DEF 14A 1 d640063ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant ☒

Filed by a Party other than the Registrant ☐

Check the appropriate box:

 

☐ 

Preliminary Proxy Statement

 

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

 

☒ 

Definitive Proxy Statement

 

☐ 

Definitive Additional Materials

 

☐ 

Soliciting Material Pursuant to §240.14a-12

 

 

ALCOA 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 the appropriate box):

 

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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

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Title of each class of securities to which transaction applies:

 

 

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Aggregate number of securities to which transaction applies:

 

 

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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

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Total fee paid:

 

 

 

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Fee paid previously with preliminary materials.

 

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

 

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Date Filed:

 

 


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LOGO

 

 


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LOGO

March 19, 2019

Dear Alcoa Stockholders:

We are pleased to invite you to attend the 2019 Annual Meeting of Stockholders (the “Annual Meeting”) of Alcoa Corporation (“Alcoa,” or the “Company”) to be held on Wednesday, May 8, 2019, at 10:00 a.m., Eastern Daylight Time (EDT), at the Fairmont Pittsburgh, Grand Ballroom, 510 Market Street, Pittsburgh, Pennsylvania 15222.

At the Annual Meeting, stockholders will vote on the matters set forth in the 2019 Proxy Statement and the accompanying notice of the Annual Meeting. The 2019 Proxy Statement (the “Proxy Statement”) describes our governance structure, which features numerous governance best practices, and our executive compensation program, which “pays for performance.” We believe that both our governance structure and compensation program reinforce our alignment with stockholder interests. Highlights of the detailed information included in this Proxy Statement can be found in the “Proxy Statement Summary” starting on page 4.

Alcoa’s strategic priorities to reduce complexity in all aspects of our business, drive returns, and strengthen our balance sheet, form the bedrock of our commitment to our stockholders to work towards continuous improvement of Company performance with accountability and transparency, through all market cycles. These strategic priorities are guided by our three corporate values—Act with Integrity, Operate with Excellence, Care for People—and together, provide a strong foundation for our actions.

Your vote is important to us. Whether or not you will attend the meeting, we hope that your shares are represented and voted. In advance of the meeting on May 8, please cast your vote through the Internet, by telephone, or by mail. Instructions on how to vote are found in the section entitled “Proxy Statement Summary—How to Cast Your Vote”.

Thank you for being a stockholder of Alcoa.

Sincerely,

 

LOGO

 

  

LOGO

 

 

     

Michael G. Morris

Chairman

  

Roy C. Harvey

President, Chief Executive Officer and Director

  


Table of Contents

Table of Contents

 

 

Notice of 2019 Annual Meeting of Stockholders

    1  

Proxy Statement

    2  

Proxy Statement Summary

    4  

Item 1 Election of Directors

    14  

 

Majority Voting for Directors

 

   

 

 

14

 

 

 

 

 

 

Director Nominees

 

   

 

 

14

 

 

 

 

 

 

Director Qualifications, Skills, and Attributes

 

   

 

 

14

 

 

 

 

 

 

Nominating Board Candidates—Procedures and Director Qualifications

 

   

 

 

24

 

 

 

 

 

 

Stockholder Recommendations for Director Nominees

 

   

 

 

24

 

 

 

 

 

 

Advance Notice Director Nominations

 

   

 

 

24

 

 

 

 

 

 

Proxy Access Director Nominations

 

   

 

 

24

 

 

 

 

 

 

Minimum Qualifications for Director Nominees and Board Member Attributes

 

   

 

 

25

 

 

 

 

 

 

Process of Evaluation of Director Candidates

 

   

 

 

25

 

 

 

 

 

 

Non-Employee Director Compensation Program

 

   

 

 

26

 

 

 

 

 

 

Director Fees

 

   

 

 

26

 

 

 

 

 

 

2018 Director Compensation

 

   

 

 

27

 

 

 

 

 

 

