compensation Committee establishes with the objective of increasing stockholder value.

WHAT WE DON'T DO

Pay dividends on unvested equity awards: Dividend equivalents and cash are accrued on PRSUs and RSUs, respectively, but are only paid out if and to the extent the underlying PRSUs and RSUs vest.
Provide excise tax gross-ups: We do not provide "golden parachute" excise tax gross-ups. The Company and Mr. Hallett entered into a new employment agreement in 2021 eliminating the legacy tax gross-up provision contained in Mr. Hallett's prior agreement.
Provide excessive perquisites: We provide a limited number of perquisites that are designed to support a competitive total compensation package.
Guarantee incentive compensation: Our annual incentive program and our PRSU equity awards are entirely performance-based and our executive officers are not guaranteed any minimum levels of payment.
Allow hedging or pledging of the Company's securities: We prohibit hedging, pledging and short sales of Company stock by our directors and executive officers.
Reprice stock options: Stock option exercise prices are set equal to the grant date market price and cannot be repriced or discounted without stockholder approval.
Provide pension benefits or supplemental retirement plans: We do not maintain a defined benefit pension or supplemental retirement plans for our executive officers.

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COMPENSATION PHILOSOPHY AND OBJECTIVES

We design and administer our executive pay programs to help ensure the compensation of our named executive officers is (i) closely aligned with our performance on both a short-term and long-term basis; (ii) linked to specific, measurable results intended to create value for stockholders; and (iii) competitive in attracting and retaining key executive talent. Each of the compensation programs that we have developed and implemented is intended to satisfy one or more of the following specific objectives:

    align the interests of our executive officers with the interests of our stockholders so that our executive officers manage from the perspective of owners with an equity stake in the Company;

    motivate and focus our executive officers through incentive compensation programs directly tied to our business objectives and financial results;

    support a one-company culture and encourage synergies among all business units by aligning rewards with long-term, overall Company performance and stockholder value;

    provide a significant percentage of total compensation through variable pay based on pre-established, measurable goals and objectives;

    provide competitive upside opportunity without encouraging excessive risk-taking;

    enhance our ability to attract and retain skilled and experienced executive officers; and

    provide rewards commensurate with performance and with competitive market practices.

While the Company does not target any specific percentile positioning versus the market, the market median is used as a reference point but is not the sole determinant when making compensation decisions. Compensation decisions are made considering a number of factors including experience, tenure, sustained performance, specific requirements of roles relative to the market and individual and Company performance.

THE ROLE OF THE COMPENSATION COMMITTEE AND
THE EXECUTIVE OFFICERS IN DETERMINING
EXECUTIVE COMPENSATION

Role of the Compensation Committee. The Compensation Committee has primary responsibility for all compensation decisions relating to our named executive officers. The Compensation Committee reviews the aggregate level of our executive compensation, as well as the mix of elements used to compensate our named executive officers on an annual basis.

Compensation Committee's Use of Market and Survey Data. Although the Company is comprised of a unique mix of businesses and lacks directly comparable public companies, the Compensation Committee understands that most companies consider pay levels at comparably-sized, peer companies when setting named executive officer compensation levels. With assistance from its independent compensation consultant, ClearBridge, the Compensation Committee has developed a meaningful comparator group for the Company.

In order to confirm competitiveness of compensation, the Compensation Committee uses a combination of proxy compensation data of a "proxy comparator group" and survey data (from the Aon Hewitt and Mercer general industry and service industry surveys) in setting and adjusting compensation levels. The Compensation Committee, with assistance from ClearBridge, annually reviews the composition of our proxy comparator group. As part of such reviews, the Compensation Committee considers specific criteria and recommendations regarding companies to add or remove from the group. In light of the lack of directly comparable companies for the Company's business, as noted above, companies in the proxy comparator group utilized in 2020 were selected based on (i) a focus on service-oriented companies in related industries and business areas as the Company; (ii) similarly-sized revenue and market capitalization levels; (iii) comparable growth, profitability and/or market valuation profiles; and (iv) companies with which the Company competes for executive talent. Where possible, the Compensation Committee included companies that are in related or similar industries to the Company.


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The proxy comparator group used from July 2019 until April 2020 consisted of the following 16 companies:

2020 Proxy Comparator Group
Allison Transmission Holdings, Inc.
Copart, Inc.
CDK Global, Inc.
Equifax Inc.
GATX Corporation
LKQ Corporation
  MSC Industrial Direct Co. Inc.
Old Dominion Freight Line Inc.
Pitney Bowes Inc.
Ritchie Bros. Auctioneers Incorporated
Sotheby's
(merged into BidFair USA Inc. in June 2019)
  Stericycle, Inc.
Total System Services, Inc.
(merged into Global Payments Inc. in September 2019)
Werner Enterprises, Inc.
Westinghouse Air Brake Technologies Corporation
Worldpay, Inc.
(merged into Fidelity National
Information Services, Inc. in July 2019)

The Compensation Committee viewed the proxy comparator group and market data as an important guide, but not as the sole determinant in making its decisions regarding 2020 compensation levels. The Compensation Committee also considered skills, experience, tenure, sustained performance, specific requirements of roles relative to market and individual and Company performance.

In April 2020, based on the recommendation of ClearBridge, the Compensation Committee removed Worldpay, Inc., Total System Services, Inc. and Sotheby's from the 2020 proxy comparator group, which were each acquired in 2019 and therefore will no longer have publicly-disclosed compensation information.

In December 2020, the Compensation Committee reviewed the proxy comparator group in light of the Company's digital transformation and, based on the recommendation of ClearBridge, approved a revised proxy comparator group consisting of the following 15 companies to be used in making 2021 compensation decisions:

2021 Proxy Comparator Group
Allison Transmission Holdings, Inc.
CarMax, Inc.
Copart, Inc
CDK Global, Inc.
CoStar Group, Inc.
  Equifax Inc.
Etsy, Inc.
Fair Isaac Corporation
Gentex Corporation
Grubhub Inc.
  Lithia Motors, Inc.
LKQ Corporation
Ritchie Bros. Auctioneers Incorporated
Rush Enterprises, Inc.
TripAdvisor, Inc.

Companies in the revised 2021 proxy comparator group were generally selected based on the same criteria as the 2020 proxy comparator group, but with an additional focus on technology companies that offer online marketplaces and digital intermediary services in light of the Company's digital transformation and go-forward strategy.

Role of the Independent Compensation Consultant. The Compensation Committee used ClearBridge as its independent compensation consultant in 2020. ClearBridge provided the Compensation Committee advice and guidance with respect to (i) the assessment of the Company's executive compensation programs and practices; (ii) the evaluation of annual and long-term incentive compensation practices and annual and long term incentive plan design; (iii) the selection of a proxy comparator group; and (iv) the competitiveness of the executive officers' elements of compensation. ClearBridge regularly attends Compensation Committee meetings and attends executive sessions as requested by the Chair of the Compensation Committee. The Compensation Committee has reviewed the independence of ClearBridge in light of SEC rules and NYSE listing standards regarding compensation consultants and has concluded that the work of ClearBridge for the Compensation Committee does not raise any conflict of interest. All work performed by ClearBridge is and was subject to review and approval of the Compensation Committee.

