UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No._ )
Filed by the Registrant
Filed by a party other than the Registrant
Check the appropriate box:
Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material under §240.14a-12
CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check all boxes that apply):
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Fee paid previously with preliminary materials.
Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11
2024 Notice of annual meeting and proxy statement first American financial Corporation
2023 notice of annual meeting and proxy statement
First American Financial Corporation |
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April 1, 2024
Dear Fellow Stockholder,
You are cordially invited to attend our annual meeting of stockholders at 1:00 PM Pacific time, on May 21, 2024. This year’s annual meeting of stockholders will be held in a virtual-only meeting format online via live webcast using a unique link to be provided by email after registering at register.proxypush.com/FAF.
With this letter, we are including the notice for the annual meeting, the proxy statement and the proxy card. We are also including a copy of our 2023 annual report. More information regarding how to vote, participate in, and submit questions for the annual meeting can be found in the proxy statement.
We have made arrangements for you to vote your proxy over the Internet or by telephone, as well as by mail with the traditional proxy card. The proxy card contains instructions on these methods of voting.
Your vote is important. Whether or not you plan on participating in the virtual annual meeting on May 21, 2024, we hope you will vote as soon as possible.
Thank you for your continued support of First American Financial Corporation.
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Dennis J. Gilmore Chairman of the Board |
Kenneth D. DeGiorgio Chief Executive Officer |
First American Financial Corporation |
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS |
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Matters to be voted on |
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May 21, 2024 |
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Proposal |
Board Recommendation |
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Election of the three persons named in the accompanying proxy statement to serve as Class II directors on our board of directors for a three-year term expiring on the date of the 2027 annual meeting of stockholders. |
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1:00 PM Pacific Time |
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Website |
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Approval, on an advisory basis, of our Company’s executive compensation. |
Vote For |
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register.proxypush.com/FAF |
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Ratification of the selection of PricewaterhouseCoopers LLP as our Company’s independent registered public accounting firm for the fiscal year ending December 31, 2024. |
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Who can vote Only stockholders of record at the close of business on March 25, 2024 are entitled to notice of the meeting and an opportunity to vote. |
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At the meeting, we will also transact such other business as may properly come before the meeting or any postponements or adjournments thereof. |
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This year’s meeting will be held in a virtual-only meeting format online via live webcast. To participate in the meeting, stockholders must go to register.proxypush.com/FAF with the control number provided on their proxy card or voting instruction form and register by following the instructions. Upon completing registration, a stockholder will receive further instructions via email, including a unique link that will allow that stockholder access to the meeting. During the meeting, stockholders may vote and submit questions. For additional information on voting at or participating in the meeting online, including how to submit questions, please see “Questions and Answers” on page 74.
How to vote your shares before the meeting
Your vote is very important. Please submit your vote by proxy as soon as possible via the Internet, telephone or mail. Brokers are not permitted to vote on certain proposals and may not vote on any of the proposals unless you provide voting instructions. Voting your shares will help to ensure that your interests are represented at the meeting.
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VIA THE INTERNET Visit the website listed on your proxy card, notice or voting instruction form. |
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BY PHONE Call the phone number listed on your proxy card or voting instruction form. |
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BY MAIL Complete, sign, date and return your proxy card or voting instruction form in the envelope provided. |
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on May 21, 2024: First American Financial Corporation’s notice of annual meeting and proxy statement, annual report and other proxy materials are available at www.firstam.com/proxymaterials.
Meeting Contingencies
In the event of a technical malfunction or other situation that the meeting chair determines may affect the ability of the meeting to satisfy the requirements for a meeting of stockholders to be held by means of remote communication under the Delaware General Corporation Law, or that otherwise makes it advisable to adjourn the meeting, the chair of the meeting will convene the meeting at 2:00 P.M. Pacific Time on the date specified above and at our address, 1 First American Way, Santa Ana, CA 92707, solely for the purpose of adjourning the meeting to reconvene at a date, time and physical or virtual location announced by the meeting chair. Under either of the foregoing circumstances, we will post information regarding the announcement on the Investors page of our website at investors.firstam.com.
Lisa W. Cornehl
Senior Vice President, Chief Legal Officer and Secretary
Santa Ana, California
April 1, 2024
Table of Contents |
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I. |
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9 |
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10 |
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11 |
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II. |
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15 |
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Board Leadership Structure; Meetings of Non-Management and Independent Directors |
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Stockholder and Interested Party Communications with Directors |
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First American Financial Corporation 2024 Proxy Statement | i
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56 |
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61 |
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62 |
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67 |
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68 |
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70 |
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70 |
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Securities Authorized for Issuance under Equity Compensation Plans |
71 |
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Relationship with Independent Registered Public Accounting Firm |
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72 |
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Stockholder Proposals, Director Nominations and Proxy Access |
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72 |
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III. |
73 |
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IV. |
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V. |
81 |
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A-1 |
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First American Financial Corporation 2024 Proxy Statement | ii
First American Financial Corporation
PROXY STATEMENT
Solicitation of Proxies by the Board of Directors
First American Financial Corporation's Notice of Annual Meeting, Proxy Statement, Annual Report and other proxy materials are available at www.firstam.com/proxymaterials
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The board of directors (our “Board”) of First American Financial Corporation, a Delaware corporation (our “Company,” “we” or equivalent terms), is soliciting proxies from holders of our common stock for use at the annual meeting of our stockholders to be held on May 21, 2024, at 1:00 PM Pacific time. The meeting will be held in a virtual-only meeting format online via live webcast using a unique link to be provided by email after registering at register.proxypush.com/FAF. We have included information on how to vote, submit questions, and participate in the virtual meeting in the “Questions and Answers” section on pages 74-80.
We are mailing this proxy statement and the enclosed proxy card, notice of annual meeting, stockholders letter and 2023 annual report to our stockholders on or about April 1, 2024. In lieu of a proxy card, holders of shares held in street name through a bank, broker or other nominee are receiving a voting instruction form from their bank, broker or other nominee. As used herein, references to “proxy” or “proxy card” also refer to the voting instruction form provided to street name holders.
The remainder of this proxy statement has been divided into five sections. You should read all five sections before you vote.
The Compensation Discussion and Analysis section contains certain financial measures that are not presented in accordance with generally accepted accounting principles (“GAAP”). Please see Appendix A for the rationale behind the presentation of these measures and a reconciliation of these amounts to the nearest GAAP financial measures.
First American Financial Corporation 2024 Proxy Statement | 1
I. Proposals |
Information Regarding the Nominees for Election
The following list provides information with respect to the three persons nominated and recommended to be elected as a Class II director by our Board, to serve for a three-year term expiring on the date of the 2027 annual meeting of stockholders. Each of the nominees is currently serving as a director of our Company and was previously elected by stockholders at the 2021 annual meeting of stockholders.
Age: 65 Director since: 2010 Committees: Executive Independent: No |
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DENNIS J. GILMORE
Mr. Gilmore has served as chairman of the Board since February 2022 and as a director since 2010. He served as our chief executive officer from 2010 to 2022. From 1993 to 2010, he served in various managerial roles with The First American Corporation, including as the chief executive officer of its financial services group and as its chief operating officer. As the Company’s former chief executive officer, Mr. Gilmore brings to our Board significant operational and executive management experience specific to our Company’s businesses and our industry. |
Age: 70 Director since: 2015 Committees: Governance (chair) Independent: Yes |
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MARGARET M. MCCARTHY
Ms. McCarthy retired in 2019 as executive vice president of CVS Health Corporation, a health innovation company (NYSE: CVS), supporting the technology integration following the completion of CVS Health’s acquisition of Aetna, Inc. in 2018. She served as executive vice president of operations and technology for Aetna, Inc., a diversified healthcare benefits company, from 2010 until 2018, where she was responsible for innovation, technology, data security, procurement, real estate and service operations. Prior to joining Aetna in 2003, she served in various information technology-related roles, including at CIGNA Healthcare, Catholic Health Initiatives and Andersen Consulting (now Accenture), as well as a consulting partner at Ernst & Young. She is a director of Marriott International, Inc. (NASDAQ: MAR), an operator, franchisor, and licensor of hotel, residential, and timeshare properties worldwide; American Electric Power (NYSE: AEP), an electrical energy company; and Alignment Healthcare, Inc. (NASDAQ GS: ALHC), a tech-enabled Medicare Advantage company. She served as a director of Brighthouse Financial, Inc. (NASDAQ GS: BHF), a life and annuity insurance company from 2018 to 2021. Given her extensive experience managing large groups of employees, complex processes and enterprise-critical technology, Ms. McCarthy brings to the Board valuable insights into areas of critical import to the operations of the Company, including privacy and cybersecurity. |
First American Financial Corporation 2024 Proxy Statement | 2
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I. Proposals |
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Age: 66 Director since: 2018 Committees: Governance Audit Independent: Yes |
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MARTHA B. WYRSCH
Ms. Wyrsch retired in 2019 as executive vice president and general counsel for Sempra Energy, a leading energy services company, where she oversaw the company’s legal affairs and compliance initiatives. Prior to joining Sempra Energy in 2013, Ms. Wyrsch served as the president of Vestas American Wind Technology from 2009 to 2012, where she had direct responsibility for all North American sales, construction, service and maintenance. In addition to her executive leadership roles, she served as a member of the board of directors of Spectra Energy Corporation and SPX Corporation. She currently serves on the board of directors of Quanta Services, Inc. (NYSE: PWR), a specialized contracting services company, and National Grid plc (FTSE:NG; NYSE:NGG), an investor-owned utility managing electric and natural gas assets in the United Kingdom and United States. From 2012 to 2021 she also served as a director of Spectris plc, a publicly traded company listed on the London Stock Exchange, and from 2019 to 2020 as a director of Noble Energy, Inc. (NYSE: NBL), an energy exploration and production company. As an accomplished director for publicly-traded companies, and with deep experience leading intricate businesses, Ms. Wyrsch provides valuable insight into how we can enhance our operations and effectively serve our customers. |
Information Regarding the Other Incumbent Directors
The following lists provide information with respect to the individuals currently serving as Class III directors, whose current term expires at the 2025 annual meeting of stockholders, and Class I directors, whose term expires in 2026. The Class III directors were previously elected by stockholders at the 2022 annual meeting, and the Class I directors were previously elected by stockholders at the 2023 annual meeting.