Stock Ownership Guideline for Non-Employee Directors

 

   

 

 

27

 

 

 

 

 

 

Prohibitions against Short Sales, Hedging, Margin Accounts and Pledging

 

   

 

 

28

 

 

 

 

 

 

Corporate Governance

 

   

 

 

29

 

 

 

 

 

 

Corporate Governance Highlights

 

   

 

 

29

 

 

 

 

 

 

Corporate Governance Guidelines

 

   

 

 

29

 

 

 

 

 

 

Code of Conduct

 

   

 

 

29

 

 

 

 

 

 

Board Information

 

   

 

 

29

 

 

 

 

 

 

Director Independence

 

   

 

 

29

 

 

 

 

 

 

Board Leadership Structure

 

   

 

 

30

 

 

 

 

 

 

Board Meetings and Attendance

 

   

 

 

30

 

 

 

 

 

 

Board and Committee Annual Self-Evaluation Process

 

   

 

 

31

 

 

 

 

 

 

Committees of the Board

 

   

 

 

32

 

 

 

 

 

 

The Board’s Role in Risk Oversight

 

   

 

 

33

 

 

 

 

 

 

Communications with Directors

 

   

 

 

34

 

 

 

 

 

 

Related Person Transactions

 

   

 

 

34

 

 

 

 

 

 

Compensation Matters

 

   

 

 

35

 

 

 

 

 

 

Compensation Committee Interlocks and Insider Participation

 

   

 

 

35

 

 

 

 

 

 

Compensation Consultant

 

   

 

 

35

 

 

 

 

 

 

Recovery of Incentive Compensation

 

   

 

 

36

 

 

 

 

 

 

Beneficial Ownership

 

   

 

 

37

 

 

 

 

 

 

Section  16(a) Beneficial Ownership Reporting Compliance

 

   

 

 

37

 

 

 

 

 

 

Stock Ownership of Certain Beneficial Owners

 

   

 

 

37

 

 

 

 

 

 

Stock Ownership of Directors and Executive Officers

 

   

 

 

38

 

 

 

 

 

Item 2 Ratification of the Appointment of Independent Auditor

    40  

 

Report of the Audit Committee

 

   

 

 

41

 

 

 

 

 

 

Audit Committee Pre-Approval Policy

 

   

 

 

42

 

 

 

 

 

 

Auditor Fees

 

   

 

 

42

 

 

 

 

 

Item 3 Advisory Vote to Approve 2018 Named Executive Officer Compensation

    43  

 

Executive Compensation

 

   

 

 

44

 

 

 

 

 

 

Compensation Discussion and Analysis

 

   

 

 

45

 

 

 

 

 

 

Compensation Committee Report

 

   

 

 

59

 

 

 

 

 

 

Summary Compensation Table

 

   

 

 

60

 

 

 

 

 

 

2018 Grants of Plan-Based Awards

 

   

 

 

63

 

 

 

 

 

 

2018 Outstanding Equity Awards at Fiscal Year-End

 

   

 

 

64

 

 

 

 

 

 

2018 Option Exercises and Stock Vested

 

   

 

 

66

 

 

 

 

 

 

2018 Pension Benefits

 

   

 

 

66

 

 

 

 

 

 

2018 Nonqualified Deferred Compensation

 

   

 

 

68

 

 

 

 

 

 

Potential Payments upon Termination or Change in Control

 

   

 

 

68

 

 

 

 

 

 

Pay Ratio

 

   

 

 

76

 

 

 

 

 

Equity Compensation Plan Information

    77  

Item  4 Stockholder Proposal to Amend Stockholder Ability to Act by Written Consent

    78  

Questions and Answers About the Meeting and Voting

    82  

Attachment A—Definitions and Calculations of Financial Measures

    A-1  
 

 

  i  


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LOGO

 

 

 

           Notice of 2019 Annual Meeting of Stockholders

 

 

Wednesday, May 8, 2019

10:00 a.m. Eastern Daylight Time

    

Fairmont Pittsburgh

Grand Ballroom

510 Market Street

Pittsburgh, Pennsylvania 15222

 

 

The Annual Meeting of Stockholders of Alcoa Corporation will be held at the date, time, and location set forth above. Stockholders of record of Alcoa common stock at the close of business on March 12, 2019 are entitled to vote at the meeting.