Role of Executive Officers. Our Chief Executive Officer regularly participates in meetings of the Compensation Committee at which compensation actions involving our named executive officers are discussed (recusing himself and not participating in portions of meetings where his compensation is discussed). Our Chief Executive Officer assists the Compensation Committee by making recommendations regarding compensation actions for the executive officers other than himself.


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ELEMENTS USED TO ACHIEVE COMPENSATION PHILOSOPHY
AND OBJECTIVES

Elements of 2020 Executive Compensation Program Design

The following table lists the elements of compensation for our 2020 executive compensation program. The program uses a mix of fixed and variable compensation elements and provides alignment with both short- and long-term business goals through annual and long-term incentives. Our incentives are designed to drive overall corporate performance and business unit strategies that correlate to stockholder value and align with our strategic vision. In order to confirm competitiveness of compensation, the Compensation Committee reviews survey data and proxy compensation data of our proxy comparator group.

      Element
Key
Characteristics


Why We Pay
This Element


How We
Determine Amount


2020
Decisions

Fixed

      Base salary   Fixed compensation component payable in cash.

Reviewed annually and adjusted when appropriate.

  Attract and retain a skilled and experienced executive management team. Compensate for performance of daily job responsibilities.   Base salaries are based on individual performance, experience, skills, job scope, tenure, review of competitive pay practices and base salary as a percentage of total compensation.   Two named executive officers received a salary increase in 2020. See page 33.

In connection with the COVID-19 pandemic, each named executive officer voluntarily elected to reduce or forgo their respective base salaries effective April 5, 2020 through June 27, 2020. See pages 33–34.

    Annual cash incentive awards   Variable compensation component payable in cash based on performance against annually established targets.

No payouts if a threshold level of performance is not achieved; payouts are capped at a maximum level of performance.

  Motivate and reward the successful achievement of pre-determined performance objectives aligned with our key annual objectives.   Award opportunities are based on individual performance, experience, job scope and review of competitive pay practices.

Target annual incentive amount is set as a percentage of base salary.

  Actual award payouts were based on a combination of the achievement of 2020 Adjusted EBITDA (80%) and the named executive officer's performance against his MBOs (20%).

In connection with the COVID-19 pandemic, the Compensation Committee adjusted the threshold 2020 Adjusted EBITDA performance level and the MBOs and capped any payout at target. See pages 35-39.

KAR's Adjusted EBITDA performance and each executive's performance against his MBOs resulted in a payout of 76.4% of the target award for each named executive officer.

           

Variable

    Performance-based restricted stock units (PRSUs)   PRSUs vest at the end of a three-year performance period.

No PRSUs earned if a threshold level of performance is not achieved; PRSUs are capped at a maximum level of performance.

  Motivate and reward executives for performance on key long-term measures.

Align the interests of executives with long-term stockholder value and serve to retain executive talent.

  Award opportunities are based on individual's ability to impact future results, job scope, individual performance and review of competitive pay practices.

PRSU awards made up 75% of the value of the aggregate long term incentives granted to the named executive officers in 2020.

  The Compensation Committee granted PRSUs to all of the named executive officers in 2020. See page 40.

KAR 2020 PRSU awards are earned based on three-year Cumulative Operating Adjusted Net Income Per Share performance through December 31, 2022.

           
    Restricted stock units (RSUs)   RSUs vest ratably on each of the first three anniversaries of the grant date subject to the named executive officer's continued employment with the Company.   Align the interests of executives with long-term stockholder value and serve to retain executive talent.   Awards based on individual's ability to impact future results, job scope, individual performance and review of competitive pay practices.

RSU awards made up 25% of the value of the aggregate long-term incentives granted to the named executive officers in 2020.

  The Compensation Committee granted RSUs to all of the named executive officers in 2020. See page 40.
                         


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Compensation Structure and Goal Setting

Our executive compensation program is designed to deliver compensation in accordance with our performance, with a large percentage of the compensation at risk through long-term equity awards and annual cash incentive awards. These awards are linked to actual performance, consistent with our belief that a significant amount of executive compensation should be in the form of equity and that a greater percentage of compensation should be tied to performance for executives who bear higher levels of responsibility for our performance. The mix of target direct compensation awarded in 2020 for our CEO and the average of our other named executive officers is shown in the charts below. Approximately 84% of our CEO's total compensation, and approximately 74% of the average total compensation of our other named executive officers, is at-risk, consisting of PRSUs, restricted stock units ("RSUs") and performance-based annual cash incentives.

CEO Compensation   Other Named Executive Officer
Average Compensation

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Base Salary

General. Annual salary levels for our named executive officers are based upon various factors, including the amount and relative percentage of total compensation that is derived from base salary, individual performance, skills, experience, job scope and tenure. In view of the wide variety of factors considered by the Compensation Committee in connection with determining the base salary of each of our named executive officers, the Compensation Committee has not attempted to rank or otherwise assign relative weights to the factors that it considers. A description of how these factors were applied in 2020 is described below.

Base Salaries for 2020. In late 2019 and the first quarter of 2020, the Compensation Committee reviewed the base salaries of each of our named executive officers for 2020. After considering multiple factors as noted above, the Compensation Committee approved an increase in base salary for Messrs. Fisher and Hammer. The Compensation Committee did not approve a base salary adjustment for Messrs. Hallett, Kelly and Loughmiller because the Compensation Committee determined that their base salaries were already set at a competitive level. The following base salaries were approved for 2020:

Name
Base Salary % Change Effective Date

Jim Hallett

$975,000 0% N/A

Eric Loughmiller

$550,000 0% N/A

Peter Kelly

$600,000 0% N/A

John Hammer

$546,000 4% January 1, 2020

Tom Fisher

$438,000 3% January 1, 2020

$450,000 3% March 8, 2020

The base salary increase effective January 1, 2020 for Messrs. Fisher and Hammer were based on both a merit review and market adjustment. Mr. Fisher's salary was further increased effective March 8, 2020 based on his new role as EVP, Chief Digital Officer of the Company.


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In connection with the COVID-19 pandemic, the Company's executive officers voluntarily elected to reduce or forgo their respective base salaries effective April 5, 2020 through June 27, 2020, with Messrs. Hallett, Loughmiller and Kelly each electing to forgo 100% of his base salary and Messrs. Fisher and Hammer each electing to reduce his base salary by 50% during this period.

Base Salaries for 2021. In late 2020 and the first quarter of 2021, the Compensation Committee reviewed the base salaries of each of our named executive officers for 2021. After considering multiple factors as noted above, the Compensation Committee approved the following base salaries for 2021:

Name
Base Salary % Change Effective Date

Jim Hallett

$975,000 0% N/A

$725,000 (26%) April 1, 2021

Eric Loughmiller

$550,000 0% N/A

Peter Kelly

$600,000 0% N/A

$750,000 25% April 1, 2021

John Hammer

$550,000 1% January 1, 2021

Tom Fisher

$450,000 0% N/A

The Compensation Committee did not initially approve a 2020 base salary adjustment for Messrs. Hallett, Loughmiller, Kelly or Fisher because the Compensation Committee determined that their base salaries were already set at competitive levels. The base salary increase for Mr. Hammer was a modest salary increase to reflect an internal pay equity adjustment. The Compensation Committee approved the base salary adjustments for Messrs. Hallett and Kelly effective April 1, 2021, to reflect their new roles as Executive Chairman and Chief Executive Officer, respectively. As discussed above, in order to confirm competitiveness of compensation, the Compensation Committee reviews survey data and proxy compensation data of our proxy comparator group.