Class III Directors—Term Expiring 2025
Age: 60 Director since: 2017 Committees: Governance Independent: Yes |
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REGINALD H. GILYARD
Mr. Gilyard has been a senior advisor with The Boston Consulting Group, a global management consulting company, since 2012. From 2012 to 2017, he was dean of the Argyros School of Business and Economics at Chapman University. From 1996 to 2012, he held various other positions with The Boston Consulting Group, including as a partner and managing director. He is a director of CBRE Group, Inc. (NYSE: CBRE), a commercial real estate services and investment firm; Realty Income Corporation (NYSE: O), a real estate investment trust; and Orion Office REIT Inc. (NYSE: ONL), a suburban office focused net lease real estate investment trust. He began his career serving in the United States Air Force. With his in-depth understanding of the complexities of large businesses and keen grasp of customer needs across a variety of industry sectors, Mr. Gilyard brings to the Board a unique perspective on how we can make our operations more efficient and serve our customers better. |
First American Financial Corporation 2024 Proxy Statement | 3
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I. Proposals |
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Age: 76 Director since: 2010 Committees: Compensation Executive (chair) Independent: Yes |
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PARKER S. KENNEDY
Mr. Kennedy is our chairman emeritus and lead independent director. He served as chairman of our Board from 2010 to 2022. Mr. Kennedy served as executive chairman of the Company from 2010 to 2012. From 2003 to 2010, he served as chairman and chief executive officer of The First American Corporation, the Company’s prior parent company, and as its president from 1993 to 2004. He served as a director of The First American Corporation and, as renamed in 2010, CoreLogic, Inc., from 1987 to 2011, and was CoreLogic, Inc.’s executive chairman from 2010 to 2011. He is a director of the Automobile Club of Southern California. We believe that Mr. Kennedy, who has worked with us in various capacities for over 40 years, has unparalleled executive experience in our industry. He also brings to the Company an incomparable understanding of our history and culture. |
Age: 69 Director since: 2013 Committees: Audit Compensation Independent: Yes |
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MARK C. OMAN
Mr. Oman retired from Wells Fargo & Company in 2011, after serving it or its predecessors since 1979. He held numerous positions at Wells Fargo, including senior executive vice president (home and consumer finance) from 2005 until his retirement and group executive vice president (home and consumer finance) from 2002 to 2005. Mr. Oman also served as a director and the chief executive officer of Wachovia Preferred Funding Corp. from 2009 to 2011. He is currently involved with several private ventures and serves on a variety of private-company and non-profit boards. Mr. Oman brings to the Board important insights into the mortgage market and working with large mortgage lenders. |
First American Financial Corporation 2024 Proxy Statement | 4
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I. Proposals |
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Class I Directors—Term Expiring 2026
Age: 52 Director since: 2022 Committees: None Independent: No |
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KENNETH D. DEGIORGIO
Mr. DeGiorgio has served as our chief executive officer since February 2022. From 2021 to 2022 he was our president with oversight responsibility for the Company’s operating groups, including its title insurance, specialty insurance and data and analytics businesses. He served as executive vice president from 2010 to 2021, overseeing the Company's international division, trust company and various corporate functions. He serves as a director of Offerpad Solutions Inc. (NYSE:OPAD), a leading tech-enabled real estate company, and Lev Inc., a privately held technology company focused on digitizing commercial real estate financing. With over 24 years of service to our Company in various operational and corporate roles, Mr. DeGiorgio provides our Board with an in-depth understanding of the Company’s businesses, risk profile and competitive landscape. |
Age: 77 Director since: 2010 Committees: Audit (chair) Executive Independent: Yes |
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JAMES L. DOTI
Dr. Doti has been a professor of economics at Chapman University since 1974 and served as Chapman University’s president from 1991 to 2016. He previously served on the boards of The First American Corporation, the Company’s prior parent company, Standard Pacific Corp. and Fleetwood Enterprises, Inc. Given his experience as president of Chapman University and his doctorate in economics from the University of Chicago, Dr. Doti gives our Company insight into the organizational challenges that large companies face and the impact of the economic environment on the Company. |
Age: 78 Director since: 2011 Committees: Compensation (chair) Independent: Yes |
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MICHAEL D. MCKEE
Mr. McKee has served as a principal of The Contrarian Group, a private equity firm, since 2018. He is the chairman of Realty Income Corporation (NYSE: O), a real estate investment trust, and the Tiger Woods Foundation. He served as a director of HCP, Inc. (NYSE: HCP), a publicly traded real estate investment trust, from 1989 to 2018, as executive chairman of HCP from 2016 to 2018 and, during 2016, he also served as interim chief executive officer and president of HCP. From 2010 to 2016, Mr. McKee was chief executive officer of Bentall Kennedy (U.S.), a registered real estate investment advisor. He also served as the chief executive officer and vice chairman of the board of directors of The Irvine Company, a privately-held real estate development and investment company, and as a partner with the law firm of Latham & Watkins LLP. Mr. McKee brings to the Board significant operating and executive management experience. This experience, combined with Mr. McKee’s extensive background in the real estate industry, facilitates the Board’s oversight of the Company’s operations and enhances its ability to assess strategic opportunities. |
First American Financial Corporation 2024 Proxy Statement | 5
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I. Proposals |
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Age: 72 Director since: 2022 Committees: None Independent: No |
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MARSHA A. SPENCE
Ms. Spence served as chairman of the board of Mother Lode Holding Co., a provider of title insurance, underwriting and escrow services for residential and commercial real estate transactions, and a wholly-owned subsidiary of the Company, from 2006 until her retirement in 2023. She joined Placer Title Company, now Mother Lode’s principal subsidiary, in 1977 and had managerial roles involving increased responsibility, including as Mother Lode’s chief executive officer from 2001 to 2021. Ms. Spence served on the California Land Title Association Board of Governors for 10 years, serving as board president from 2005 to 2006. Ms. Spence brings to the Board deep industry knowledge and experience leading a highly successful, multi-brand title business. |
See the section entitled “Security Ownership of Management,” which begins on page 12, for information pertaining to stock ownership of our directors. There are no family relationships among any of the directors or nominees or any of our executive officers. There are no arrangements or understandings between any director and any other person pursuant to which any director was or is to be selected as a director.
First American Financial Corporation 2024 Proxy Statement | 6
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I. Proposals |
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Our Board is composed of directors who possess a mix of skills and experience that we believe align with, and facilitate effective oversight of, the Company’s strategy and risks. The following chart presents the percentage of director nominees and the other incumbent directors who possess substantive skills and have self-reported as being from experienced to highly experienced in these areas.
Board of Directors Skills and Experience |
First American Financial Corporation 2024 Proxy Statement | 7
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I. Proposals |
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Our Board believes that a diverse board is better able to effectively oversee the Company’s management and strategy and better positions the Company to deliver long-term value for our stockholders. As outlined on page 15, our Board utilizes a broad conception of diversity, recognizing that gender, race, ethnicity and other factors add to the overall mix of perspectives of our Board as a whole. The following graph presents self-reported information regarding the gender, race and ethnic diversity profile of our directors.
Directors Self-Reporting Diversity |
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70% |
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Female |
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30% |
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African American |
10% |
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Caucasian |
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90% |
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Overall Diversity |
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40% |
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First American Financial Corporation 2024 Proxy Statement | 8
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I. Proposals |
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Item 1. Election of Class II Directors
Our certificate of incorporation provides for a classified Board. Each person elected as a Class II director at the annual meeting of stockholders will serve for a three-year term expiring on the date of the 2027 annual meeting and until his or her successor in office is elected and qualified. Our Board has nominated the following individuals for election as Class II directors:
Dennis J. Gilmore
Margaret M. McCarthy
Martha B. Wyrsch
Unless otherwise specified by you in your proxy card, the proxies solicited by our Board will be voted “FOR” the election of each of the Class II director nominees. If any nominee should become unable or unwilling to serve as a director, the proxies will be voted for such substitute nominee(s) as shall be designated by our Board. Our Board presently has no knowledge that any of the nominees will be unable or unwilling to serve.
Our Board recommends that you vote "FOR" each of these Class II director nominees.
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First American Financial Corporation 2024 Proxy Statement | 9
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I. Proposals |
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Item 2. Advisory Vote to Approve Executive Compensation
Pursuant to Section 14A of the Securities Exchange Act of 1934 and Securities and Exchange Commission (“SEC”) rules, we are seeking the advice of our stockholders on the compensation of our named executive officers (“NEOs”) as presented in the “Executive Compensation” section of this proxy statement commencing on page 21. Specifically, we are seeking stockholder approval of the following resolution:
“RESOLVED, that the stockholders of First American Financial Corporation approve, on an advisory basis, the compensation of the Company’s named executive officers, as disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and the related compensation tables, notes and narrative in the Proxy Statement for the Company’s 2024 annual meeting of stockholders.”
We refer to this proposal as a “Say on Pay” proposal. As part of its process in determining executive compensation levels for 2023, the Compensation Committee has reviewed the results of last year’s Say on Pay proposal, in which approximately 95% of our Company’s shares present and entitled to vote approved, on an advisory basis, 2022 executive compensation. The stockholder support for the prior Say on Pay proposal reinforces the Compensation Committee’s belief that it should continue its practice of implementing and overseeing executive compensation programs that provide for a substantial portion of the executive officers’ total compensation to be related to our Company’s consolidated financial performance. It also reinforces the Compensation Committee’s view that, for executive officers, the mix of compensation should be weighted heavily toward at-risk pay and should include a substantial portion payable in equity. This is consistent with the overall philosophy of maintaining a pay mix that results fundamentally in a pay-for-performance orientation and a strong alignment between the interests of executive officers and long-term stockholders.
The results of the 2023 executive compensation program are included in the section entitled “Compensation Discussion and Analysis” commencing on page 21. As a whole, executive compensation was down for the second consecutive year in 2023 amidst historically difficult market conditions and a cybersecurity incident that occurred in December 2023 which materially impacted the Company's operations and, consequently, our fourth quarter financial results. These factors directly impacted executive compensation levels for the year, as reflected in the metric results for annual incentive plan compensation being at 60% of target for 2023 (subject to the Discretionary Adjustment, as described in the Compensation Discussion and Analysis) compared to a 77% of target payout for 2022. Stockholders are urged to read the Compensation Discussion and Analysis as well as the Summary Compensation Table and related compensation tables and narrative, appearing on pages 51 through 61, in their entirety.
While this vote to approve executive compensation is not binding, the Compensation Committee intends to review the results of the vote in connection with its ongoing analysis of our Company’s compensation programs. We expect to include a Say on Pay proposal in our proxy materials on an annual basis and, thus, we expect that the next Say on Pay proposal will occur at our 2025 annual meeting, taking into consideration the results of the Say on Frequency vote.
Our Board recommends that you vote "FOR" the approval, on an advisory basis, of our Company's executive compensation.
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First American Financial Corporation 2024 Proxy Statement | 10
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I. Proposals |
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Item 3. Ratification of Selection of Independent Auditor
The Audit Committee has selected PricewaterhouseCoopers LLP (“PwC”) to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2024. Representatives of PwC are expected to participate in the annual meeting and will have an opportunity to make a statement and be available to respond to appropriate questions.
Selection of our independent registered public accounting firm is not required to be submitted for stockholder approval, but the Audit Committee is seeking ratification of its selection of PwC from our stockholders as a matter of good corporate governance. If the stockholders do not ratify this selection, the Audit Committee will reconsider its selection of PwC and will either continue to retain this firm or appoint a new independent registered public accounting firm. Even if the selection is ratified, the Audit Committee may, in its discretion, appoint a different independent registered public accounting firm at any time during the year if it determines that such a change would be in our Company’s best interests and those of our stockholders.
Our Board recommends that you vote "FOR" the foregoing proposal to ratify the selection of PwC as our Company's independent registered public accounting firm.
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First American Financial Corporation 2024 Proxy Statement | 11
II. Required Information |
Security Ownership of Management
The following table sets forth the total number of our shares of common stock beneficially owned and the percentage of the outstanding shares so owned as of the record date by:
Unless otherwise indicated in the notes following the table, the stockholders listed in the table are the beneficial owners of the listed shares with sole voting and investment power (or, in the case of individual stockholders, shared power with such individual’s spouse) over the shares listed. Shares subject to rights exercisable within 60 days after the record date are treated as outstanding when determining the amount and percentage beneficially owned. None of the directors or officers included in the table below have the right to acquire any shares within 60 days of the record date.
Stockholders |
Number of |
Percent |
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Directors |
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Kenneth D. DeGiorgio |
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219,558 |
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— |
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James L. Doti |
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68,842 |
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— |
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Dennis J. Gilmore |
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593,755 |
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— |
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Reginald H. Gilyard |
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16,286 |
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— |
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Parker S. Kennedy |
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2,653,094 |
(1) |
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2.6% |
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Margaret M. McCarthy |
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23,238 |
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— |
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Michael D. McKee |
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48,342 |
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— |
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Mark C. Oman |
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45,673 |
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— |
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Marsha A. Spence |
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— |
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— |
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Martha B. Wyrsch |
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13,385 |
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— |
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Named executive officers who are not directors |
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Mark E. Seaton |
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133,100 |
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— |
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Lisa W. Cornehl |
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6,897 |
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— |
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Matthew F. Wajner |
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23,743 |
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— |
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Steven A. Adams |
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2,449 |
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— |
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All directors, named executive officers and other executive officers as a group (14 persons) |
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3,848,362 |
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3.7% |
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First American Financial Corporation 2024 Proxy Statement | 12
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II. Required Information |
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Board and Committee Meetings
Our Board held twelve meetings during 2023. No incumbent director attended less than 75% of the aggregate of all meetings of the Board and the committees (if any) on which the director served. From time to time, our Board and its committees may act by unanimous written consent as permitted by the laws of the State of Delaware. Our Board’s standing committees include an audit, compensation, nominating and corporate governance and executive committee. The roles and responsibilities of the audit, compensation and nominating and corporate governance committee are set forth below. The executive committee may meet from time to time in between Board meetings and may exercise the authority of the Board. The following table reflects the composition of each of the standing committees as of the date of this proxy statement.
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Audit Committee |
Compensation Committee |
Nominating and Corporate Governance Committee |
Executive Committee |
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Number of Meetings in 2023 |
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6 |
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5 |
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3 |
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0 |
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Independent Directors |
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Dr. James L. Doti |
O |
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Reginald H. Gilyard |
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Parker S. Kennedy |
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Margaret M. McCarthy |
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Michael D. McKee |
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Mark C. Oman |
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Martha B. Wyrsch |
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Inside Directors |
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Kenneth D. DeGiorgio |
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Dennis J. Gilmore |
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Marsha A. Spence |
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Audit Committee
The functions performed by the Audit Committee include:
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The Audit Committee’s charter is posted in the corporate governance section of our website at www.firstam.com. Our Board has determined that Messrs. Doti and Oman are audit committee financial experts and Ms. Wyrsch is financially literate within the meaning of the SEC’s rules and regulations.
Compensation Committee
The Compensation Committee establishes compensation rates and procedures with respect to our executive officers, including the determination of their annual bonus awards, monitors our equity compensation plans, assesses risk with respect to our compensation programs and makes recommendations to the Board regarding director compensation. The Compensation Committee’s charter is posted in the corporate governance section of our website at www.firstam.com.