The agenda for the Annual Meeting is:

1.

to elect the 12 directors identified in the accompanying Proxy Statement to serve one-year terms expiring at the 2020 annual meeting of stockholders;

2.

to ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent auditor for 2019;

3.

advisory vote to approve 2018 named executive officer compensation;

4.

to vote on the stockholder proposal to amend stockholder ability to act by written consent, if properly presented at the meeting; and

5.

to transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

Only holders of Alcoa common stock or their authorized representatives by proxy may attend the Annual Meeting. You will need an admission ticket if you plan to attend the Annual Meeting. Please see the questions and answers section of the Proxy Statement for instructions on how to obtain an admission ticket. All attendees will need to present valid photo identification for admission to the meeting.

For information about Alcoa, please visit our website at www.alcoa.com.

On behalf of Alcoa’s Board of Directors,

 

LOGO

Jeffrey D. Heeter

Executive Vice President, General Counsel and Secretary

March 19, 2019

 

  1  


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LOGO

201 Isabella Street, Suite 500

Pittsburgh, Pennsylvania 15212

 

 

Proxy Statement

 

 

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF

PROXY MATERIALS FOR THE ANNUAL MEETING OF  STOCKHOLDERS    

TO BE HELD ON MAY 8, 2019

 

The Company’s Notice of 2019 Annual Meeting of Stockholders, Proxy Statement and 2018 Annual Report are available online at www.ReadMaterial.com/AA.

 

The Board of Directors (the “Board”) of Alcoa is providing this Proxy Statement in connection with Alcoa’s 2019 Annual Meeting of Stockholders to be held on Wednesday, May 8, 2019, at 10:00 a.m. (EDT), at the Fairmont Pittsburgh, Grand Ballroom, 510 Market Street, Pittsburgh, Pennsylvania 15222, and any adjournment or postponement thereof.

Proxy materials or a Notice of Internet Availability of Proxy Materials (the “Notice”) are being first released or mailed to stockholders on March 19, 2019. In accordance with rules and regulations adopted by the Securities and Exchange Commission (the “SEC”), the Company may furnish proxy materials by providing Internet access to those documents, instead of mailing a printed copy of the Company’s proxy materials to each stockholder of record. The Notice contains instructions on how to access our proxy materials and vote online, or alternatively, request a paper copy of the proxy materials and a proxy card.

 

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2019 PROXY STATEMENT   

 

 

Proxy Statement (continued)

 

 

 

Cautionary Statement regarding Forward-Looking Statements

This Proxy Statement contains statements that relate to future events and expectations and, as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those containing such words as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “goal,” “intends,” “may,” “outlook,” “plans,” “projects,” “seeks,” “sees,” “should,” “targets,” “will,” “would,” or other words of similar meaning. All statements by Alcoa that reflect expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements. These statements reflect beliefs and assumptions that are based on Alcoa’s perception of historical trends, current conditions, and expected future developments, as well as other factors that management believes are appropriate in the circumstances. Forward-looking statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and changes in circumstances that are difficult to predict. Although Alcoa believes that expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that these expectations will be attained, and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties. For a discussion of some of the specific factors that may cause Alcoa’s actual results to differ materially from those projected in any forward-looking statements, see risk factors described in our most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the “2018 Annual Report”), filed with the SEC on February 26, 2019, in Part I, Item 1A, “Risk Factors.” Actual results could differ materially from those anticipated in the forward-looking statements. The risks and uncertainties described in our 2018 Annual Report are not exclusive and further information concerning our Company and our businesses, including factors that potentially could materially affect our operating results or financial condition, may emerge from time to time. Alcoa disclaims any obligation to update publicly any forward-looking statements, whether in response to new information, future events or otherwise, except as required by applicable law. Market projections are subject to the risks described above and other risks in the market.