Annual Cash Incentive Program

General. Under the KAR Auction Services, Inc. Annual Incentive Program (the "Annual Incentive Program"), which is part of the KAR Auction Services, Inc. 2009 Omnibus Stock and Incentive Plan, as amended (the "Omnibus Plan"), the grant of cash-based awards to eligible participants is contingent upon the achievement of certain pre-established performance goals as determined by the Compensation Committee. The Annual Incentive Program is designed so that a significant proportion of our named executive officers' annual cash compensation is variable and directly tied to key performance goals.

2020 ANNUAL INCENTIVE PROGRAM

As described below, a combination of the Company's Adjusted EBITDA performance and each named executive officer's individual performance against his 2020 Management By Objectives ("MBOs") were utilized as performance metrics for 2020.

      Use of 2020 Adjusted EBITDA

In 2020, the Compensation Committee used "2020 Adjusted EBITDA" of the Company as the relevant financial performance metric for determining awards under the Annual Incentive Program. For the named executive officers, 80% of the award's total payout was weighted on achievement of 2020 Adjusted EBITDA.

"Adjusted EBITDA" is equal to EBITDA (earnings before interest expense, income taxes, depreciation and amortization) adjusted to exclude, among other things: gains and losses from asset sales; unrealized foreign currency translation gains and losses in respect of indebtedness; certain non-recurring gains and losses; stock based compensation expense; certain other non-cash amounts included in the determination of net income; charges and revenue reductions resulting from purchase accounting; minority interest; consulting expenses incurred for cost reduction, operating restructuring and business improvement efforts; expenses realized upon the termination of employees and the termination or cancellation of leases, software licenses or other contracts in connection with the operational restructuring and business improvement efforts; expenses incurred in connection with permitted acquisitions; any impairment charges or write-offs of intangibles; and any extraordinary, unusual or non-recurring charges, expenses or losses.


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      Use of MBOs

In 2020, the Compensation Committee utilized MBOs in the Annual Incentive Program, which were initially aligned with Company initiatives in the following three areas: (1) new product and strategy, (2) customers, and (3) people and culture. For each named executive officer, 20% of the award's total payout was weighted on achievement of his three respective MBOs of equal weighting tailored to his role and, for Mr. Hallett, four MBOs of equal weighting. As described below, in recognition of the revised business objectives following the onset of the COVID-19 pandemic, the Compensation Committee measured each named executive officer's performance against modified MBOs for portions of 2020.

MBO attainment was measured based on the following achievement levels: (i) exceeds objective ("superior"—150%); (ii) meets objective ("target"—100%); (iii) reasonable effort made towards objective but results less than expected ("threshold"—50%); and (iv) objective not achieved ("below threshold"—0%). In order for any payout to be earned on the MBO component, at least a threshold level of 2020 Adjusted EBITDA performance must be achieved, and at least a target level of 2020 Adjusted EBITDA performance must be achieved for the MBO component to be earned at a level above target.

      Annual Incentive Opportunity

In 2020, each of our named executive officers was eligible to earn a cash-based incentive award under the Annual Incentive Program. The Compensation Committee establishes, on an annual basis, specific targets that determine the size of payouts under the Annual Incentive Program. In 2020, the annual incentive opportunity based on achievement of 2020 Adjusted EBITDA and MBOs for each named executive officer was as follows:

 
   
  Bonus Opportunity   Bonus Goal Weighting %
Name
  Base
Salary
  Threshold % of
Base Salary
  Target % of
Base Salary
  Superior % of
Base Salary
  2020 Adjusted
EBITDA
  MBOs
Jim Hallett   $975,000   62.5   125   187.5   80   20
Eric Loughmiller   $550,000   50   100   150   80   20
Peter Kelly   $600,000   50   100   150   80   20
John Hammer   $546,000   50   100   150   80   20
Tom Fisher(1)   $450,000   48   96   144   80   20
(1)
In connection with his new role as EVP, Chief Digital Officer of the Company, Mr. Fisher's target annual incentive opportunity was increased from 75% to 100% of base salary as of March 8, 2020. Mr. Fisher's target annual incentive opportunity reflects this mid-year adjustment.

      Performance Targets

The Compensation Committee reviews the Company's business plan approved by the Board and determines the level of performance required to receive threshold, target and superior annual incentive payouts. The Compensation Committee established the performance objectives in amounts which it believed would increase stockholder value and be achievable given sustained performance on the part of the named executive officers and which would require increasingly greater results to achieve the target and superior objectives. Consistent with the terms of the Omnibus Plan, the Committee may adjust performance goals to reflect unforeseen, unusual or extraordinary events or circumstances. As described in detail below, the Compensation Committee, after careful review and in consultation with ClearBridge, adjusted the threshold 2020 Adjusted EBITDA performance level and the MBOs to align to the Company's performance and priorities in light of the COVID-19 pandemic and capped each of the named executive officer's potential annual incentive award payouts for 2020 at target.


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2020 Adjusted EBITDA

In February 2020, the Compensation Committee established the following 2020 Adjusted EBITDA performance targets, which were rigorously set to require year-over-year growth prior to the time the Compensation Committee could have known or anticipated the impacts of the COVID-19 pandemic:

 
  2020 Adjusted EBITDA Goals   Performance Leverage
(% of Target Goal)
  Payout Leverage
(% of Target Payout)
 
  Threshold   Target   Superior   Threshold   Target   Superior   Threshold   Target   Superior

KAR


$510.0*   $535.1   $588.5   95.1%   100%   110%   50%   100%   150%

($ in millions)

                                   
*
The 2020 Adjusted EBITDA threshold level of performance reflects KAR's actual reported Adjusted EBITDA for fiscal year 2019.

In March 2020, the Company's business operations were adversely impacted by the COVID-19 pandemic. In response to the pandemic, the Company temporarily suspended many of its operations, temporarily furloughed the majority of its workforce in April 2020 and instituted wage reductions for all senior employees. Additionally, to protect the safety and welfare of its workforce, the Company also strongly encouraged all employees capable of performing their responsibilities off-site to begin working remotely.

The severe and immediate impact of the COVID-19 pandemic on businesses and consumers changed the expectations for wholesale and retail activity for 2020. In response, the Company revised its operating plans and adjusted its priorities to focus on reducing balance sheet risk, navigating the uncertainty ahead and ensuring the ability to sustain operations for an extended period of disruption. The Company simultaneously shifted resources and mobilized staff to dramatically accelerate its transformation from a primarily physical auction process to a fully-digital marketplace business for the wholesale used car industry. The pandemic required the named executive officers to take swift and significant actions to both preserve the Company and accelerate opportunities for future growth.