Additional information concerning the Compensation Committee’s processes and procedures surrounding non-employee director compensation is included in the section entitled “Director Compensation,” which begins on page 68. Additional information concerning the executive compensation policies and objectives established by the Compensation Committee, the Compensation Committee’s processes and procedures for consideration and determination of executive compensation, and the role of executive officers and the Compensation Committee’s compensation consultant in determining executive compensation is included in the section entitled “Compensation Discussion and Analysis,” which begins on page 21, under the subsection entitled “Compensation Decision Process,” which begins on page 34.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee is responsible for identifying individuals qualified to become directors of our Company; recommending to the Board nominees for directorships to be filled by the Board or by the stockholders; developing, recommending to the Board and periodically reviewing the corporate governance principles applicable to our Company; overseeing our Company’s succession plan for the chief executive officer and the succession planning process for other key employees; and overseeing sustainability matters material to our Company’s business. This committee’s charter is posted in the corporate governance section of our website at www.firstam.com. The committee’s charter outlines the procedures by which certain stockholders of our Company may recommend director nominees to the Board. In particular, the committee will accept and consider, in its discretion, director recommendations from any stockholder holding in excess of five percent of our Company’s outstanding shares of common stock. Such recommendations must include the name and credentials of the recommended nominee, along with all other information required under our Bylaws, and should be timely submitted to the secretary of our Company at 1 First American Way, Santa Ana, California 92707. The committee will evaluate director candidates recommended by stockholders for election to our Board in the same manner and using the same criteria as used for any other director candidate (as described below). If the committee determines that a stockholder-recommended candidate is suitable for membership on our Board, it will include the candidate in the pool of candidates to be considered for nomination upon the occurrence of the next vacancy on our Board or in connection with the next annual meeting of stockholders.
Our Bylaws also provide for proxy-access, which is described in the section “Stockholder Proposals, Director Nominations and Proxy Access” on page 72. In 2022, in response to stockholder feedback, we amended our Bylaws to implement majority voting in uncontested elections of directors. In contested elections, where the number of nominees exceeds the number of directors to be elected, plurality voting will continue to apply. Our Bylaws also require that any director who does not receive a majority of the votes cast will promptly tender his or her resignation for consideration by the Nominating and Corporate Governance Committee and the Board.
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As stated in the corporate governance guidelines, the committee takes into account all factors it considers appropriate in identifying and evaluating candidates for membership on the Board, including some or all of the following: strength of character, an inquiring and independent mind, practical wisdom, mature judgment, career specialization, relevant technical skills, reputation in the community, diversity and the extent to which the candidate would fill a present need on the Board. This committee makes recommendations to the full Board as to whether or not incumbent directors should stand for re-election. However, if our Company is legally required by contract or otherwise to provide third parties with the ability to nominate directors, the selection and nomination of such directors generally is not subject to the committee process for identifying and evaluating nominees for director. The committee conducts all necessary and appropriate inquiries into the background and qualifications of possible candidates and may engage a search firm to assist in identifying and evaluating potential candidates for nomination.
Our corporate governance guidelines set forth a policy for the consideration of diversity in identifying nominees for director. The policy recognizes the benefits associated with a diverse board and, as indicated above, requires that the Nominating and Corporate Governance Committee consider diversity as a factor when identifying and evaluating candidates for membership on the Board. The policy utilizes a broad conception of diversity, including professional and educational background, prior experience on other boards, political and social perspectives, as well as race, national origin, gender and sexual orientation. The Nominating and Corporate Governance Committee assessed the effectiveness of the Board diversity policy by considering, among other factors, self-assessed director skills and experience; the race, national origin, gender and sexual orientation of Board members; and the practices of the Board and the committee when identifying and evaluating candidates for membership on the Board.
Utilizing the factors and in recognition of the legal requirements described above, the committee makes recommendations, as it deems appropriate, regarding the composition and size of the Board. The priorities and emphasis of the committee and of the Board may change from time to time to take into account changes in business and other trends and the portfolio of skills and experience of current and prospective Board members.
Our corporate governance guidelines also contain a mandatory retirement policy, which provides that no person is eligible for election as a director if on January 1 of the year of the election he or she is age 77 or older. The Board has not granted any waivers or exemptions to this policy.
Independence of Directors
The Board has affirmatively determined that each member of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee, as well as each other member of the Board, except Kenneth D. DeGiorgio, Dennis J. Gilmore and Marsha A. Spence, is “independent” as that term is defined in the corporate governance rules of the New York Stock Exchange for listed companies and in accordance with our Company’s corporate governance guidelines. In addition, each member of the Audit Committee and the Compensation Committee is independent under the additional standards applicable to the respective committee under the Securities Exchange Act of 1934, as amended, and the New York Stock Exchange listing standards. In making these determinations, the Board considered the following relationships between directors and our Company: Messrs. Gilyard and McKee are affiliated with entities that do business with, or that represent clients that do business with, us in the ordinary course from time to time (and the amounts involved in each case are significantly less than 2% of such entity’s consolidated gross revenues); each of Messrs. Doti and Kennedy is or recently was affiliated with one or more nonprofit organizations to which our Company and/or our management has made donations from time to time (and the amounts in each case are significantly less than $1 million and 2% of the nonprofit organization’s consolidated gross revenues); and Mr. Kennedy receives standard board fees for his service as a director of our Company’s trust subsidiary, as further described in the section entitled “Director Compensation,” which begins on page 68. Each of the relationships above, while considered by the Board, falls within our categorical independence standards contained in the Board’s corporate governance guidelines, which are available on the corporate governance section of our website at www.firstam.com. The Board also considered the following relationships between Mr. Kennedy and our Company: he was employed as our executive chairman until his retirement in February 2012; for serving
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as chairman of the Board until February 9, 2022 and as lead independent director of the Board since then, he receives Company-provided office space, mobile devices, computer, other office equipment and administrative support as set forth in the section entitled “Director Compensation,” which begins on page 68; and his son is employed by a subsidiary of our Company as further described in the section entitled “Transactions and Litigation with Management and Others” on page 18.
Board Leadership Structure; Meetings of Non-Management and Independent Directors
Our Board believes it is important to select our Company’s chairman and our Company’s chief executive officer in the manner it considers in the best interests of our Company at any given point in time. Accordingly, the chairman and chief executive officer positions may be filled by one individual or by two different individuals. Our Board has determined at this time that it is appropriate to separate the roles of chairman and chief executive officer and these positions are currently held by different individuals, Mr. Gilmore and Mr. DeGiorgio, respectively.
In addition to a chairman, we also have a lead independent director, Mr. Kennedy. The lead director is responsible for chairing and coordinating the agenda for the executive sessions of non-management and independent directors. In 2023, the non-management directors met four times in executive session and the independent directors met one time in executive session. In addition, the lead director may provide advice to the chairman with respect to the following: (i) establishing an appropriate schedule for Board meetings; (ii) preparing agendas for the meetings of the Board and its committees; (iii) the retention of consultants who report directly to the Board; (iv) the Nominating and Corporate Governance Committee’s oversight and implementation of our corporate governance policies; and (v) the Compensation Committee’s oversight of the implementation of and compliance with our Company’s policies and procedures for evaluating and undertaking executive and incentive-based compensation.
Our Board believes this to be the most effective leadership structure for our Company because it effectively allocates authority, responsibility, and oversight between management, the chairman of the Board and the lead director and capitalizes on the experience and strengths of our current management team. It does this by giving primary responsibility for the operational leadership and strategic direction of our Company to our chief executive officer, enabling the lead director to facilitate our Board’s independent oversight of management and consideration of key governance matters, and allowing our chairman to promote communication between management and our Board. The Board believes that its programs for overseeing risk, as described under the Risk Oversight section below, would be effective under a variety of leadership frameworks. Accordingly, the Board’s risk oversight function did not significantly impact its selection of the current leadership structure.
Annual Performance Evaluation
The Board and each of its committees conduct an annual self-evaluation to determine whether the Board and its committees are functioning effectively. In connection with this annual evaluation, directors are given an opportunity to evaluate the effectiveness of each other and to evaluate their own personal effectiveness. The results of the evaluation are reported to the Board and each committee.
Risk Oversight
The Board’s responsibilities in overseeing our Company’s management and business to maximize long-term stockholder value include oversight of our Company’s key risks and management’s processes and controls to manage those risks appropriately. Management, in turn, is responsible for the day-to-day management of risk and implementation of appropriate risk management controls and procedures.
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Although risk oversight permeates many elements of the work of the full Board and the committees, the Audit Committee has the most direct and systematic responsibility for overseeing risk management and has been designated by the Board as its risk oversight committee. To that end, the Audit Committee charter provides for a variety of regular and recurring responsibilities relating to risk, including:
In performing these functions, the committee regularly receives reports from management and internal and external auditors regarding our Company’s:
Separately, the Compensation Committee oversees our Company’s compensation policies and practices and has assessed whether our Company’s compensation policies encourage excessive risk taking. The Compensation Committee has concluded that these policies and practices do not create risks that are reasonably likely to have a material adverse effect on our Company. In arriving at that conclusion, the Compensation Committee considered, among other factors, our Company’s review and approval processes surrounding certain compensatory arrangements; the metrics used to determine variable compensation, including the performance measures selected by the Compensation Committee and performance ranges associated with the metrics; the Compensation Committee’s oversight of inclusion or exclusion of extraordinary items in the financial results upon which certain compensatory arrangements are based; the inclusion of overall Company performance in the determination of divisional leader compensation; the portion of variable compensation paid in restricted stock units ("RSUs"), which generally vest over three to four years; the extent to which qualitative judgments are involved in the compensatory arrangements; the amount of compensation paid as sales commissions, management’s review of such compensation paid and the localized nature of the commission payments; controls, such as underwriting and approval controls; and the extent to which compensatory arrangements can be changed if circumstances evidence increased risk associated with such arrangements.
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Director Attendance at Annual Meetings
Our directors are expected to attend the annual meetings of our stockholders. At last year’s annual meeting, each of our Company’s directors attended the virtual meeting.
Stockholder and Interested Party Communications with Directors
Stockholders and other interested parties may communicate directly with members of the Board, including the chairman, lead director or any of the other non-management directors of our Company (individually or as a group), by writing to such director(s) at our Company’s principal executive offices, 1 First American Way, Santa Ana, California 92707. In general, stockholder communications delivered to our Company for forwarding to Board members about bona fide issues and concerning our Company related to the duties and responsibilities of the Board will be forwarded in accordance with the stockholder’s instructions. Directors receiving such communications will respond as such directors deem appropriate, including the possibility of referring the matter to management of our Company, to our Company’s internal audit department, to the full Board or to an appropriate committee of the Board.
The Audit Committee has established procedures to receive, retain and address complaints regarding accounting, internal accounting controls or auditing matters, and for the submission by our employees of concerns regarding questionable accounting or auditing matters. Our 24-hour, toll-free hotline is available for the submission of such concerns or complaints at 1-866-921-6714. To the extent required by applicable law, individuals wishing to remain anonymous or to otherwise express their concerns or complaints confidentially are permitted to do so.
Transactions and Litigation with Management and Others
The Board has adopted a written policy regarding related party transactions, which generally requires the Nominating and Corporate Governance Committee’s review and approval of transactions involving amounts in excess of $120,000 between our Company and/or our affiliates, on the one hand, and, on the other hand, any of our Company’s directors, director-nominees, executive officers, stockholders beneficially owning in excess of 5% of our Company’s common stock or any of their immediate family members that have a direct or indirect material interest in the transaction. If the proposed transaction involves $1,000,000 or less, then the chair of the Nominating and Corporate Governance Committee may approve the transaction.
Certain transactions, including compensatory arrangements reported in this proxy statement for executive officers and directors of our Company, are deemed to be pre-approved by the Nominating and Corporate Governance Committee under the terms of the policy. In cases where the potential transaction would involve the executive officer, director, large stockholder or any of their immediate family members only in an indirect fashion, the policy does not apply where such indirect interest results solely from ownership of less than 10% of, or being a director of, the entity entering into the transaction with our Company.
Mr. Kennedy’s son is employed by a subsidiary of our Company as a managing director, agency division. His base salary in 2023 was $225,000, his cash bonus for 2023 (paid in 2024) was $290,200 and the dollar value of restricted stock units granted to him in 2023 (in connection with 2022 performance) was $218,500. He received standard employee benefits and participated in the standard, performance-based incentive compensation program available to similarly-situated employees of his level and experience.
Mr. Gilmore’s daughter is employed by a subsidiary of our Company as a vice president, division area manager. Her base salary in 2023 was $130,000 and her cash bonus for 2023 (paid in 2024) was $30,600. In addition, she received standard employee benefits and participated in the standard, performance-based incentive compensation program available to similarly-situated employees of her level and experience.
Ms. Spence served as the chairman of Mother Lode Holding Co. (“MLHC”), a subsidiary of our Company that was acquired on May 2, 2022, until her retirement in 2023. In connection with the acquisition, Ms.