Incorporation by Reference

Neither the Compensation Committee Report nor the Audit Committee Report shall be deemed soliciting material or filed with the SEC and neither of them shall be deemed incorporated by reference into any prior or future filings made by us under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), except to the extent that we specifically incorporate such information by reference. In addition, this document includes several website addresses. These website addresses are intended to provide inactive, textual references only. The information on these websites is not part of this Proxy Statement.

 

  3   LOGO


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2019 PROXY STATEMENT   

 

 

Proxy Statement Summary

LOGO

Below are highlights of certain information in this Proxy Statement. As it is only a summary, it may not contain all of the information that is important to you. For more complete information, please refer to the complete Proxy Statement and Alcoa’s 2018 Annual Report before you vote. References to “Alcoa,” “the Company,” “we,” “us” or “our” refer to Alcoa Corporation.

2019 ANNUAL MEETING OF STOCKHOLDERS

 

  Time and Date:

10:00 a.m. (EDT), May 8, 2019

 

  Place:

Fairmont Pittsburgh

Grand Ballroom

510 Market Street, Pittsburgh, Pennsylvania 15222

 

  Record Date:

March 12, 2019

 

  Voting:

Stockholders as of the record date are entitled to vote. Each share of common stock is entitled to one vote for each director nominee and one vote for each of the other proposals to be voted on.

 

  Admission:

An admission ticket is required to enter Alcoa’s Annual Meeting. See Question 6 in the “Questions and Answers About the Meeting and Voting” section for how to obtain a ticket.

How to Cast Your Vote

Your vote is important! Please cast your vote and play a part in the future of Alcoa.

Stockholders of record, who hold shares registered in their names with the Company’s transfer agent, can vote by:

 

LOGO    LOGO    LOGO

Internet at

www.cesvote.com

  

calling 1-888-693-8683

toll-free from the

U.S. or Canada

  

mail

return the signed

proxy card

The deadline for voting online or by telephone is 6:00 a.m. EDT on May 8, 2019. If you vote by mail, your proxy card must be received before the Annual Meeting. If you hold shares in an Alcoa savings plan, your voting instructions must be received by 6:00 a.m. EDT on May 6, 2019.

Beneficial owners who own shares through a bank, brokerage firm or similar organization can vote by returning the voting instruction card, or by following the instructions for voting via telephone or the Internet, as provided by the bank, broker or other organization. If you own shares in different accounts or in more than one name, you may receive different voting instructions for each type of ownership. Please vote all of your shares.

If you are a stockholder of record or a beneficial owner who has a legal proxy to vote the shares, you may choose to vote in person at the Annual Meeting. Even if you plan to attend our Annual Meeting in person, please cast your vote as soon as possible. See the “Questions and Answers About the Meeting and Voting” section for more details.

Voting Matters and Board Recommendations

 

  Voting Matters  

Board’s

    Recommendation    

 

Page Reference

    (for more detail)    

  Item 1.

   Election of Directors to Serve for a One-Year Term Expiring in 2020    FOR Each

    Nominee

 

14

  Item 2.

   Ratification of the Appointment of PricewaterhouseCoopers LLP as the Company’s Independent Auditor for 2019    FOR  

40

  Item 3.

   Advisory Vote to Approve 2018 Named Executive Officer Compensation    FOR  

43

  Item 4.