The Company's performance in the months leading up to the pandemic were slightly ahead of target. By the end of April 2020, however, the Company's year-to-date performance dropped to less than 35% of target. Though the industry and the Company experienced a partial recovery during the summer months of 2020, industry volumes never returned to pre-COVID levels and remained well below normal through the fourth quarter. The Company navigated this challenging environment by instituting meaningful, permanent reductions to its cost structure and focusing its resources, labor, technology and investments on supporting a fully digital business model.

In recognition of the challenges created by the COVID-19 pandemic and their impact on operations, and to align with the Company's adjusted financial and operating performance, the Compensation Committee, after consultation with ClearBridge, determined to retain the Adjusted EBITDA metric but reduce the threshold performance level from 95.1% of target to 50% of target. The Compensation Committee determined that any potential payout would be capped at target, thereby eliminating the superior opportunity. The following chart provides the updated 2020 Adjusted EBITDA performance targets established by the Compensation Committee:

 
  2020 Adjusted EBITDA Goals   Performance Leverage
(% of Target Goal)
  Payout Leverage
(% of Target Payout)
 
  Threshold   Target   Superior   Threshold   Target   Superior   Threshold   Target   Superior

KAR


$267.5   $535.1   n/a   50%   100%   n/a   50%   100%   n/a

($ in millions)

                                   

The Compensation Committee believes the modified threshold level remained challenging and aligns the annual incentive opportunity to relative performance. Considering the extremely difficult operating environment, achievement of 50% of the target performance goal set pre-pandemic required substantial improvement and innovation in operations through the last nine months of 2020.

The following chart provides the actual level of 2020 Adjusted EBITDA performance achieved:*

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*
KAR's reported Adjusted EBITDA for the year ended December 31, 2020 was $375.3 million, but for Annual Incentive Program purposes, certain acquisitions consummated in 2020 were excluded, which resulted in Adjusted EBITDA of $376.9 million.


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MBOs

In February 2020, the Compensation Committee established the following MBOs for the named executive officers, which was prior to the time the Compensation Committee could have known or anticipated the impacts of the COVID-19 pandemic ("Pre-COVID MBOs"):

    New Product & Strategy: Mr. Fisher, product development initiatives; Mr. Hallett, (i) SG&A reduction initiatives and (ii) dealer consignment initiatives; Mr. Hammer, consolidated commercial sales team initiatives; Mr. Kelly, capital expenditure allocation initiatives; and Mr. Loughmiller, SG&A reduction initiatives.

    Customer: Mr. Fisher, seamless customer experience initiatives; Mr. Hallett, Board communication initiatives; Mr. Hammer, dealer sales team initiatives; Mr. Kelly, dealer consignment initiatives; and Mr. Loughmiller, prospective customer engagement and outreach initiatives.

    People & Culture: Mr. Fisher, succession planning initiatives; Mr. Hallett, employee engagement and CEO succession planning initiatives, Mr. Hammer, sales training initiatives; Mr. Kelly, employee engagement initiatives; and Mr. Loughmiller, leadership development initiatives.

As described above, the COVID-19 pandemic required our named executive officers to take swift and significant actions to both preserve the Company and accelerate opportunities for future growth.

During the second quarter of 2020, the Company revised its operating plans and adjusted its priorities to focus on protecting employees, reducing balance sheet risk, navigating the uncertainty ahead and ensuring the ability to sustain operations for an extended period of disruption. The Company simultaneously shifted resources and mobilized staff to dramatically accelerate its transformation from a primarily physical auction process to a fully-digital marketplace business for the wholesale used car industry. In recognition of the revised business objectives following the onset of the COVID-19 pandemic, the Compensation Committee measured each named executive officer's performance against the following revised business priorities for the second quarter of 2020 ("Preserve the Business MBOs"):

    Employee and customer health and safety initiatives;

    Liquidity and cost reduction initiatives;

    Accelerated digital transformation initiatives; and

    Customer service and support initiatives.

In recognition of the evolving needs and expectations of customers and to motivate and incentivize our named executive officers to capitalize on the opportunities that emerged and accelerated due to the pandemic, the Compensation Committee measured each named executive officer's performance against the following modified business priorities for the third and fourth quarters of 2020 ("Digital Transformation MBOs"):

    Employee and customer health and safety initiatives;

    Digital transformation initiatives;

    Dealer consignment initiatives; and

    Refined business and operating model initiatives.

The Compensation Committee considered each named executive officer's performance against the pre-COVID MBOs in the first quarter of 2020, Preserve the Business MBOs in the second quarter of 2020, and Digital Transformation MBOs during the third and fourth quarters of 2020. The Compensation Committee, with the assistance ClearBridge, developed these modified performance objectives as a framework to measure operational and strategic achievements in light of the COVID-19 pandemic and the Company's accelerated digital transformation, and generally placed a 20% emphasis on Pre-COVID MBO performance, 40% emphasis on Preserve the Business MBO performance, and 40% emphasis on Digital Transformation MBO performance.


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In determining the MBO achievements for our named executive officers, the Compensation Committee acknowledged the highlights described below.

MBO Performance Highlights

Jim Hallett

Chief Executive Officer and Chairman of the Board

 

Advocated for and led the accelerated transformation from a physical auction business to a fully digital marketplace, including actively communicating the value proposition to customers and investors.

Demonstrated exceptional leadership in taking swift and decisive actions to preserve the business during the initial and later stages of the COVID-19 pandemic, including convening daily decisioning meetings related to financial stability, allocating capital for digital and operational transformation, and mobilizing enhanced safety and security measures to protect employees, customers and assets.

Championed employee and customer safety in a number of ways, including establishing a work-from-home policy, maintaining a strong commitment to digital, and leading the management team in reimagining the Company's business processes in order to adhere to health and safety guidelines.

Led increased communication and engagement efforts with employees, directors, customers and other stakeholders through meetings and communications on business performance, employee health and safety, risk mitigation efforts, and strategic planning.

Eric Loughmiller

Executive Vice President and Chief Financial Officer

 

Worked quickly and decisively to conserve cash and improve liquidity to ensure the Company could operate through the pandemic.

Orchestrated several key transactions, including a $550 million private placement, the acquisition of BacklotCars and a series of amendments to the Company's revolving credit facility and securitization facility.

Led optimization and cost reduction efforts throughout the organization, including in the accounting, finance, risk, treasury, tax, internal audit, cybersecurity, and facilities/real estate departments.

Developed and implemented a comprehensive approach to provide additional transparency to stockholders regarding Company performance, including expanded quarterly disclosures, additional investor communications and meetings, and simplified segment reporting, metrics and disclosures.

Peter Kelly

President

 

Led the Company's strategic and operational efforts to transform the business to a fully-digital marketplace, including accelerating the pace of introducing new products, features, and functions to support digital transactions.

Launched initiatives to enhance communications and engagement with customers and employees, including frequent employee town halls and customer meetings.

Introduced and directed various dealer consignment initiatives, including the creation of an all-new customer experience center of operational excellence, combining the TradeRev and ADESA salesforces, acquiring and integrating BacklotCars and streamlining vehicle inspections.

Demonstrated exceptional leadership in identifying and addressing challenges faced by the business by the COVID-19 pandemic, including implementation of various cost-saving initiatives such as eliminating travel and significantly reducing conferences and sponsorships.