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Spence entered into an employment agreement to continue as chairman of MLHC for one year after the closing of the acquisition. Ms. Spence was employed by our Company for a partial year of service in 2023 for which she was paid a prorated salary of approximately $63,700 and provided standard employee benefits available to similarly-situated employees. In addition, Ms. Spence was the beneficiary of a legacy Supplemental Executive Retirement Plan (“MLHC SERP”) and Deferred Compensation Plan (“MLHC DCP”) that MLHC offered prior to the acquisition by our Company. Although those plans were frozen at the time of the acquisition, our Company assumed the obligations under those plans that were then in place, including the obligations under Ms. Spence’s MLHC SERP contract and with respect to her DCP contributions. MLHC was also a lessee under seven lease agreements with respect to properties beneficially owned by a trust to which Ms. Spence and her husband are beneficiaries. Three of those lease arrangements terminated during 2023, with four remaining in place as of December 31, 2023. Our Company paid approximately $860,000 in rent payments under the leases during 2023. These leases were included in the acquisition and were determined by our Company’s corporate real estate team at the time to be at fair market value rates.
For information on transactions involving our Company and persons or groups of stockholders who are known to us to be the beneficial owners of more than 5% of our common stock, see the footnotes to the table in the section “Who are the largest principal stockholders outside of management?” on page 79.
Executive Officers
The following provides information regarding our Company’s current executive officers:
Name |
Position(s) Held |
Age |
Kenneth D. DeGiorgio |
Chief Executive Officer |
52 |
Mark E. Seaton |
Executive Vice President, Chief Financial Officer |
46 |
Lisa W. Cornehl |
Senior Vice President, Chief Legal Officer, Secretary |
45 |
Matthew F. Wajner |
Vice President, Treasurer |
48 |
Steven A. Adams |
Vice President, Chief Accounting Officer |
54 |
All officers of our Company are appointed annually by the Board on the day of the annual meeting of stockholders.
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First American Financial Corporation 2024 Proxy Statement | 20
Executive Compensation |
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Compensation Discussion and Analysis
CD&A Contents |
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Introduction
In this section, we describe our executive compensation program for our named executive officers (generally referred to in the Executive Compensation section of this proxy statement as our "executive officers"). Our Company’s executive officers for 2023 were:
Name |
Principal Position |
Tenure with Company (years) |
Kenneth D. DeGiorgio |
Chief Executive Officer |
25 |
Mark E. Seaton |
Executive Vice President, Chief Financial Officer |
18 |
Lisa W. Cornehl |
Senior Vice President, Chief Legal Officer |
13 |
Matthew F. Wajner |
Vice President, Treasurer |
14 |
Steven A. Adams |
Vice President, Chief Accounting Officer |
4 |
Executive Summary
The Compensation Committee (referred to in the Executive Compensation section of this proxy statement as the "Committee") believes that the Company's management team performed at a high level in 2023 amidst historically difficult market conditions that resulted in the lowest level of existing home sales since the global financial crisis and sales volumes in the commercial market reverting to pandemic-low levels. This strong performance was exemplified by the management team's achievements in expense and risk management and management of the circumstances that arose from the cybersecurity incident the Company experienced in December 2023. In the face of these obstacles, the Committee believes management's effectiveness is reflected in the Company's sustained financial performance (despite the financial impact of the cybersecurity incident), which delivered a 27.6% |
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total shareholder return, $6.0 billion in total revenue, and $494.0 million in pretax earnings for the year. It was also evidenced by their execution against strategic objectives, such as increasing the Company's domestic title insurance market share and continued investing in strategic initiatives that support the Company's long-term growth, to name a few.
With the Company maintaining high performance standards through difficult market conditions, executive compensation as a whole was down for the second consecutive year in 2023. Metric results for annual incentive compensation were at 60% of target for 2023 (subject to the Discretionary Adjustment, as described below) compared to a 77% payout for 2022. As further explained below, at management's
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Compensation Discussion and Analysis |
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request, the Committee exercised its discretion to apply a Discretionary Adjustment that increased the 2023 payouts for three of our five executive officers to 72% of target, a level which the Committee determined to reflect these executive officers' performance before the adverse financial impact of the cybersecurity incident. Additionally at management's request, as part of the Company's broader expense management efforts, the Committee did not apply the Discretionary Adjustment to the payouts for our chief executive officer or chief financial officer, notwithstanding the Committee's positive view of their individual performance. The Committee believes that the overall compensation paid to management by our Company is commensurate with its performance and consistent with our Company's pay-for-performance philosophy.
The Committee has structured the Company's executive compensation program utilizing several key pay elements to create a strong alignment between the interests of executive officers and long-term stockholders. Based on the positive support the Company has received from stockholder outreach efforts and the results of last year’s Say on Pay proposal, in which approximately 95% of the Company’s shares present and entitled to vote on the proposal approved, on an advisory basis, 2022 executive compensation, the Committee maintained the program's overall structure for 2023. The Committee believes that this structure continues to represent a well-proportioned mix of stock-based compensation, retention value and at-risk compensation that produces desirable short-term and long-term performance incentives and rewards
The key pay elements for our executive compensation program, which are further described in the "Pay Elements and Practices" section below, are as follows:
Performance Overview
Our Company's financial performance is largely realized through providing title insurance, settlement services and related products and services in support of real estate transactions. This links our performance to broader trends in the real estate market, which is highly cyclical. Fluctuations in interest rates, real estate inventory levels, real estate pricing and general economic conditions, among other factors, impact the real estate market and, therefore, demand for our products and services.
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Compensation Discussion and Analysis |
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The downward phase of the real estate cycle that began early in 2022 continued into 2023, which saw high mortgage rates, rising prices and low inventory drive housing affordability to its lowest point in over three decades, resulting in the lowest level of existing home sales since the global financial crisis. The rapid increase in interest rates, while bolstering the Company's investment income, also drove a significant decrease in transaction volumes in the commercial real estate market. The Company was performing well in a challenging market ahead of the cybersecurity incident that occurred in December 2023. To address the incident, the Company elected to take its systems offline, which materially impacted the Company's operations and, consequently, our fourth quarter financial results. Amidst the challenges presented by these obstacles, the Committee believes the management team performed well in 2023, with their effectiveness being reflected in the Company's sustained financial performance (despite the financial impact of the cybersecurity incident) and execution against strategic objectives.
Execution on Company Strategy Our Company continued executing on our strategic goals this year against a difficult economic backdrop. The Company's accomplishments continue to validate our Company's strategy, including our efforts to digitally transform the process of transacting real estate, and vision to be the premier title insurance and services company. Highlights for 2023 include: |
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Financial Results |
• Maintained total revenues of over $6.0 billion, or $6.2 billion adjusted for net investment losses • Generated pretax earnings in the title insurance and services segment of $494.0 million, or $532.2 million adjusted for net investment losses, despite continuing market headwinds • Achieved an 8.6% pretax margin in the title insurance and services segment, or 9.2% adjusted for net investment losses • Delivered a return on equity of 4.5%, or 6.6% adjusted to exclude net gains/losses from the investment portfolio and net gains/losses from the venture investment portfolio • Generated earnings per share of $2.07, or $3.53 per share adjusted to exclude $1.46 per share of net investment losses • Increased investment income in the title insurance and services segment to $540.2 million, up 50.4% on a year-over-year basis • Home Warranty segment achieved a pretax margin of 13.0%, or 14.2% adjusted for net investment losses |
Execution on Strategic Objectives |
• Profitably grew our domestic title insurance market share by 1.3% on a trailing twelve month basis as of the third quarter of 2023 • Significantly mitigated the impact of historically difficult market conditions, largely through disciplined expense management |
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Compensation Discussion and Analysis |
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efforts and continued growth in title insurance and services segment investment income • Launched new initiatives that improve the customer experience, make our business more efficient and mitigate risk • Maintained leadership in title data coverage in all data asset categories, including leveraging our proprietary data extraction technology to increase our title plant footprint to include over 1,800 counties • Continued investing in innovation, including in progress on our digital title and settlement effort and achieving significant advancements with our instant title decisioning initiative for purchase transactions • Successfully executed on compliance and risk management efforts, including effective management of underwriting risk, legal and regulatory compliance |
Environmental, Social and Governance ("ESG") Initiatives |
• Named to the Fortune 100 Best Companies to Work For® list for the eighth consecutive year and Fortune Best Workplaces for Women® list for the eighth consecutive year • Named to People® Magazine's Companies that Care list for the third consecutive year • Awarded a score of 100 on the Human Rights Campaign Foundation's Corporate Equality Index (CEI), the nation's leading benchmarking survey measuring corporate policies and practices relating to LGBTQ+ equality, for the sixth consecutive year • Remained committed to our diversity, equity and inclusion strategy through our Company's Diversity, Equity and Inclusion (DEI) Council, which is focused on the development of employee-centered actions to enhance the recruitment, engagement, development, and retention of diverse employees, and the growing number of employee resource groups formed by the DEI Council • Published our 2022 annual sustainability report, which was aligned to Sustainability Accounting Standards Board (SASB) standards and which, among other highlights, indicates that our Company decreased our energy consumption by 15.0% year-over-year for our United States owned facilities |
Stockholder Outcomes |
• Delivered a 27.6% total shareholder return in 2023, along with a 11.4% and 11.2% total shareholder return for the three- and five-year periods ending December 31, 2023, respectively, compared to the total shareholder return of the S&P MidCap 400 Index of 16.4%, 8.1%, and 12.6% for the one-, three-, and five-year periods, respectively • Raised the quarterly dividend by 1.9%, returning $216.6 million to stockholders through dividends in 2023 |
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Compensation Discussion and Analysis |
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• Returned $72.7 million to stockholders through the repurchase of 1.3 million shares at an average price of $55.18 |
The charts below reflect certain GAAP financial results of the Company for the year, along with the two preceding years.
Total Revenues (in billions) $6.2 $7.1 $9.2 Net income attributable to the Company $707 $696 $1241 Pretax Margin (Title Segment) 16.1% 15.7% 16.3% Return on Equity 17.3% 14.9% 23.2% 2019 2020 2021
Note: The charts above reflect Company results under GAAP. The Committee makes certain non-GAAP adjustments in connection with its compensation programs, which are further described below.
2023 Performance Metric Results
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Compensation Discussion and Analysis |
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The executive officer's AIP cash and equity bonuses paid out at 60% of target for Messrs. DeGiorgio and Seaton and at 72% of target for Ms. Cornehl and Messrs. Adams and Wajner for the year. These payout amounts reflect the results of the two financial metrics utilized by the Committee: return on equity and pretax margin. Target and actual results of these metrics for 2023, as modified by the Discretionary Adjustment, were as follows.
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Target |
Actual 2023 Results |
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Pretax Margin(1) |
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10.0% |
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7.7% |
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Return on Equity(1) |
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9.0% |
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6.8% |
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Performance Total |
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— |
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60% |
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Discretionary Adjustment |
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— |
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12% (2) |
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Total |
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100% |
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72% |
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(1) The Committee’s definitions of pretax margin and return on equity are described on page 38 below. Actual results set forth above have been adjusted to exclude current year net investment gains/losses from the investment portfolio and certain current year net investment gains/losses from our Company’s venture investment portfolio. Return on equity also excludes accumulated other comprehensive income/loss and noncontrolling interests. These are non-GAAP financial measures. Please see Appendix A for the rationale behind the presentation of these measures and a reconciliation of these amounts to the nearest GAAP financial measures.
(2) For 2023, the Committee elected to make a Discretionary Adjustment increasing the payouts for Ms. Cornehl and Messrs. Adams and Wajner, with payout amounts remaining at metric levels for Messrs. DeGiorgio and Seaton.
The AIP gives the Committee discretion to adjust the metric-driven payout amounts by up to 30 percentage points to account for unanticipated external factors, performance against strategic initiatives designed to create long-term stockholder value, or ESG actions or initiatives (the "Discretionary Adjustment"), which factors and their application are further described in the Annual Incentive Compensation section beginning on page 37 below. For 2023, at management's request, the Committee elected to make a Discretionary Adjustment to increase the payouts for Ms. Cornehl and Messrs. Adams and Wajner by 12 percentage points from 60% to 72% of target, a level which the Committee determined to reflect the Company's and these executive officers' performance before the adverse financial impact of the cybersecurity incident. Additionally at management's request, as part of the Company's broader expense management efforts, the Committee did not apply the Discretionary Adjustment to the payouts for Messrs. DeGiorgio or Seaton, notwithstanding the Committee's positive view of their individual performance.