   Stockholder Proposal to Amend Stockholder Ability to Act by Written Consent   û AGAINST  

78

 


 

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Table of Contents

 

2019 PROXY STATEMENT   

 

 

Proxy Summary (continued)

 

 

 

Director Nominees

Alcoa’s Board is comprised of 12 members; under our Amended and Restated Bylaws (the “Bylaws”), directors are elected annually to serve for a one-year term. The following table provides summary information about each director nominee standing for election to the Board for a one-year term expiring at the 2020 Annual Meeting.

 

  Name    Age          Professional Background     Independent        Committee
Memberships
 

Other Current

Public

Company Boards

Michael G. Morris (Chairman)

  72       Retired Chairman, President, and Chief Executive Officer, American Electric Power Company, Inc.   Yes       Executive (Chair)   L Brands, Inc.; The Hartford Financial Services Group, Inc.

Mary Anne Citrino

  59       Senior Advisor, The Blackstone Group L.P.   Yes       Governance and Nominating; Safety, Sustainability and Public Issues   HP Inc; Ahold Delhaize; Barclays plc

Timothy P. Flynn

  62       Retired Chairman, KPMG International   Yes       Compensation and Benefits; Safety, Sustainability and Public Issues   JPMorgan Chase & Co.; Walmart Stores, Inc.; United Health Group

Kathryn S. Fuller

  72       Vice Chair, Smithsonian National Museum of Natural History; Board member, Institute at Brown for Environment & Society; Chair of Nominating and Governance Committee at The Robert Wood Johnson Foundation   Yes       Compensation and Benefits; Governance and Nominating (Chair); Executive  

Roy C. Harvey

  45       President and Chief Executive Officer, Alcoa Corporation   No       Executive  

James A. Hughes

  56       Chief Executive Officer and Managing Director, Prisma Energy Capital   Yes       Audit; Safety, Sustainability and Public Issues   TPI Composites Inc.; PNM Resources

James E. Nevels

  67       Founder and Chairman, The Swarthmore Group   Yes       Compensation and Benefits; Governance and Nominating; Executive   First Data Corporation; WestRock Company

James W. Owens

  73       Retired Chairman and Chief Executive Officer, Caterpillar Inc.   Yes       Compensation and Benefits (Chair); Governance and Nominating   International Business Machines Corporation

Carol L. Roberts

  59       Retired Senior Vice President and Chief Financial Officer, International Paper Company   Yes       Audit (Chair); Compensation and Benefits; Executive   VF Corporation

Suzanne Sitherwood

  58       President and Chief Executive Officer, Spire Inc.   Yes       Audit; Safety, Sustainability and Public Issues   Spire Inc.

Steven W. Williams

  63       Chief Executive Officer, Suncor Energy Inc.   Yes       Compensation and Benefits; Governance and Nominating; Executive   Suncor Energy Inc.

Ernesto Zedillo

  67       Frederick Iseman ’74 Director of the Yale Center for the Study of Globalization and Professor, Yale University; Former President of Mexico   Yes       Audit; Safety, Sustainability and Public Issues (Chair)  

Citigroup Inc.; The Procter & Gamble Company

 

 

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2019 PROXY STATEMENT   

 

 

Proxy Summary (continued)

 

 

 

2018 Highlights

Business

In 2018, our achievements were driven by our strategic priorities to reduce complexity, drive returns, and strengthen the balance sheet.

 

 

Revenue of $13.4 billion, 15% higher than in 2017

    

Net income of $227 million, or $1.20 per diluted share

 

 

    

 

Reduced net pension and other postretirement employee benefits liability to $2.3 billion at year-end 2018, down from $3.5 billion at year-end 2017

 

 

 

 

 

 

Adjusted EBITDA* excluding special items of $3.1 billion, up 27% from 2017

 

 

 

      

 

 

Earned credit rating upgrades from rating agencies Standard & Poor’s and Moody’s

 

 

 

       Developed capital allocation structure and strategy for 2018 and long-term

 

  *

Adjusted EBITDA (Earnings before interest, taxes, depreciation, and amortization) is a non-GAAP measure. Please see Attachment A for a reconciliation of the non-GAAP measure to the most directly comparable GAAP measure.