John Hammer

Chief Commercial Officer for KAR and President of ADESA

 

Maintained operations across all auction facilities, with a focus on adhering to CDC guidelines and company-mandated policies, procedures and frameworks to keep employees and customers safe. Developed and implemented a COVID-19 playbook to standardize operations across the organization.

Ensured that commercial customers were regularly updated regarding each auction's operational status, including planning, developing and leading customer town hall meetings and listening session meetings with commercial and dealer customers to understand their needs and challenges and discuss the Company's digital transformation.

Led efforts to design and implement a consolidated commercial sales team structure and strategy, and developed and launched a new sales training program for the KAR Global dealer sales team.

Aligned operating costs with auction volumes and mobilized staff to dramatically accelerate the Company's transformation from a primarily physical auction process to a fully-digital marketplace business.

Tom Fisher

Executive Vice President and Chief Digital Officer

 

Led efforts to develop and maintain technology platforms to enable customers to transact digitally, including the accelerated delivery of Simulcast+, the industry's first fully automated auction platform.

Created and deployed the all-new customer experience center focused on initiatives designed to deliver a consistent experience across the Company's marketplace brands and support customers in a digital environment.

Delivered strong support of product innovation priorities and continued strategic transformation of the Company's technology, including implementation of single sign-on technology to connect dealers across KAR's marketplace platforms and create an integrated digital marketplace.

Enacted the Company's business continuity plan, including optimization of work from home offerings, bandwidth and IT capacity to enable remote working, and delivery of significant network connectivity enhancements to all auction locations.


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As noted above, at least a target level of 2020 Adjusted EBITDA performance must be achieved for the MBO component to be earned at a level above target. Further, the Compensation Committee determined that any potential payout would be capped at target as part of the COVID-19-related adjustments, thereby eliminating the superior opportunity on the MBO component. Therefore, despite each named executive officer's extraordinary accomplishments in 2020, the named executive officers were not eligible to earn an MBO-related payout above target. Based on the Compensation Committee's evaluation of each named executive officer's performance and accomplishments relative to the objectives described above, the Compensation Committee determined that the portion of the annual incentive award attributable to achievement of MBOs was achieved at target for each named executive officer.

2020 Annual Incentive Program Payouts. The actual annual incentive award earned by each named executive officer for 2020 was determined by the Company's achievement of the Adjusted EBITDA performance goal and the named executive officer's achievement of the MBO performance objectives, as determined by the Compensation Committee.

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Under the Annual Incentive Program, threshold performance objectives must be met in order for any payout to occur. Payouts can typically range from 50% of target awards for performance at threshold, up to a maximum of 150% of target awards for superior performance, or no payout if performance is below threshold, except that in 2020, the Compensation Committee determined that no payout can be made above target as part of the COVID-19-related adjustments described above.

The table below shows the annual incentive opportunities and payouts for our named executive officers for 2020. Because KAR achieved at least the threshold level of Adjusted EBITDA performance in 2020, each of our named executive officers was eligible to receive an award under the Annual Incentive Program in 2020, which amounts are set forth in the "Summary Compensation Table for 2020" on page 47. Based on the Company's performance during 2020, the accompanying payout percentages for the different performance goals set forth above and each named executive officer's resulting achievement level with respect to his MBOs described above, our named executive officers earned the percentages and corresponding payout amounts of their target annual incentive awards as set forth below:

 
Target Actual
Name
Target Annual
Incentive Award
% of Adjusted
EBITDA Target
Award Earned
(80% Weighting)
% of
MBO Target
Award Earned
(20% Weighting)
% of
Total Target
Award Earned
2020 Payout
(Actual Annual
Incentive Award)

Jim Hallett

$1,218,750 70.4% 100% 76.4% $930,529

Eric Loughmiller

$550,000 70.4% 100% 76.4% $419,931

Peter Kelly

$600,000 70.4% 100% 76.4% $458,106

John Hammer

$546,000 70.4% 100% 76.4% $416,877

Tom Fisher(1)

$431,250 70.4% 100% 76.4% $329,264
(1)
In connection with his new role as EVP, Chief Digital Officer of the Company, Mr. Fisher's target annual incentive opportunity was increased from 75% to 100% of base salary as of March 8, 2020. Mr. Fisher's target annual incentive award reflects this mid-year adjustment.

2021 ANNUAL INCENTIVE PROGRAM

In February 2021, the Compensation Committee approved the performance objectives for our 2021 Annual Incentive Program. For 2021, the bonus opportunity for each named executive officer will be weighted on a combination of the Company's financial performance (50%), strategic volume of vehicles sold goals (25%) and total volume of vehicles sold goals (25%). The Compensation Committee did not include MBOs in the 2021 Annual Incentive Program.


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Long-Term Incentive Opportunities

To further align our named executive officers' interests with those of our stockholders, the Company provides long-term incentive compensation opportunities under the Omnibus Plan, as described below.

Omnibus Plan. The Company currently grants long-term incentive awards under the Omnibus Plan. Our Board adopted the Omnibus Plan on December 10, 2009, and it has since been amended and restated, as approved by our stockholders. Under the Omnibus Plan, participants are eligible to receive stock options, restricted stock, RSUs (with or without performance conditions), stock appreciation rights, other stock-based awards and/or cash-based awards, each as determined by the Compensation Committee. In recent years, named executive officers have received long-term incentive awards in the form of PRSUs and RSUs. Although stock options were not part of the Company's long-term incentive program for 2015-2020, the Company has included performance- and time-based stock options as part of its 2021 compensation program, as described on pages 41-42.

2020 LONG-TERM INCENTIVE AWARDS

On February 21, 2020, the Compensation Committee granted PRSUs and RSUs under its long-term incentive program to the Company's named executive officers, as described in the table below. Awards were based on the individual's ability to impact future results, job scope, individual performance, and a review of competitive pay practices.

The aggregate target award value for each named executive officer was allocated such that 75% of the value was in the form of PRSUs and 25% of the value was in the form of RSUs.

Name
  Target PRSUs
(Cumulative Operating
Adjusted Net Income
Per Share Goal)
  Value of
Target Shares
at Grant
  RSUs   Value of
RSUs
at Grant

Jim Hallett

  131,461   $2,925,007   43,821   $975,017

Eric Loughmiller

  46,349   $1,031,265   15,450   $343,763

Peter Kelly

  45,506   $1,012,509   15,169   $337,510

John Hammer

  27,641   $615,012   9,214   $205,012

Tom Fisher

  14,326   $318,754   4,776   $106,266

      2020 Performance-Based RSU Awards

The PRSUs will vest if and to the extent that the sum of the Company's "Cumulative Operating Adjusted Net Income Per Share" exceeds certain levels over the three-year measurement period beginning on January 1, 2020 and ending on December 31, 2022.

"Cumulative Operating Adjusted Net Income Per Share" for a fiscal year is calculated by dividing Operating Adjusted Net Income by the weighted average diluted common shares outstanding per year. "Operating Adjusted Net Income" for a fiscal year is equal to the Company's net income as reported in the Form 10-K filed by the Company with respect to such fiscal year, adjusted to (i) exclude gains/losses from certain non-recurring and unbudgeted capital transactions, including debt prepayment, debt refinancing, share repurchases and related financing costs not contemplated in the long term incentive targets; (ii) exclude amortization expense associated with acquired intangible assets recorded during purchase accounting of acquisitions; (iii) exclude acquisition contingent consideration; (iv) exclude the impact of significant acts of God or other events outside of the Company's control that may affect the overall economic environment; (v) exclude significant asset impairments; (vi) exclude the impact of adoption of new accounting standards; and (vii) exclude the impact of tax rate changes caused by changes in tax legislation.