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Compensation Discussion and Analysis |
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Pay Philosophy
Pay Objectives
Our Company’s executive compensation program, which is administered by the Committee, is designed to encourage achievement of strong short-term financial results in the face of cyclical and unpredictable real estate market dynamics, while maintaining focus on enhancing long-term stockholder value. This is accomplished by tying a meaningful portion of the executive officers' total compensation to our Company's annual consolidated financial performance, a portion of which is payable in the form of performance- and time-based equity that vests over three years, with a lesser portion being driven by qualitative assessments of the contribution of each individual executive officer. The Committee believes that there is value in consistency in our compensation program. As a result, while target performance metrics change from year to year as a reflection of the cyclicality in our business, and target pay levels are adjusted to reflect the market and individual performance and contributions, the general structure of the program typically remains consistent from year to year. From time to time, however, the Committee makes adjustments to the compensation program based on stockholder feedback, changes in market compensation practices or to better accomplish the Committee’s objectives.
Our Company’s approach is designed to develop and administer programs that will achieve the following objectives:
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OUR KEY COMPENSATION OBJECTIVES |
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• Motivate executive officers to deliver long-term stockholder value without taking excessive risk. • Encourage achievement of strong short-term results through cyclical real estate market dynamics. • Support the attraction, retention and motivation of a highly capable leadership team critical to creating long-term value for our stockholders. • Provide compensation levels that are competitive with significant competitors and other companies in our Company's peer group. |
||
Compensation Mix
The Committee utilizes the particular elements of compensation described below because it believes they represent a well-proportioned mix of stock-based compensation, retention value and at-risk compensation that result fundamentally in a pay-for-performance orientation that produces desirable short-term and long-term performance incentives and rewards. By following this portfolio approach, the Committee endeavors to provide our executive officers with a competitive and retentive pay level that includes a measure of security with respect to their minimum level of compensation, while also motivating each executive officer to focus on the business metrics that will produce a high level of shorter-term performance for our Company with corresponding increases in long-term stockholder value.
First American Financial Corporation 2024 Proxy Statement | 27
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Compensation Discussion and Analysis |
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The following chart summarizes certain primary features of our executive compensation program's key pay elements:
Note: Long-term incentive PRSU awards vest and become earned on the third anniversary of the grant date. Long-term incentive RSU and AIP Bonus RSU awards vest at a rate of 33 1/3% per year on each anniversary of the grant date. The equity awards granted to executive officers in 2024 in connection with 2023 performance were granted on February 22, 2024 pursuant to our Company’s policy of granting RSUs to executive officers on the second day on which the New York Stock Exchange is open for trading following the submission of the Annual Report on Form 10-K.
First American Financial Corporation 2024 Proxy Statement | 28
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Compensation Discussion and Analysis |
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With this structure, our executive compensation program's mix of compensation is weighted heavily toward at-risk pay. In fact, approximately 88% of our CEO’s target pay is at risk (approximately 73%, on average, for our other executive officers). This is consistent with our overall philosophy of maintaining a pay mix that results fundamentally in a pay-for-performance orientation. The graphic below reflects the percentage of our executive officers’ 2023 target compensation that was fixed versus performance-based, as well as the percentage of performance metric-based RSUs versus strictly time-based RSUs. |
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Target Compensation(1)
|
|
CEO Base Salary 11% LTI Awards 44% Target AIP Bonus RSUs 25% Target AIP Cash Bonus 20% Metric Based Equity as a Percentage of all RSUs 52% Average of Other NEOs Base Salary 20% LTI Awards 41% Target AIP Bonus RSUs 19% Target AIP Cash Bonus 20% Metric Based Equity as a Percentage of all RSUs
First American Financial Corporation 2024 Proxy Statement | 29
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Compensation Discussion and Analysis |
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The following chart reflects the actual performance-based compensation and metric-based compensation percentages of the executive officers for 2023.
Actual Compensation
|
Actual 2023 Compensation |
|||||
|
Performance-Based(1) |
Metric-Based RSUs(2) |
||||
Named Executive Officer |
(% of Total Compensation) |
(% of Total RSUs Awarded) |
||||
DeGiorgio, K. |
|
86% |
|
|
63% |
|
Seaton, M. |
|
80% |
|
|
61% |
|
Cornehl, L. |
|
66% |
|
|
59% |
|
Wajner, M. |
|
53% |
|
|
61% |
|
Adams, S. |
|
49% |
|
|
63% |
|
(1) Includes actual AIP cash bonus and all RSUs awarded. The AIP cash bonus and all RSU awards were made in the subsequent year in connection with the prior year’s performance (i.e., awarded in 2024 in connection with 2023 performance).
(2) Metric-based RSUs include all Bonus RSUs granted for the specified year and all LTI PRSUs granted in connection with 2023 performance.
Say on Pay Results and Stockholder Outreach
As part of its process in determining executive compensation levels and structure for 2023, the Committee reviewed the results of last year’s Say on Pay proposal, in which over 95% of our Company’s shares present and entitled to vote on the proposal approved 2022 executive compensation. Continuing stockholder support for the Say on Pay proposal reinforces the Committee’s belief that it should continue its practice of implementing and overseeing executive compensation programs that provide for a substantial portion of the executive officers’ total compensation to be related to our Company’s consolidated financial performance. It also reinforces the Committee’s view that, for executive officers, the mix of compensation should continue to be weighted heavily toward at-risk pay and should include a substantial portion payable in equity. This is consistent with our overall philosophy of maintaining a pay mix that results fundamentally in a pay-for- performance orientation and a strong alignment between the interests of executive officers and long-term stockholders. |
|
To ensure that our compensation program aligns with the long-term interests of our stockholders, the Committee considered the input our Company received during its prior stockholder outreach efforts as well as additional feedback our Company received in its regular and ongoing communications with stockholders, all of which was discussed and reviewed with the Committee. |
First American Financial Corporation 2024 Proxy Statement | 30
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Compensation Discussion and Analysis |
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Summary of Executive Compensation Practices
The table below highlights certain of our executive compensation practices, including practices we have implemented that drive performance as well as those we have prohibited because we do not believe they serve our stockholders’ interests.
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KEY FEATURES OF OUR PROGRAM |
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✓ Pay-for-performance. Tie pay to performance by ensuring that a substantial portion of executive officer compensation is at-risk and related to our Company’s consolidated financial performance. ✓ Equity-based compensation. A substantial portion of compensation is paid in the form of RSUs to encourage alignment between executive officers and long-term stockholders and to discourage excessive risk taking. ✓ Multi-year performance-based equity awards. 50% of long-term incentive awards for executive officers are based on total shareholder return relative to the S&P MidCap 400 Index at the end of a three-year period, with performance-based payouts ranging from 0% to 200% of target. ✓ Peer group benchmarking. Peer group performance and compensation data is regularly reviewed by the Committee to inform compensation decisions. ✓ Stockholder engagement. Regularly communicate with stockholders to ensure program aligns with the long-term interests of stockholders. ✓ Stock ownership guidelines. We have stock ownership guidelines of six times base salary for the chief executive officer, three times base salary for our other executive officers with base salaries equal to or greater than $500,000 and one-time base salary for our other executive officers with base salaries below $500,000. ✓ Clawback and forfeiture of previously awarded compensation. Compensation must be recouped if our Company’s reported financial results are restated due to material noncompliance with applicable financial reporting requirements which resulted in excess incentive compensation having been received and, in certain circumstances, may otherwise be recovered if the executive officer's misconduct results in loss or damage to our Company or our reputation. ✓ Limit RSU acceleration upon change in control. The equity incentive plans and related award agreements provide for acceleration of all unvested RSUs only in the event of a change-in-control of our Company that is not approved by the Board. ✓ ESG. ESG actions, initiatives, or omissions that impact—and reflect the role of our Company in—broader society are considered in evaluating executive officer performance and determining compensation. ✓ Independent compensation consultant. The Committee uses an independent compensation consultant that provides no other services to our Company. ☒ No trading on margin or pledging of shares. Our trading policies prohibit our executive officers from holding Company securities in a margin account or pledging Company securities as collateral. ☒ No hedging. Hedging ownership of Company securities by engaging in short sales or trading in option contracts involving Company securities is prohibited.
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First American Financial Corporation 2024 Proxy Statement | 31
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Compensation Discussion and Analysis |
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Executive Compensation Program
Key Pay Elements
The following chart summarizes the key pay elements for our executive officers. Each element is described in detail beginning on page 35 in the Section “Pay Elements and Practices.”
First American Financial Corporation 2024 Proxy Statement | 32
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Compensation Discussion and Analysis |
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Benchmarking Compensation and Peer Group Development Overall compensation levels for our executive officers are determined based on a number of factors, including each individual’s roles and responsibilities within our Company, each individual’s experience and expertise, comparable compensation levels at peer companies, compensation levels in the marketplace for similar positions and the performance of the individual and our Company as a whole. In determining these compensation levels, the Committee considers all forms of compensation and benefits. |
SELECTION OF CMPARATOR COMPANIES Comparator companies are selected based on business profile characteristics, including industry, market capitalization and revenue |
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General In order to determine competitive compensation practices, the Committee primarily relies upon data compiled from public filings |
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("proxy data") of selected companies (“comparator companies”) that it considers appropriate comparators for the purpose of developing executive compensation benchmarks. The comparator companies for 2023 (meaning the companies used in connection with determinations of the 2023 executive compensation program) are identified below. In addition, the Committee periodically considers nationally recognized survey data published by various consulting firms. Proxy data was used exclusively to develop benchmarks for Messrs. DeGiorgio and Seaton while a blend of proxy data and general industry survey data was used for Ms. Cornehl. For Messrs. Wajner and Adams, the Committee reviewed size-aligned survey data from the United States Mercer Benchmark Database that was reflective of our Company’s total revenue size at the end of 2022. The Committee considers the advice and recommendations developed by its independent compensation consultant to support our benchmarking principles. |
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The comparator companies for 2023 were:
• American Financial Group, Inc. • Assurant, Inc. • AXIS Capital Holdings Limited • Cincinnati Financial Corporation • Everest Re Group, Ltd. • Fidelity National Financial, Inc. |
• Genworth Financial, Inc. • Kemper Corporation • Mercury General Corporation • Old Republic International Corporation • The Hanover Insurance Group, Inc. • W.R. Berkeley Corporation |
These companies are the same as those utilized by the Committee with respect to 2022 executive compensation. The peer companies represent the Committee’s continuing efforts to identify a significant number of comparable companies notwithstanding the fact that there is only one other company in our Company’s primary industry (title insurance) with financial and operational characteristics similar to our Company’s. The Committee's independent compensation consultant analyzed and supported the Committee's selection of comparator companies to be used for benchmarking purposes.
Use of Comparator Companies and Market Compensation Studies
After consideration of the data collected on competitive compensation levels and relative compensation within the executive officer group, the Committee determines each individual executive officer's target total compensation or total compensation opportunities based on Company and individual performance and the need to attract, incentivize and retain an experienced and effective management team. The Committee examines the relationship of each executive officer’s base salary, target annual incentive bonus opportunity and potential long-term incentive awards to market data at the 25th, 50th, and 75th percentiles. The Committee does not believe, however, that compensation or compensation opportunities should be structured toward a uniform relationship to any specific percentile of the market data, especially in light of the different financial characteristics of our Company’s business units (such as the relationship
First American Financial Corporation 2024 Proxy Statement | 33
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Compensation Discussion and Analysis |
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of revenues to net income). Accordingly, total compensation for specific individuals will vary based on a number of factors, in addition to Company and individual performance, including scope of duties, tenure, institutional knowledge and/or difficulty in recruiting a replacement executive officer.
Compensation Decision Process
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COMPENSATION COMMITTEE |
Composed entirely of |
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GENERAL The Committee is comprised entirely of independent members of the Board. The Committee reviews and approves the base salaries of the executive officers of our Company, their annual incentive bonus programs, their long-term incentive compensation and other incentive and executive benefit plans. It also reviews and makes recommendations to the Board regarding director compensation. The Committee, in consultation with the independent compensation consultant that it retains, analyzes the reasonableness of the compensation paid to the executive officers. In discharging its functions, as described in more detail above, the Committee reviews compensation data from comparable companies and from relevant surveys, which it utilizes to assess the reasonableness of compensation for our Company’s executive officers. |
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COMPENSATION COMMITTEE CHARTER The Committee’s function is more fully described in its charter, which is regularly reviewed and has been approved by our Company’s Board. The charter is available in the corporate governance section of our Company’s website at www.firstam.com.