 

Executive Compensation

Our Compensation and Benefits Committee has adopted an executive compensation philosophy that is based on three guiding principles to drive pay-for-performance and stockholder alignment:

 

  (1)

Target total compensation—base salary, annual cash incentives (“IC”) and long-term equity incentives (“LTI”)—at median, while using annual and long-term incentives to reward exceptional performance and to attract and retain exceptional talent.

 
  (2)

Equity is the most significant portion of total compensation for named executive officers (“NEOs”) to align the interests of NEOs with the stockholders.

 
  (3)

Annual cash incentive and LTI metrics focus management on achieving the greatest positive impact on financial performance, without creating undue risk.

 

 

 

 

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Table of Contents

 

2019 PROXY STATEMENT   

 

 

Proxy Summary (continued)

 

 

 

The Compensation Discussion and Analysis section of this Proxy Statement provides a discussion of Alcoa’s executive compensation philosophy and the pay programs applicable to our NEOs in 2018.

 

 

 WHAT WE DO

      

 

  WHAT WE DON’T DO

    We pay for performance  

 

    We consider and benchmark against peer groups in establishing compensation  

 

    We review compensation tally sheets for our executive officers  

 

    We have robust stock ownership guidelines  

 

    We schedule and price stock option grants to promote transparency and consistency  

 

    We have clawback policies incorporated into our incentive plans  

 

    We have double-trigger equity vesting in the event of a change-in-control where awards are assumed  

 

    We use a mix of stock price appreciation and operational metrics to align with the interests of stockholders  

 

    We have a conservative compensation risk profile  

 

    The Compensation and Benefits Committee retains an independent compensation consultant  
  û   We do not pay dividend equivalents on stock options and unvested restricted share units  

 

  û   We do not allow share recycling  

 

  û   We do not allow repricing of underwater stock options (including cash-outs) without stockholder approval  

 

  û   We do not allow hedging or pledging of Company stock  

 

  û   We do not have excise tax gross-ups in our Change in Control Severance Plan  

 

  û   We do not enter into multi-year employment contracts  

 

  û   We do not pay above-market earnings on deferred compensation or other nonqualified plans  

 

  û   We do not encourage excessive risk-taking in compensation practices  
 

Alignment of Pay and Performance

 

Our executive compensation program is designed so that the LTI and IC comprise the most significant portion of the NEO’s total compensation. That means pay is tied directly to performance and stock price. Mr. Harvey’s pay as reported in the Summary Compensation Table (“SCT”), reflects the accounting value of LTI at the time of grant and not the value actually received or potentially received from these grants. As a result, we compared Mr. Harvey’s SCT Pay, Realized Pay and Realizable Pay with our total stockholder return (“TSR”). Although Mr. Harvey’s SCT Pay and Realizable Pay have increased with his role as President and CEO, his Realized Pay has trended with TSR. We define Realizable Pay and Realized Pay as follows:

 

   

Realizable Pay is the sum of 1) the “Salary,” “Non-Equity Incentive Plan Compensation,” and “All Other Compensation” columns from the SCT plus 2) the value of unvested equity and vested but unexercised stock options as of December 31, 2018 (using the closing stock price of $26.58).

 
   

Realized Pay is the sum of 1) the “Salary,” “Non-Equity Incentive Plan Compensation,” and “All Other Compensation” columns from the SCT plus 2) the amounts reported in the 2018 Option Exercises and Stock Vested table.