The amount of the target PRSUs actually earned and paid in shares of common stock in a lump sum following the performance period will be: 0% for below threshold performance, 50% for threshold performance, 100% for target performance and up to 200% for achieving the maximum performance level or higher. Linear interpolation will be used to calculate the percentage of PRSUs earned and paid if performance falls between the levels described above.


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      2020 Time-Based RSU Awards

One-third of the RSUs will vest and convert into shares of common stock of the Company on each of the first three anniversaries of the grant date, subject to the named executive officer's continued employment with the Company through each such anniversary.

PRIOR YEARS' LONG-TERM INCENTIVE AWARDS

      2019 Performance-Based and Time-Based RSU Awards

As previously disclosed, on February 22, 2019 (and for Mr. Hammer, again on March 1, 2019), the Compensation Committee granted PRSUs and RSUs to the Company's named executive officers, some of which remained outstanding at fiscal year-end 2020.

The amounts of PRSUs and RSUs are disclosed in the "Outstanding Equity Awards" table below. Other than certain adjustments made to the PRSUs granted in 2019 due to the IAA Spin Off (described below), these awards have terms substantially similar to those granted in 2020. For the year ended December 31, 2020, one-third of the RSUs had vested, as disclosed in the "Option Exercises and Stock Vested" table below.

At the time of grant, the PRSUs were to vest if and to the extent that the sum of the Company's "Cumulative Operating Adjusted Net Income Per Share" exceeded certain levels over the three-year measurement period beginning on January 1, 2019 and ending on December 31, 2021. In connection with the IAA Spin-Off, the PRSUs granted in 2019 were subject to adjusted performance criteria and an adjusted performance period from January 1, 2019 to December 31, 2019. Following the completion of the adjusted performance period, based on the actual performance achieved, 71.1% of the target 2019 PRSUs were converted into time-based RSUs, and such RSUs will vest on the third anniversary of the grant of the 2019 PRSUs, subject to continued employment as required under the original 2019 PRSU award agreement.

      2018 Performance-Based and Time-Based RSU Awards

As previously disclosed, on March 2, 2018, the Compensation Committee granted PRSUs and RSUs to the Company's named executive officers, some of which remained outstanding at fiscal year-end 2020. The amounts of PRSUs and RSUs are disclosed in the "Outstanding Equity Awards" table below. Other than certain adjustments made to the PRSUs granted in 2018 due to the IAA Spin-Off (described below), these awards have terms substantially similar to those granted in 2019. For the year ended December 31, 2020, two-thirds of the RSUs had vested, as disclosed in the "Option Exercises and Stock Vested" table below.

In connection with the IAA Spin-Off, the PRSUs granted in 2018 were converted into time-based RSUs with the number so converting based on target level performance. The RSUs will vest on the third anniversary of the grant of the 2018 PRSUs, subject to continued employment as required under the original 2018 PRSU award agreement.

      2017 Performance-Based and Time-Based RSU Awards

As previously disclosed, on February 24, 2020, the PRSUs granted in 2017 that were converted to time-based RSUs based on target level performance in connection with the IAA Spin-Off and the final one-third of the RSUs each vested, as disclosed in the "Option Exercises and Stock Vested" table below.

2021 LONG-TERM INCENTIVE PROGRAM

In February 2021, the Compensation Committee approved changes to the components of our long-term incentive program, which is intended to apply for the 2021-2024 compensation periods. In prior years (2015-2020), named executive officers have been granted long-term incentive awards on an annual basis in the form of PRSUs and RSUs, allocated such that 75% of the value was in the form of PRSUs and 25% of the value was in the form of RSUs. In connection with the Company's digital transformation and go-forward strategy, the Compensation Committee approved changes to the structure of our long-term incentive program.


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Accordingly, for 2021, our named executive officers' long-term incentive awards consists of two components: 50% PRSUs and 50% stock options, with 80% of the stock options being performance-based, and 20% of the stock options being time-based:

    PRSUs (50%): Consistent with prior years, the PRSUs will vest if and to the extent that the sum of the Company's "Cumulative Operating Adjusted Net Income Per Share" exceeds certain levels over the three year measurement period beginning on January 1, 2021 and ending on December 31, 2023.

    Performance-Based Stock Options (40%): The performance-based stock options will become eligible to vest and become exercisable in 25% increments, each upon the later to occur of (i) the first four anniversaries of the grant date, respectively, and (ii) the attainment of the closing price of the Company's common stock at or above, for each respective 25% increment, $5, $10, $15, and $20 over the exercise price, for twenty consecutive trading days. The performance-based hurdles are designed to require a minimum stock price appreciation threshold as a vesting condition separate and apart from the stock option's time-based vesting component.

    Time-Based Stock Options (10%): The time-based stock options will vest and become exercisable in equal installments on each of the first four anniversaries of the grant date.

The Compensation Committee has adopted this approach for the long-term incentive program for our named executive officers going forward in order to (i) increase the proportion of the grants tied to pre-established stock price or financial performance goals (i.e., 90% of the target long-term incentive grants, as described above); (ii) further align our named executive officers with the interests of our stockholders; and (iii) further incentivize our named executive officers to drive long-term stockholder value creation, which is required for our named executive officers to realize significant value from these grants.

To the extent the stockholders approve amending and restating our Omnibus Plan (Proposal No. 4), in June 2021, the Compensation Committee currently intends to grant named executive officers who are not retirement-eligible additional performance-based stock options and time-based stock options, intended to cover grants that would otherwise be made in 2022, 2023 and 2024, and, for retirement-eligible named executive officers, additional performance-based stock options and time-based stock options intended to cover grants that would otherwise be made in 2022. As a result of the proposed stock option grant in 2021, in each of 2022, 2023 and 2024, the Compensation Committee intends to only grant PRSUs to our named executive officers with a target value equal to 50% of the grant value that our named executive officers would typically receive in a single compensation period.

Retirement, Health and Welfare Benefits

We offer a variety of health and welfare and retirement programs to all eligible employees, including our named executive officers. As with all Company employees, our named executive officers are eligible to receive 401(k) employer matching contributions equal to 100% of the first 4% of compensation contributed by the named executive officer. The health and welfare programs are intended to protect employees against catastrophic loss and encourage a healthy lifestyle. Our health and welfare programs include medical, dental, vision, pharmacy, life, disability and accidental death and disability insurance. We also provide travel insurance to all employees who travel for business purposes.

We provide certain enhanced retirement vesting of equity-incentive awards as described in "Potential Payments Upon Termination or Change in Control—Potential Payments Upon Termination or Change in Control Table".