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SETTING AIP METRICS The Committee sets the AIP metrics, such as pretax margin and return on equity, based on our Company’s financial plan for the applicable year, which is reviewed and approved by our Board. |
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ANNUAL INCENTIVE METRICS AIP metrics set based on rigorous financial planning process that includes third-party forecasts and that recognized the cyclical nature of our business |
Our financial plan is developed following a rigorous financial planning process that contemplates difficult to forecast levels of real estate activity, mortgage originations and interest rates, expenses, capital and liquidity needs, tax rates, and investment needs. Our Board also considers industry data and forecasts, risks and challenges associated with achievement of the financial plan, and other key budgeting assumptions before approving our financial plan, from which the annual incentive targets are determined. The third-party forecasts of real estate and mortgage activity used by our Board as part of this process, while helpful to our planning efforts, are often inaccurate and sometimes materially inaccurate. |
Due to the cyclical nature of our business, our financial plan and, consequently, the metrics utilized for our AIP, are not tied to the prior year’s actual results. The Committee believes that setting rigorous performance metrics in light of the expected business climate – as opposed to the business climate in earlier periods – incentivizes performance and, thereby, maximizes value to our stockholders and to do otherwise would demotivate our employees. |
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INDEPENDENT COMPENSATION CONSULTANT |
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|
In making its determinations with respect to target 2023 executive officer compensation, the Committee engaged the services of Frederic W. Cook & Co., Inc. to assist with its review of the compensation |
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First American Financial Corporation 2024 Proxy Statement | 34
|
Compensation Discussion and Analysis |
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package of the chief executive officer and other executive officers. The Committee engaged the services of Semler Brossy Consulting Group, LLC to support determinations of 2024 pay. In addition, the compensation consultants have assisted the Committee with related projects, such as evaluating non-employee director pay levels, advice with respect to the design of executive compensation programs, review of annual management incentive bonus plans, preparation or review of certain of our Company’s compensation-related disclosures and related tasks. The Committee retains its compensation consultants directly, although in carrying out assignments, the compensation consultants also interact with Company management to the extent necessary and appropriate. The compensation consultants perform no services for management, however, at the direction of the Committee, they do assist in the preparation or review of certain of our Company’s compensation-related disclosures, including this Compensation Disclosure and Analysis, and related projects. The Committee has assessed the independence of the respective consultants and has concluded that no conflict of interests exist that would prevent the consultants from serving as independent consultants to the Committee. |
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MANAGEMENT |
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Our Company’s chief executive officer and, as appropriate, certain other executive officers, may attend the portion of the Committee’s meetings where individual executive officer performance is discussed. Directors other than Committee members also may attend Committee meetings, including the portion where executive officer performance is discussed. While the Committee may meet with our Company’s chief executive officer to present the chief executive officer’s own compensation package and the chief executive officer’s recommendations with respect to the other executive officers, all ultimate decisions regarding executive compensation are made solely by the Committee, with input from its compensation consultant. |
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Pay Elements and Practices
As noted above, our Company utilizes four main components of compensation: (1) base salary, (2) annual cash bonus, (3) annual equity bonus, and (4) long-term equity incentive. Each of the pay elements is described in detail below.
Base Salary
The Committee sets base salaries for executive officers based on the individual’s position within our Company and the individual’s current and sustained performance results. The Committee reviews executive officer base salaries each year and makes any adjustments it deems necessary based on, among other factors, the overall performance of our Company, new roles and/or responsibilities assumed by the executive officer, the general performance of the business units or departments over which the executive officer has responsibility, the significance of the executive officer’s impact on the achievement of our Company’s strategic goals, the executive officer’s length of service with our Company and the executive officer’s base salary relative to the base salaries of similar individuals in peer companies and market data. The Committee gives no specific weighting to any one factor in setting the level of base salary and the process ultimately relies on the subjective exercise of the Committee’s judgment. Based on our Company’s peer group and relevant compensation survey data, the Committee also takes into account the executive officer’s potential as a key contributor and amounts that may be required to recruit new executive officers.
Other than in the case of new hires or promotions, the Committee generally determines base salaries for executive officers around the beginning of each calendar year. As described below under “Employment Agreements,” Messrs. DeGiorgio and Seaton and Ms. Cornehl have employment agreements with our Company that specify their respective minimum base salaries. These amounts may be increased at the discretion of the Committee.
First American Financial Corporation 2024 Proxy Statement | 35
|
Compensation Discussion and Analysis |
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In February 2023, the Committee reviewed executive officer compensation, including base salaries. In response to our Company's broader expense management efforts and at the request of management, the Committee determined not to make adjustments to the base salaries of the executive officers for 2023, with the exception of Ms. Cornehl, whose base salary was increased by $20,000 to $420,000 as a result of the Committee's assessment of her base salary in comparison to relevant peer company and market data.
In summary, the base salaries of the executive officers as of December 31, 2023 and as of December 31, 2022 are as follows:
Named Executive Officer |
December 31, 2023 |
December 31, 2022 |
||||||||
DeGiorgio, K. |
|
$ |
925,000 |
|
|
|
$ |
925,000 |
|
|
Seaton, M. |
|
$ |
700,000 |
|
|
|
$ |
700,000 |
|
|
Cornehl, L. |
|
$ |
420,000 |
|
|
|
$ |
400,000 |
|
|
Wajner, M. |
|
$ |
350,000 |
|
|
|
$ |
350,000 |
|
|
Adams, S. |
|
$ |
350,000 |
|
|
|
$ |
350,000 |
|
|
Beginning in June 2022, however, each of Messrs. DeGiorgio and Seaton and Ms. Cornehl voluntarily agreed to take a temporary reduction in their base salary in connection with our Company’s broader expense management efforts. Messrs. DeGiorgio and Seaton agreed to 10% reductions in their base salaries and Ms. Cornehl agreed to a 5% reduction in her base salary. Ms. Cornehl's reduction expired in June 2023, whereas the reductions for Messrs. DeGiorgio and Seaton have remained in effect beyond December 31, 2023.
In January 2024, the Committee reviewed executive officer base salaries and relevant peer company and market data. In response to our Company's continued broader expense management efforts, the Committee determined not to make adjustments to the base salaries of the executive officers for 2024, with the exception of Ms. Cornehl, whose base salary was increased by $30,000 to $450,000 and Mr. Adams, whose base salary was increased by $10,000 to $360,000. The Committee's determination to increase the base salaries of Ms. Cornehl and Mr. Adams reflected the Committee's assessment of their base salaries in comparison to relevant peer company and market data.
First American Financial Corporation 2024 Proxy Statement | 36
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Compensation Discussion and Analysis |
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Annual Incentive Compensation
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The Committee considers annual incentive compensation to be a key component of our executive compensation program given that it encourages our executive officers to strive for short-term results for our stockholders despite highly cyclical real estate market dynamics. Our AIP provides for compensation amounts (subject to the Discretionary Adjustment, as described below) that are determined relative to performance against annual pretax margin and return on equity targets set during our annual financial planning process. AIP awards are paid utilizing the following two pay elements: cash bonus payouts and Bonus RSUs which vest over three years. The split between cash bonus payouts and Bonus RSUs depends on the particular employee's total compensation. |
While the Committee believes that most companies’ annual incentive bonuses are paid solely in cash, the payment of a portion of our annual incentive bonuses in Bonus RSUs that vest over a three-year period reflects the Committee’s desire to increase alignment between participating employees and our Company’s long-term stockholders. This structure furthers this goal by discouraging participating employees from excessive risk taking, focusing employees on creating long-term value for our stockholders and supporting employee retention. Accordingly, the Committee believes that an incentive structure with a meaningful portion of compensation tied to annual performance is most effective in addressing cyclicality in our business and motivating and rewarding executive officers to enhance long-term stockholder value.
As was the case in recent years, the Committee structured payouts under the 2023 AIP to be based on measurable performance against specific financial targets that the Committee believes to be key drivers of stockholder value. Like in 2022, financial targets collectively accounted for 100% of the 2023 AIP payouts to executive officers, with the resulting amount being subject to adjustment of up to 30 percentage points in the discretion of the Committee. The Discretionary Adjustment gives the Committee the ability to adjust the AIP payouts for unanticipated external factors, such as regulatory changes or meaningful changes in interest rates; success in strategic initiatives designed to create long-term stockholder value, such as technology projects, risk management efforts, employee engagement, or market share gains and losses in key markets; or ESG actions, initiatives, or omissions that impact—and reflect the role of our Company in—broader society, such as:
The Committee also retains the ability to pay a participant a lower amount, including the discretion not to pay an annual incentive bonus.
The 2023 AIP payouts to each executive officer were determined by adjusting the applicable portion of the target incentive bonus amount (listed in the tables below under the column entitled “Weighting”) based on objective financial criteria in two areas (each listed in the table below under the column entitled “Metric”), with the result being subject to any Discretionary Adjustment as described above. Each financial metric had associated with it a threshold 50% payout level, a 100% payout level and a 200% payout level
First American Financial Corporation 2024 Proxy Statement | 37
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Compensation Discussion and Analysis |
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(listed in the table below under the columns entitled “Threshold”, “Target” and “Maximum”, respectively). With respect to both financial metrics (and subject to the Discretionary Adjustment), results below the threshold 50% payout level do not result in any payment and results above the maximum do not result in any additional payment. The percentage payout for results between the threshold and maximum are determined on a linear sliding scale basis between the two metric points on either side of the actual result (i.e., between the threshold and the target, or the target and the maximum, as applicable).
Consistent with recent years, for 2023 the two financial metrics utilized by the Committee were:
The Committee believes that retaining the two financial metrics utilized in the past, coupled with evaluation of a potential Discretionary Adjustment based on internal or external factors as described above, advances the objectives of our Company’s annual incentive bonus program and properly balances the importance of (i) compensating based on objective short-term financial results that are important to stockholders, and (ii) retaining the ability to take into account the Committee’s subjective determination with respect to long-term value creation and overall performance.
The Committee set the target financial metric payout levels at the pretax margin and return on equity set forth in our Company’s 2023 financial plan, which was unanimously approved by our Company’s Board following the general process described on page 34. The Committee believes these metrics, and the related performance levels, are indicators as to whether our Company, given the environment in which it is operating, has generated value for stockholders. The Committee also believes these metrics are utilized by stockholders, potential stockholders and their advisors in determining the value of our Company.
The target performance levels and actual performance for 2023, as modified by the Discretionary Adjustment, were as follows:
Metric |
Weighting |
Threshold |
Target |
Maximum |
Actual |
Metric |
||||||||||||
Pretax Margin(2) |
|
50% |
|
|
7.0% |
|
|
10.0% |
|
|
13.3% |
|
|
7.7% |
|
|
62% |
|
Return on Equity(3) |
|
50% |
|
|
6.3% |
|
|
9.0% |
|
|
12.0% |
|
|
6.8% |
|
|
59% |
|
Performance Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60% |
|
Discretionary Adjustment(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12% |
|
Total |
|
100% |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
72% |
|
The executive officer's AIP cash and equity bonuses paid out at 60% of target for Messrs. DeGiorgio and Seaton and at 72% of target for Ms. Cornehl and Messrs. Adams and Wajner. Metric-level results for executive officers' AIP cash and equity bonuses were at 60% of target for 2023. However, to address the
First American Financial Corporation 2024 Proxy Statement | 38
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Compensation Discussion and Analysis |
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cybersecurity incident the Company experienced in December 2023, the Company shut down access to its network, which materially impacted the Company's operations and, consequently, our fourth quarter financial results. Performance through the month of November had indicated a combined payout of approximately 72% before the cybersecurity incident occurred.
For 2023, at management's request, the Committee elected to make a Discretionary Adjustment to increase the payouts for Ms. Cornehl and Messrs. Adams and Wajner by 12 percentage points from 60% to 72% of target, a level which the Committee determined to reflect the Company's and these executive officers' performance before the adverse financial impact of the cybersecurity incident. This decision reflected the Committee's assessment of the performances of these executive officers during the year, including with respect to their areas of responsibility, their management of circumstances that arose from the cybersecurity incident; overall degree of effectiveness of risk management efforts; expense management, which supported the Company’s efforts in mitigating the impact of the challenging market conditions; effective management of the Company’s investment portfolio; accomplishments in ESG initiatives, which contributed to the Company's inclusion in People® Magazine's Companies that Care list for the third consecutive year; and successful employee engagement efforts, which contributed to the Company's inclusion on the Fortune 100 Best Companies to Work For® list for the eighth consecutive year. Additionally at management's request, as part of the Company's broader expense management efforts, the Committee did not apply the Discretionary Adjustment to the payouts for Messrs. DeGiorgio or Seaton, notwithstanding the Committee's positive view of their individual performance.
For 2024, subject to the Committee’s ability to award a lower amount, including the ability not to award any bonus, the AIP payout amounts will again be determined based on our Company’s return on equity (weighted 50%) and pretax margin (weighted 50%). As was the case in 2023, actual performance could result in payouts ranging from 50% to 200% of target, or 0% if performance is below threshold levels. The 2024 target AIP payout amounts will be adjusted in the same manner as in 2023, in that results below the threshold 50% payout level do not result in any payment and results above the maximum do not result in any additional payment. The percentage payout for results between the threshold and maximum will again be determined on a linear sliding scale basis between the two metric points on either side of the actual result (i.e., between the threshold and the target, or the target and the maximum, as applicable).