 

 

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Table of Contents

 

2019 PROXY STATEMENT   

 

 

Proxy Summary (continued)

 

 

 

Mr. Harvey’s Realizable Pay and Realized Pay for 2016-2018 consisted of:

 

 

 Realizable Pay

 

  

 

2016(1)

 

    

 

2017

 

    

 

2018

 

 

 

 Base salary received

 

  

 

$

 

 

591,667

 

 

 

 

  

 

$

 

 

925,000

 

 

 

 

  

 

$

 

 

966,667

 

 

 

 

 

 Non-Equity Incentive Compensation payments

 

  

 

$

 

 

1,149,177

 

 

 

 

  

 

$

 

 

1,868,685

 

 

 

 

  

 

$

 

 

947,333

 

 

 

 

 

 Restricted stock units

 

  

 

 

 

 

N/A

 

 

 

 

  

 

$

 

 

776,136

 

 

 

 

  

 

$

 

 

779,325

 

 

 

 

 

 Performance restricted share units

 

  

 

$

 

 

1,533,028

 

 

 

 

  

 

$

 

 

2,327,876

 

 

 

 

  

 

$

 

 

2,337,711

 

 

 

 

 

 Stock options (in-the-money value at 12/31/2018)

 

  

 

$

 

 

876,544

 

 

 

 

  

 

$

 

 

0

 

 

 

 

  

 

$

 

 

0

 

 

 

 

 

 All Other Compensation

 

  

 

$

 

 

773,519

 

 

 

 

  

 

$

 

 

271,172

 

 

 

 

  

 

$

 

 

65,455

 

 

 

 

 

 Total

 

  

 

$

 

 

4,923,935

 

 

 

 

  

 

$

 

 

6,168,869

 

 

 

 

  

 

$

 

 

5,096,491

 

 

 

 

 

 

 Realized Pay

 

  

 

2016(1)

 

    

 

2017

 

    

 

2018

 

 

 

 Base salary received

 

  

 

$

 

 

591,667

 

 

 

 

  

 

$

 

 

925,000

 

 

 

 

  

 

$

 

 

966,667

 

 

 

 

 

 Non-Equity Incentive Compensation payments

 

  

 

$

 

 

1,149,177

 

 

 

 

  

 

$

 

 

1,868,685

 

 

 

 

  

 

$

 

 

947,333

 

 

 

 

 

 Restricted stock units (actual)

 

  

 

 

 

 

N/A

 

 

 

 

  

 

$

 

 

0

 

 

 

 

  

 

$

 

 

0

 

 

 

 

 

 Performance restricted share units (actual)

 

  

 

$

 

 

75,886

 

 

 

 

  

 

$

 

 

419,378

 

 

 

 

  

 

$

 

 

844,858

 

 

 

 

 

 Stock option exercises

 

  

 

$

 

 

0

 

 

 

 

  

 

$

 

 

0

 

 

 

 

  

 

$

 

 

0

 

 

 

 

 

 All Other Compensation

 

  

 

$

 

 

773,519

 

 

 

 

  

 

$

 

 

271,172

 

 

 

 

  

 

$

 

 

65,455

 

 

 

 

 

 Total

 

  

 

$

 

 

2,590,249

 

 

 

 

  

 

$

 

 

3,484,235

 

 

 

 

  

 

$

 

 

2,824,313

 

 

 

 

  (1)

The information in this column, and as shown in the chart below, reflects Mr. Harvey’s entire compensation for 2016, which is lower than his compensation for 2017 and 2018 because Mr. Harvey became CEO on November 1, 2016, when Alcoa became an independent, publicly-traded company upon its separation from Alcoa Inc. (the “Separation”), and therefore served as CEO for only 2 months of 2016.

 

As illustrated in the chart below, Mr. Harvey’s Realized Pay and Realizable Pay increased from 2016 to 2017 and decreased from 2017 to 2018, which trends with the movement of our stock price during this period and reflects the alignment of Mr. Harvey’s pay with our share price. Furthermore, the table below demonstrates that (i) our CEO’s Realized Pay and Realizable Pay, since the Separation, are lower than TSR over the same period, and (ii) the SCT representation of his compensation is not aligned with pay actually realized or realizable by him for that period.