Perquisites

The Company provides the named executive officers a limited number of perquisites that the Compensation Committee believes are reasonable and consistent with the objective of attracting and retaining highly qualified executives. The perquisites which are currently available to certain of our named executive officers include an automobile allowance or use of a Company-owned automobile, an allowance for executive physicals, Company-paid group term life insurance premiums and relocation benefits under the Company's mobility program. Please see footnote 7 to the "Summary Compensation Table for 2020" on page 47 for more information regarding perquisites.


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COMPENSATION POLICIES AND OTHER INFORMATION

Employment and Severance Agreements

The Compensation Committee recognizes that, from time to time, it is appropriate to enter into agreements with our executive officers to ensure that we continue to retain their services and to promote stability and continuity within the Company. All of our current named executive officers have an employment agreement with the Company. A description of these agreements can be found in the section titled "Potential Payments Upon Termination or Change in Control—Employment Agreements with Named Executive Officers."

Tax and Accounting Considerations

Employment Agreements. Section 280G of the Internal Revenue Code of 1986, as amended (the "Code") and related provisions impose substantial excise taxes under Section 4999 of the Code on so-called "excess parachute payments" payable to certain named executive officers upon a change in control and results in the loss of the compensation deduction for such payments by the Company.

Mr. Hallett's prior employment agreement, which became effective as of February 27, 2012 and has been superseded by his new employment agreement entered into on March 1, 2021 and effective as of April 1, 2021, provided for a potential "gross-up payment" in the event that such excise taxes result from any excess parachute payments. Mr. Hallett's new employment agreement eliminated his right to receive any excise tax gross-up payments.

None of the employment agreements entered into with Messrs. Loughmiller, Kelly, Hammer or Fisher, contain excise tax gross-up provisions.

Tax Deductibility of Awards Under the Omnibus Plan. Section 162(m) of the Code ("Section 162(m)") generally disallows a federal tax deduction by the Company for compensation paid to Covered Employees (as defined in Section 162(m)) in excess of $1,000,000. Historically, compensation that qualified as "performance-based compensation" under Section 162(m) could be excluded from this limit. This exception has been repealed, effective for taxable years beginning after December 31, 2017, such that compensation paid to the Covered Employees in excess of $1,000,000 will not be deductible by the Company unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017.

The Compensation Committee historically structured certain awards under the Omnibus Plan so that they could comply with the "performance-based compensation" exception for purposes of Section 162(m) and be deductible by the Company for federal income tax purposes. However, because of the continued development of the application and interpretation of Section 162(m) and the regulations issued thereunder, we cannot guarantee that compensation intended to satisfy the requirements for deductibility under Section 162(m), as in effect prior to 2018, would or will in fact be deductible.

Though tax deductibility is one of many factors considered by the Compensation Committee when determining executive compensation, the Compensation Committee believes that the tax deduction limitation should not compromise our ability to design and maintain executive compensation arrangements that will attract and retain the executive talent to compete successfully. Therefore, in seeking to tie executive pay to company performance in a meaningful way, the Compensation Committee may make decisions in designing and approving pay programs that are not driven by tax consequences to the Company.

Accounting for Stock-Based Compensation. We account for stock-based compensation in accordance with the requirements of ASC 718.

Clawback Policy for Financial Restatements. The Company's clawback policy provides for the recovery of incentive compensation in the event the Company is required to prepare an accounting restatement due to any current or former executive officer's intentional misconduct. In such an event, the executive officer would be required to repay to the Company the excess amount of incentive compensation received under the inaccurate financial statement. The Company intends to revise this policy as needed to comply with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act when such requirements become effective.


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Anti-Hedging and Anti-Pledging Policies

Our insider trading policy expressly prohibits our directors, officers and other employees from, among other things:

    trading in options, warrants, puts and calls or similar instruments on Company securities;

    selling Company securities "short";

    holding Company securities in margin accounts; and

    pledging Company securities as collateral for loans.

In addition to the Company's insider trading policy, the Company has a formal anti-hedging policy. This policy prohibits our officers and directors from entering into hedging or monetization transactions involving Company stock, such as prepaid variable forward contracts, equity swaps, collars and exchange funds.

Stock Ownership Guidelines and Stock Holding Requirement

The Compensation Committee adopted the following stock ownership guidelines which are applicable to our executive officers:

Title
  Stock Ownership Guideline

CEO

  5 times annual base salary

CEO Direct Reports and Business Unit Leaders

  3 times annual base salary

Other Executive Officers

  2 times annual base salary

Executive officers must hold 60% of the vested shares, net of taxes, of Company stock received under awards granted on or after January 1, 2015 until the applicable ownership guideline is met. All named executive officers own shares in excess of the stock ownership guidelines, except for Messrs. Fisher and Hammer who each became an employee of the Company in 2017 and 2018, respectively, and is each subject to the aforementioned holding requirement.

RESULTS OF SAY ON PAY VOTES AT 2020 ANNUAL MEETING

At the Company's 2020 annual meeting of stockholders, the Company held a non-binding stockholder vote on executive compensation (commonly referred to as "Say on Pay"). At the meeting, excluding broker non-votes, approximately 97% of the votes on the matter were cast to approve the Company's executive compensation programs, approximately 3% of the votes were cast against, and less than 0.5% abstained from voting.

The Compensation Committee considered the results of the vote, including the appropriateness of the compensation philosophy and objectives, the role of the Compensation Committee and executive officers in setting compensation, the elements used to achieve the compensation philosophy and objectives and the levels of compensation provided to the named executive officers.

In addition, at the Company's 2017 annual meeting of stockholders, the Company held a non-binding stockholder vote on whether to hold a Say on Pay vote every one, two or three years. At that meeting, a majority of our stockholders voted in favor of holding a Say on Pay vote every year, and accordingly, the Company adopted an annual Say on Pay vote frequency. As described in more detail in Proposal No. 3 above, the Company is again holding a Say on Pay vote to approve executive compensation at the 2021 annual meeting of stockholders.


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COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed the Compensation Discussion and Analysis for executive compensation for 2020 and discussed that analysis with management. Based on its review and discussions with management, the Compensation Committee recommended to our Board that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into the Company's 2020 Annual Report on Form 10-K.


COMPENSATION COMMITTEE

GRAPHIC   GRAPHIC   GRAPHIC   GRAPHIC   GRAPHIC

Carmel Galvin,
Chair

 

Stefan Jacoby

 

Roy Mackenzie

 

Mary Ellen Smith

 

Stephen E. Smith


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ANALYSIS OF RISK IN THE COMPANY'S
COMPENSATION STRUCTURE

The Compensation Committee considers the potential risks in our business when designing and administering the Company's pay program, and the Compensation Committee believes its balanced approach to performance measurement and pay delivery works to avoid misaligned incentives for individuals to undertake excessive or inappropriate risk. Further, program administration is subject to considerable internal controls, and when determining the principal outcomes—performance assessments and pay decisions—the Compensation Committee relies on principles of sound governance and good business judgment. As part of its responsibilities to annually review all incentive compensation and equity-based plans, and evaluate whether the compensation arrangements of the Company's employees incentivize unnecessary and excessive risk-taking, the Compensation Committee evaluated the risk profile of all of the Company's compensation policies and practices for 2020.