Annual Cash Bonus
As part of its review in early 2023, the Committee set target cash bonus amounts that were largely unchanged over 2022, with details as follows:
The decisions to set the 2023 target cash bonus amounts for each executive officer were based on the Committee’s assessment of relevant peer company and market data as well as prevailing market conditions. In response to our Company's broader expense management efforts, and at the request of management, the Committee determined not to adjust the target cash bonuses amounts for 2023, with the exception of Ms. Cornehl's, which was increased by $10,500 to $192,500 as a result of the Committee's assessment of her target cash bonus amount in comparison to relevant peer company and market data.
Each executive officer's AIP cash bonus payout for 2023 was determined by adjusting the target cash bonus amount by the level of achievement on the financial metrics described above and, for Ms. Cornehl and Messrs. Adams and Wajner, taking into account the Discretionary Adjustment. The following table summarizes the computation of the 2023 AIP cash bonuses for each executive officer. It also provides the
First American Financial Corporation 2024 Proxy Statement | 39
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Compensation Discussion and Analysis |
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2022 AIP cash bonus amounts for comparison purposes. The amounts in the table below are reflected in the Summary Compensation Table under the column entitled “Non-Equity Incentive Plan Compensation.”
Named Executive Officer |
2023 Target |
2023 |
2023 Actual |
2022 Actual |
||||||||||||||||
DeGiorgio, K. |
|
$ |
1,750,000 |
|
|
|
|
60 |
% |
|
|
$ |
1,050,000 |
|
|
|
$ |
1,347,500 |
|
|
Seaton, M. |
|
$ |
725,000 |
|
|
|
|
60 |
% |
|
|
$ |
435,000 |
|
|
|
$ |
558,250 |
|
|
Cornehl, L. |
|
$ |
192,500 |
|
|
|
|
72 |
% |
|
|
$ |
138,600 |
|
|
|
$ |
140,140 |
|
|
Wajner, M. |
|
$ |
152,750 |
|
|
|
|
72 |
% |
|
|
$ |
109,980 |
|
|
|
$ |
117,618 |
|
|
Adams, S. |
|
$ |
152,750 |
|
|
|
|
72 |
% |
|
|
$ |
109,980 |
|
|
|
$ |
117,618 |
|
|
In January 2024, the Committee reviewed the target cash bonus amounts of the executive officers. The Committee determined, based on its assessment of relevant peer company and market data, as well as the strong individual performances of Mr. DeGiorgio and Ms. Cornehl in the face of challenging market conditions, that the target cash bonuses of Mr. DeGiorgio and Ms. Cornehl warranted an adjustment. Consequently, the Committee increased Mr. DeGiorgio's target cash bonus from $1,750,000 to $1,850,000 and Ms. Cornehl's from $192,500 to $297,000 for 2024. The Committee maintained the target cash bonuses of Messrs. Seaton, Adams and Wajner for 2024.
Annual Equity Bonus
As part of its review in early 2023, the Committee set target Bonus RSU amounts that were largely unchanged over 2022, with details as follows:
The decisions to set the 2023 target Bonus RSU amounts for each executive officer were based on the Committee’s assessment of relevant peer company and market data as well as prevailing market conditions. In response to our Company's broader expense management efforts, and at the request of management, the Committee determined not to adjust the target Bonus RSU amounts for 2023, with the exception of Ms. Cornehl's, which was increased by $59,500 to $157,500 as a result of the Committee's assessment of her target Bonus RSU amount in comparison to relevant peer company and market data.
Each executive officer's Bonus RSU payout amount for 2023 was determined by adjusting the target Bonus RSU amount by the level of achievement on the 2023 AIP financial metrics described above and, for Ms. Cornehl and Messrs. Adams and Wajner, taking into account the Discretionary Adjustment.
First American Financial Corporation 2024 Proxy Statement | 40
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Compensation Discussion and Analysis |
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The following table summarizes the computation of the 2023 Bonus RSU amounts for each executive officer. It also provides the 2022 Bonus RSU amounts for comparison purposes.
Named Executive Officer |
2023 Target |
2023 Metric |
2023 Actual |
2022 Bonus |
||||||||||||||||
DeGiorgio, K. |
|
$ |
1,750,000 |
|
|
|
|
60 |
% |
|
|
$ |
1,050,000 |
|
|
|
$ |
1,347,500 |
|
|
Seaton, M. |
|
$ |
725,000 |
|
|
|
|
60 |
% |
|
|
$ |
435,000 |
|
|
|
$ |
558,250 |
|
|
Cornehl, L. |
|
$ |
157,500 |
|
|
|
|
72 |
% |
|
|
$ |
113,400 |
|
|
|
$ |
75,460 |
|
|
Wajner, M. |
|
$ |
82,250 |
|
|
|
|
72 |
% |
|
|
$ |
59,220 |
|
|
|
$ |
63,332 |
|
|
Adams, S. |
|
$ |
82,250 |
|
|
|
|
72 |
% |
|
|
$ |
59,220 |
|
|
|
$ |
63,332 |
|
|
In January 2024, the Committee reviewed the target Bonus RSU amounts of the executive officers. The Committee determined, based on its assessment of relevant peer company and market data, as well as the strong individual performances of Mr. DeGiorgio and Ms. Cornehl in the face of challenging market conditions, that the target Bonus RSU amounts of Mr. DeGiorgio and Ms. Cornehl warranted an adjustment. Consequently, the Committee increased Mr. DeGiorgio's target Bonus RSU amount from $1,750,000 to $1,850,000 and Ms. Cornehl's from $157,500 to $243,000 for 2024. The Committee maintained the target Bonus RSU amounts of Messrs. Seaton, Adams and Wajner for 2024.
Bonus RSUs are denominated in units of our Company’s common stock. In accordance with Company policy, the number of units granted to an executive officer in 2024 in connection with 2023 performance was determined by dividing the dollar amount of the Bonus RSUs that the Committee determined to be granted by the fair market value of our Company’s stock on February 22, 2024, the second day on which the New York Stock Exchange was open for trading following the submission of our Company’s Annual Report on Form 10-K. Our Company’s 2020 Incentive Compensation Plan defines the fair market value as the last sale price reported for a share of our Company’s common stock on the New York Stock Exchange on the last trading day preceding the grant date. These underlying shares, plus any dividend equivalent shares accrued during the vesting period, are generally distributed to the executive officer upon vesting.
The Bonus RSUs issued to executive officers in 2023 and 2024, based on the level of achievement in 2022 and 2023, respectively, vest at a rate of 33 1/3% on each anniversary of the date of grant. The Bonus RSUs issued to executive officers in 2022 in connection with 2021 performance vest at a rate of 25% on each anniversary of the date of grant. Vesting accelerates in certain circumstances, including death, disability, normal retirement, and termination by our Company without cause. In addition, vesting of the Bonus RSUs accelerates in connection with early retirement. Early retirement means the termination of the recipient’s employment, other than for cause, after having reached age 55 and 10 years of service. Normal retirement means the termination of the recipient’s employment, other than for cause, after having reached age 62 (for RSUs granted prior to 2021) or age 60 (for RSUs granted in or after 2021), irrespective of the number of years of service. In the case of death or disability, delivery of the underlying shares is made as soon as administratively practicable. In the case of normal retirement or early retirement or termination by our Company without cause, delivery of the underlying shares is made one year after the termination date. A holder of RSUs has none of the rights of a stockholder unless and until shares are actually delivered to the holder. In the case of disability, early retirement, normal retirement and termination by our Company without cause, the executive officer shall also be required to sign a separation agreement.
The Bonus RSUs issued in 2023 and 2024 to our Company’s executive officers, based on the level of achievement in 2022 and 2023, respectively, provided that, except in the case of death, disability or certain change-in-control scenarios, none of the Bonus RSUs would vest unless certain performance criteria were met. In particular, Bonus RSUs would not vest unless the net income of our Company in the year of grant was at least $25 million, excluding Extraordinary Items. For purposes of this calculation,
First American Financial Corporation 2024 Proxy Statement | 41
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Compensation Discussion and Analysis |
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“Extraordinary Items” means (a) asset write-downs, (b) litigation or claim judgments or settlements, (c) the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results, (d) any reorganization and restructuring programs, (e) extraordinary, unusual and/or nonrecurring items of gain or loss and (f) foreign exchange gains and losses. The Committee determined that this target was met for 2023, with the result that the Bonus RSUs granted in 2023 to the executive officers would vest, subject to satisfaction of other applicable conditions.
It should be noted that, as required by applicable rules, the Summary Compensation, Grants of Plan-Based Awards and Outstanding Equity Awards at Fiscal Year End tables in this proxy statement reflect Bonus RSUs issued to the executive officers in 2023 for performance in 2022. Similarly, the Bonus RSUs issued in 2024 for performance in 2023 are not reflected in those tables contained in this proxy statement. Applicable rules require that these tables only reflect equity awards granted to the executive officers in 2023.
Long-Term Equity Incentive Compensation
The Committee has continued its practice of tying a meaningful portion of the executive officers' total compensation to long-term incentives through the issuance of long-term incentive awards under the LTI Plan ("LTI Awards"). For the second consecutive year, the Committee elected to issue LTI Awards to executive officers in 2024 (in connection with 2023 performance) in equal 50% allocations of LTI PRSUs with longer-term performance metrics and LTI RSUs with multi-year vesting periods. This is consistent with the Committee's decision to increase the percentage of the LTI Awards granted as LTI PRSUs from 25% to 50% for 2023, with the remaining 50% being granted as LTI RSUs, which modification was based on stockholder feedback and changes in market compensation practices.
The Committee believes that LTI Awards effectively align the interests of executive officers with those of its long-term stockholders. The Committee believes that LTI Awards, particularly being coupled with the AIP Bonus RSU pay element, discourage executive officers from taking excessive risk for short-term gains, focus executive officers on increasing long-term stockholder value and increase retention.
The approximate dollar values of the LTI Awards granted by the Committee to each of the executive officers in 2024 in connection with 2023 performance are provided in the following table, together with the comparable amounts granted in 2023 for 2022 performance.
Named Executive Officer |
LTI RSUs |
LTI PRSUs |
Total LTI Awards |
LTI Awards |
||||||||||||||||
DeGiorgio, K. |
|
$ |
1,575,000 |
|
|
|
$ |
1,575,000 |
|
|
|
$ |
3,150,000 |
|
|
|
$ |
2,825,000 |
|
|
Seaton, M. |
|
$ |
800,000 |
|
|
|
$ |
800,000 |
|
|
|
$ |
1,600,000 |
|
|
|
$ |
1,400,000 |
|
|
Cornehl, L. |
|
$ |
275,000 |
|
|
|
$ |
275,000 |
|
|
|
$ |
550,000 |
|
|
|
$ |
400,000 |
|
|
Wajner, M. |
|
$ |
110,000 |
|
|
|
$ |
110,000 |
|
|
|
$ |
220,000 |
|
|
|
$ |
220,000 |
|
|
Adams, S. |
|
$ |
82,500 |
|
|
|
$ |
82,500 |
|
|
|
$ |
165,000 |
|
|
|
$ |
165,000 |
|
|
First American Financial Corporation 2024 Proxy Statement | 42
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Compensation Discussion and Analysis |
|
|
In determining the amount of LTI RSUs and target LTI PRSUs ("Target PRSUs") to grant to executive officers, the Committee reviewed the performance of our Company and the executive officers along with compensation levels at peer companies and market data. The Committee's decision further reflected the Committee's assessment of the individual performance of these executive officers during the year, including with respect to their areas of responsibility, their management of circumstances that arose from the cybersecurity incident and other notable achievements, and challenges faced, as summarized in the “Performance Overview” section beginning on page 22. Among other considerations, the award increase for Mr. DeGiorgio reflected his commendable leadership throughout the year, enabling the Company to sustain financial performance despite historically difficult market conditions, and successes in strategic |
|
|
initiatives that drove long-term value creation for our stockholders. Ms. Cornehl’s award increase was supported by her continued growth in the Chief Legal Officer role as she led our legal team and efforts to manage compliance and risk. The award increase for Mr. Seaton and the flat year-over-year awards for Messrs. Wajner and Adams further demonstrated their ongoing strength in leading the Company’s finances through difficult market conditions. The executive officers' contributions were also reflected in the Company's achievements against ESG initiatives, leading to the Company's continued recognition on notable workplace lists, including People® Magazine's Companies that Care list for the third consecutive year, the Fortune 100 Best Companies to Work For® list for the eighth consecutive year and the Fortune Best Workplaces for Women® list for the eighth consecutive year.
In accordance with Company policy, the number of target units granted to an executive in 2024 in connection with 2023 performance was determined by dividing the dollar amount of the Target PRSUs that the Committee determined to be granted by the fair market value of our Company’s stock on February 22, 2024, the second day on which the New York Stock Exchange was open for trading following the submission of our Company’s Annual Report on Form 10-K. Our Company’s 2020 Incentive Compensation Plan defines the fair market value as the last sale price reported for a share of our Company’s common stock on the New York Stock Exchange on the last trading day preceding the grant date. A holder of LTI PRSUs has none of the rights of a stockholder unless and until shares are actually delivered to the holder.