In its evaluation, the Compensation Committee reviewed the Company's employee compensation structures and noted numerous design elements that manage and mitigate risk without diminishing the incentive nature of the compensation. There is a balanced mix between cash and equity and between annual and longer-term incentives. In addition, annual incentive awards and long-term incentive awards granted to executives are generally tied to corporate performance goals, including Adjusted EBITDA and Cumulative Operating Adjusted Net Income Per Share. These metrics encourage performance that supports the business as a whole. The executive annual incentive awards include a maximum payout opportunity equal to 150% of target. Our executives are also expected to meet share ownership guidelines in order to align the executives' interests with those of our stockholders. Also, the Company's clawback policy permits the Company to recover incentive compensation paid to an executive officer if the compensation resulted from any financial result or metric impacted by the executive officer's intentional misconduct. This policy helps to discourage inappropriate risks, as executives will be held accountable for misconduct which is harmful to the Company's financial and reputational health.

The Compensation Committee also reviewed the Company's compensation programs for certain design features that may have the potential to encourage excessive risk-taking, including over-weighting towards annual incentives, highly leveraged payout curves, unreasonable thresholds and steep payout cliffs at certain performance levels that may encourage short-term business decisions to meet payout thresholds. The Compensation Committee concluded that the Company's compensation programs (i) do not include such elements; or (ii) have implemented features, steps and controls that are designed to limit risks of our compensation arrangements. In light of these analyses, the Compensation Committee concluded that the Company has a balanced pay and performance program that does not encourage excessive risk-taking that is reasonably likely to have a material adverse effect on the Company.


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SUMMARY COMPENSATION TABLE FOR 2020

The table below contains information concerning the compensation of our named executive officers.

Name and               
Principal
Position(1)
  Year(2)   Salary(3)   Bonus(4)   Stock
Awards(5)
  Non-Equity
Incentive Plan
Compensation(6)
  All Other
Compensation(7)
  Total  

Jim Hallett

  2020   $975,000     $3,900,024   $930,529   $41,910   $5,847,463  
             

Chief Executive Officer

  2019   $975,000     $3,900,050   $609,375   $45,003   $5,529,428  
             

and Chairman of the Board

  2018   $975,000     $3,900,032   $1,219,046   $44,148   $6,138,226  

Eric Loughmiller

  2020   $550,000       $1,375,028   $419,931   $32,964   $2,377,923  

Executive Vice President

  2019   $550,000       $1,375,046   $275,000   $20,335   $2,220,381  

and Chief Financial Officer

  2018   $535,577       $918,788   $460,882   $27,045   $1,942,292  

Peter Kelly

  2020   $600,000     $1,350,019   $458,106   $19,592   $2,427,717  
             

President

  2019   $576,923     $1,200,031   $300,000   $108,732   $2,185,686  

John Hammer

  2020   $546,000       $820,024   $416,877   $31,308   $1,814,209  

Chief Commercial Officer for

  2019   $520,769       $1,287,644   $345,190   $30,585   $2,184,188  

KAR and President of ADESA

  2018   $432,692   $400,000   $1,125,109   $210,318   $294,981   $2,463,100  

Tom Fisher

  2020   $447,692     $425,020   $329,264   $30,605   $1,232,581  
             

Executive Vice President

               

and Chief Digital Officer

               

                             

(1)
Principal position reflects position held as of December 31, 2020. Mr. Hallett served as the Chief Executive Officer of the Company during 2020 and, effective April 1, 2021, assumed the role of Executive Chairman. Mr. Kelly served as the President of the Company during 2020 and, effective April 1, 2021, assumed the role of Chief Executive Officer.

(2)
Compensation for Mr. Kelly is provided only for 2020 and 2019 because he was not a named executive officer for 2018. Compensation for Mr. Fisher is provided only for 2020 because he was not a named executive officer for 2019 or 2018.

(3)
In connection with the COVID 19 pandemic, the Company's executive officers voluntarily elected to reduce or forgo their respective base salaries effective April 5, 2020 through June 27, 2020, with Messrs. Hallett, Loughmiller and Kelly each electing to forgo 100% of his base salary and Messrs. Fisher and Hammer each electing to reduce his base salary by 50% during this period. The base salaries actually received in 2020 by each named executive officer are as follows: Mr. Hallett – $750,000; Mr. Loughmiller – $423,077; Mr. Kelly – $461,539; Mr. Hammer – $483,000; and Mr. Fisher – $395,721.

(4)
The 2018 bonus amount for Mr. Hammer was attributable to a special sign on award, granted to make up for compensation that was forfeited from his previous employer upon joining the Company.

(5)
The amounts reported in this column for 2020 represent the grant date fair value of PRSUs and RSUs granted on February 21, 2020, computed in accordance with ASC 718. See Note 5 to our financial statements for 2020 for information about the assumptions made in determining the grant date fair value. Assuming, instead, that the maximum level of performance is achieved with respect to the 2020 PRSU awards, based on grant date value of our common stock, the award that could be earned at the end of the performance period (excluding dividends) is as follows: Mr. Hallett – $5,850,014; Mr. Loughmiller – $2,062,530; Mr. Kelly – $2,025,018; Mr. Hammer – $1,230,024; and Mr. Fisher – $637,508.

(6)
The amount reported is equal to the amount paid to the named executive officer under the Annual Incentive Program, which is governed by the Omnibus Plan.

(7)
The amounts reported for 2020 consist of the following:

Automobile allowance: Mr. Hallett – $25,000; Mr. Kelly – $18,000; Mr. Hammer – $18,000; and Mr. Fisher – $18,000.

Incremental cost of Company car utilized during 2020: Mr. Loughmiller – $13,800.

401(k) matching contributions: Mr. Hallett – $11,400; Mr. Loughmiller – $11,400; Mr. Kelly – $0; Mr. Hammer – $11,400; and Mr. Fisher – $11,400.

Company-paid group term life insurance premiums: Mr. Hallett – $5,510; Mr. Loughmiller – $4,569; Mr. Kelly – $1,592; Mr. Hammer – $1,908; and Mr. Fisher – $1,205.

Executive physical: Mr. Loughmiller – $3,195.


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GRANTS OF PLAN-BASED AWARDS FOR 2020

The following table summarizes the awards granted to, and the payouts that were achievable for, each of our named executive officers in 2020 under the Annual Incentive Program and the grants of PRSUs and RSUs made under the Omnibus Plan.

 
   
  Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards(1)
  Estimated Future Payouts
Under Equity Incentive
Plan Awards(2)
   
   
   
Name
(a)
  Grant
Date
(b)
  Threshold
($)(c)(1)
  Target
($)(d)(1)
  Maximum
($)(e)(1)
  Threshold
(#)(f)(2)
  Target
(#)(g)(2)
  Maximum
(#)(h)(2)
  Number of
Securities
Underlying
Restricted
Stock
Units
(#)(i)(3)
  Grant Date
Fair Value
of Stock
Awards
($)(j)(4)
   

Jim Hallett

    609,375   1,218,750   1,828,125              
                   

  2/21/2020         65,731   131,461   262,922     2,925,007    
                   

  2/21/2020               43,821   975,017    

Eric Loughmiller

      275,000   550,000   825,000                                  

  2/21/2020                   23,175     46,349     92,698           1,031,265    

  2/21/2020                                     15,450     343,763