LTI PRSUs represent the right to receive shares of common stock of our Company in an amount from 0% to 200% of the Target PRSUs. The number of shares earned will be determined based on relative total shareholder return ("rTSR") over a three-year performance period as compared to the companies in the S&P MidCap 400 Index at the beginning of the performance period (the “Index”) with the number of delivered shares equal to the number of Target PRSUs multiplied by the applicable percentage set forth in the following table (“Earned PRSUs”). The shares underlying the Earned PRSUs, plus any dividend equivalent shares accrued prior to delivery, generally become earned upon satisfaction of the service requirement. The service requirement is satisfied if the recipient does not experience a termination of employment prior to the third anniversary of the the date of grant.
Performance Level |
rTSR Rank(1) |
Payout(2) |
||||
Below Threshold |
|
<25th Percentile |
|
|
0% |
|
Threshold |
|
25th Percentile |
|
|
50% |
|
Target |
|
50th Percentile |
|
|
100% |
|
Maximum |
|
>=75th Percentile |
|
|
200% |
|
LTI PRSUs granted in 2024 have a performance period of January 1, 2024 through December 31, 2026.
First American Financial Corporation 2024 Proxy Statement | 43
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Compensation Discussion and Analysis |
|
|
The service requirement is also deemed satisfied in certain circumstances, including death, disability and normal retirement. Normal retirement means the termination of the executive officer’s employment, other than for cause, after having reached age 60 irrespective of the number of years of service. In the case of disability, normal retirement and termination by our Company without cause the executive officer shall also be required to sign a separation agreement. In the case of death or disability, the executive officer shall receive shares equal to the number of Target PRSUs as soon as administratively practicable. In the case of normal retirement, the executive officer shall receive shares equal to the number of Earned PRSUs (as defined in our Company’s 2020 Incentive Compensation Plan) after the end of the performance period.
In addition, the service requirement is deemed satisfied in connection with termination by our Company without cause, but only for the portion of the three-year vesting period actually completed, with payout based on actual performance at the end of the performance period.
Other than the early retirement provisions, the terms of the LTI RSUs are identical to the terms of the Bonus RSUs described above beginning on page 41. Like Bonus RSUs, LTI RSUs for executive officers are also tied to a performance-vesting condition.
As indicated above with respect to Bonus RSUs, as required by applicable rules, LTI Awards granted in 2024 in connection with 2023 performance are not reflected in the Summary Compensation table, the Grants of Plan-Based Awards table or the Outstanding Equity Awards at Fiscal Year End table contained herein. Those tables reflect LTI Awards granted in 2023 in connection with 2022 performance.
Summary of Base Salary, Cash Bonus and Equity Incentive Compensation Paid for 2023
The following table summarizes for each executive officer the amount paid or awarded in connection with 2023 performance in the form of total base salary, cash bonus (paid in 2024 for 2023 performance), Bonus RSUs (granted in 2024 for 2023 performance) and LTI Awards (granted in 2024 in connection with 2023 performance). This table is not a substitute for the compensation tables required by the Securities and Exchange Commission and included under the heading “Executive Compensation Tables” herein, but it provides a more accurate picture of how the Committee viewed its compensation actions for the executive officers in connection with performance in 2023:
|
|
Paid/Issued in 2024 in Connection with 2023 Performance |
|
|
|||||||||||||||||||||||||||||||
Named Executive Officer |
Base Salary |
Actual |
Bonus RSUs |
LTI RSUs |
LTI PRSUs(2) |
Total for |
Total for |
||||||||||||||||||||||||||||
DeGiorgio, K. |
|
$ |
832,500 |
|
|
|
$ |
1,050,000 |
|
|
|
$ |
1,050,000 |
|
|
|
$ |
1,575,000 |
|
|
|
$ |
1,575,000 |
|
|
|
$ |
6,082,500 |
|
|
|
$ |
6,385,673 |
|
|
Seaton, M. |
|
$ |
630,000 |
|
|
|
$ |
435,000 |
|
|
|
$ |
435,000 |
|
|
|
$ |
800,000 |
|
|
|
$ |
800,000 |
|
|
|
$ |
3,100,000 |
|
|
|
$ |
3,181,500 |
|
|
Cornehl, L. |
|
$ |
407,162 |
|
|
|
$ |
138,600 |
|
|
|
$ |
113,400 |
|
|
|
$ |
275,000 |
|
|
|
$ |
275,000 |
|
|
|
$ |
1,209,162 |
|
|
|
$ |
1,005,600 |
|
|
Wajner, M. |
|
$ |
350,000 |
|
|
|
$ |
109,980 |
|
|
|
$ |
59,220 |
|
|
|
$ |
110,000 |
|
|
|
$ |
110,000 |
|
|
|
$ |
739,200 |
|
|
|
$ |
747,872 |
|
|
Adams, S. |
|
$ |
350,000 |
|
|
|
$ |
109,980 |
|
|
|
$ |
59,220 |
|
|
|
$ |
82,500 |
|
|
|
$ |
82,500 |
|
|
|
$ |
684,200 |
|
|
|
$ |
695,949 |
|
|
Consideration of Prior Amounts Realized
Our Company’s philosophy is to incentivize and reward executive officers for future performance. Accordingly, prior stock compensation gains (the realized value of RSUs awarded in prior years) generally are not considered in setting future compensation levels.
First American Financial Corporation 2024 Proxy Statement | 44
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Compensation Discussion and Analysis |
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Stock Ownership Guidelines
Our Company has adopted guidelines requiring our chief executive officer to hold Company stock with a value equal to at least six times the chief executive officer’s base salary and each of the other executive officers to hold stock with a value equal to at least three times their respective base salaries, or one-time their respective base salaries if that base salary is below $500,000. The chief executive officer’s holding requirement was increased in 2021 from five to six times his base salary.
What Counts Toward the Guideline:
What Does Not Count Toward the Guideline:
The Committee annually reviews compliance with the ownership guidelines. All of the executive officers meet or exceed our ownership guidelines.
Clawback Policy
Our Company has adopted a clawback policy applicable to all executive officers that is intended to comply with, and to be administered and interpreted consistent with the requirements of Listing Standard 303A.14 adopted by the New York Stock Exchange to implement Rule 10D-1 under the Securities Act. The policy generally provides for the recoupment of excess incentive compensation received during the three full fiscal years prior to the date that the Company is required to prepare an accounting restatement of the Company’s financial statements. The description of the Company’s clawback policy provided herein is qualified in its entirety by reference to the Policy Governing the Recovery of Certain Incentive Compensation that is attached as an exhibit to the Form 10-K filed by our Company on February 20, 2024. In addition, under Section 304 of the Sarbanes-Oxley Act of 2002, if our Company is required to restate our financial statements due to material noncompliance with any financial reporting requirements as a result of misconduct, the chief executive officer and chief financial officer may be required to reimburse our Company for any bonus or other incentive-based or equity-based compensation received during the 12 months following the first public issuance of the non-complying document and any profits realized from the sale of securities of our Company during that twelve-month period. In addition, our Company’s 2020 and 2010 Incentive Compensation Plans and the employee form of Restricted Stock Unit Award Agreement and form of Performance Restricted Stock Award Agreement provide for the forfeiture or recoupment of previously awarded compensation under certain circumstances if an executive officer’s misconduct causes loss or damage to our Company or our reputation.
Anti-Hedging Policy
Our Company has also adopted policies prohibiting executive officers and certain other employees from holding Company securities in a margin account or pledging Company securities as collateral. These policies further prohibit all directors, executive officers and certain other employees with access to sensitive information—as well as anyone living with such persons, family members whose transactions in our Company’s stock or derivatives are directed by such persons, or those who are subject to the
First American Financial Corporation 2024 Proxy Statement | 45
|
Compensation Discussion and Analysis |
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influence or control of such persons—from hedging their ownership of Company securities by engaging in zero-cost collars, forward sale contracts, short sales or trading in option contracts involving Company securities.
Benefits and Perquisites
Executive officers are entitled to employee benefits generally available to all full-time employees of our Company (subject to fulfilling any minimum service requirement), such as health and welfare benefits. The executive officers are also eligible to receive an incremental long-term disability insurance benefit and an executive health examination benefit that are not available to all employees. In designing these elements, our Company seeks to provide an overall level of benefits that is competitive with the level of benefits offered by similar companies in the markets in which it operates.
Employment Agreements
Messrs. DeGiorgio and Seaton and Ms. Cornehl are parties to employment agreements with our Company. Mr. DeGiorgio originally entered into his employment agreement in 2008, Mr. Seaton originally entered into his employment agreement in 2014, and Ms. Cornehl originally entered into her employment agreement in 2022. Each of the agreements for Messrs. DeGiorgio and Seaton and Ms. Cornehl were most recently renewed in 2024 and the term of each of those agreements now expires on December 31, 2026. The decision to renew the agreements reflected the Committee’s favorable evaluation of the performance of these executive officers, its view that the contracts provide an important retention incentive and the potential benefit to our Company from the non-competition, non-solicitation and other covenants in the contracts, provided that those provisions do not apply to the extent they are inconsistent with or violate any federal or state law or specific government mandate, order, injunction, consent, assurance of discontinuance, or decree. The agreements specify minimum base salaries equal to the base salaries paid to such individuals at the time of execution thereof, namely $925,000, $700,000 and $450,000 for Messrs. DeGiorgio and Seaton and Ms. Cornehl, respectively. Determinations regarding bonus amounts, long term incentive awards and any increases in base salary remain at the discretion of the Committee.
The agreements provide that if our Company terminates the executive officer’s employment without cause, the executive officer is entitled to an amount representing twice the sum of the executive officer’s base salary and the second largest of the prior three years’ bonuses. Half of this sum would be paid over the first year following termination in twelve equal monthly installments, and the other half would be paid at the end of this one-year period. The executive officer’s receipt of these amounts would be contingent on our Company’s receipt of a release from the executive officer as well as the executive officer’s compliance with certain non-solicitation and confidentiality provisions contained within the agreement, provided that those provisions do not apply to the extent they are inconsistent with or violate any federal or state law or specific government mandate, order, injunction, consent, assurance of discontinuance, or decree. In addition, with respect to an executive officer who participates in the First American Financial Corporation Executive Supplemental Benefit Plan (the “SERP”), if the executive officer's employment is terminated without cause and they would otherwise during the term of the agreement have reached their “early retirement date” under the SERP, which is discussed in further detail below, then their benefit will be deemed vested on the early retirement date notwithstanding the termination. No additional benefits are payable in the event that the executive officer voluntarily terminates or termination is on account of death or disability or is for cause.
Under the agreements, cause is defined to include (1) embezzlement, theft or misappropriation of Company property, (2) willful breach of any fiduciary duties owed to our Company, (3) willful failure or refusal to comply with applicable rules and regulations, (4) commission of a felony or of any crime involving moral turpitude, fraud, or misrepresentation, (5), refusal to perform job duties or reasonable directives from the executive officer’s superior or the Board and (6) any gross negligence or willful misconduct resulting in loss or damage to the reputation of our Company.
First American Financial Corporation 2024 Proxy Statement | 46
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Compensation Discussion and Analysis |
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|
The agreements are attached or referenced as an exhibit to the Form 10-K filed by our Company with the Securities and Exchange Commission on February 20, 2024.
Change-in-Control and Post-Termination Arrangements
Award agreements evidencing all outstanding awards provide that vesting will not accelerate as a result of a change-in-control that has been approved by our Company’s Board. The LTI PRSU award agreements further provide that the performance goal will be measured based on actual performance through the date of such change of control, with the final price based on the stock price immediately prior to the consummation of such change of control. Absent the specific language in the award agreements, vesting in the event of a change-in-control would be governed by the terms of our Company’s 2020 and 2010 Incentive Compensation Plans.
The SERP provides additional benefits to participants under age 55 if they are involuntarily terminated within 36 months of a change-in-control. In that circumstance, benefits commence as if the participant had attained early retirement age, subject to an actuarial reduction.
The document evidencing the SERP is attached as an exhibit to the Form 10-K filed by our Company on March 1, 2011 and Amendment No. 1 thereto is attached as an exhibit to the Form 10-K filed on February 23, 2015.
Change-in-Control Agreements.
As part of our Company’s efforts to retain key employees, it has entered into agreements with each of the executive officers to provide for certain benefits in the event the executive officer is terminated following a change-in-control. As described below, the severance payment is primarily two times the sum of base salary and target bonus. In the opinion of the Committee, this structure reflects current best practices with respect to such agreements.
Under the agreement, a “change-in-control” means any one of the following with respect to our Company:
If the termination of the executive officer’s employment occurs without cause or if the executive officer terminates such employment for good reason within 36 months following the change-in-control, our Company is required to pay the following benefits in one lump sum within ten business days:
First American Financial Corporation 2024 Proxy Statement | 47
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Compensation Discussion and Analysis |
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