 

LOGO

 

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Table of Contents

 

2019 PROXY STATEMENT   

 

 

Proxy Summary (continued)

 

 

 

Corporate Governance

The Company is committed to world class corporate governance practices, which enhance accountability to our stockholders and support the long-term success of our business. Our corporate governance practices, highlighted below, are described in greater detail in the “Corporate Governance” section of this Proxy Statement.

 

 

Board Independence and Accountability

 

 

Board Independence

  

 

  Independent Board Chairman.

  11 of 12 Board members are independent. The President and CEO is the only management director.

 

 

Board Leadership

  

 

  Our non-executive Chairman is appointed by the independent directors of the Board.

  Separate roles of non-executive Chairman and CEO.

  Our non-executive Chairman presides during the Board’s executive sessions.

 

 

Board Composition and Diversity

  

 

  Our directors have a diverse mix of skills, experience, and backgrounds, as specifically described for each director under Item 1 Election of Directors.

  All director nominees exhibit the following key characteristics and skills:

   Leadership experience

   Risk management expertise

   High integrity

   Innovative thinking

  One-third, or four of 12, directors are women.

  All directors have served on the Board since our Company was formed in 2016.

 

 

Board Committees

  

 

  Fully independent Audit, Compensation and Benefits, Governance and Nominating, and Safety, Sustainability and Public Issues Committees.

  Each committee has a written charter available on our website.

 

 

Board Accountability

  

 

  Annual elections of all directors.

  Simple majority voting in uncontested director elections.

  If not elected, a director must tender his or her resignation to the Board for its consideration.

  Annual certification of compliance with the Code of Conduct and related governance and ethics policies.

  Stockholder rights to call special meetings of stockholders.

  No supermajority voting provisions for amendments to the Certificate of Incorporation, Bylaws or to approve corporate transactions.

  Annual Say-on-Pay vote.

  Annual stockholder ratification of the Audit Committee’s selection of independent auditor.

  Stockholder engagement program to understand investor perspectives.

  One share, one vote.

  No poison pill.

 

 

Board Engagement

  

 

  97% average overall attendance rate by directors at Board and Committee meetings since 2016.

 

 

Proxy Access

  

 

  Stockholders have the ability to nominate directors through proxy access.

   Available to a stockholder or a group of up to 20 stockholders that holds at least 3% of the Company’s common stock for at least three years.

   May nominate the greater of two candidates or 20% of the number of directors then in office.

 

 

  9   LOGO


Table of Contents

 

2019 PROXY STATEMENT   

 

 

Proxy Summary (continued)

 

 

 

 

 

Board Effectiveness

 

 

Board Evaluation and Assessments

  

 

  Annual Board and Board committee self-evaluation process.

  Annual Board evaluation of the CEO.

  Annual Board assessment of corporate governance best practices.

 

 

Overboarding Limits/Ensuring Director Engagement

  

 

  Overboarding limits:

   Audit Committee Directors—Should not serve on more than two other public companies’ audit committees.

   Public Company CEO Directors—Should not serve on more than two outside public company boards (in addition to the board of the company at which he or she is CEO).

   Other Directors—Should not serve on more than four outside public company boards in addition to the Alcoa Board.

  Attendance

   Directors’ attendance at annual meetings of stockholders is expected.

   Director attendance at Board and committee meetings was 94% in 2018.

  Our non-employee directors meet in regularly-scheduled executive sessions without management present.

 

 

Stockholder Access to Directors

  

 

  Stockholders may contact our Board or management by email or regular mail.

  Periodic investor conferences in which investors have an opportunity to engage with management with any relevant comments and discussions communicated to the Board.

 

 

Board Oversight of Risk

  

 

  Our full Board is responsible for risk oversight and the Board committees oversee certain key risks.

  Our Board oversees management in its assessment and mitigation of risks and for taking appropriate risks.

 

 

Board Oversight of Political Activities

  

 

  The Safety, Sustainability and Public Issues Committee oversees the Company’s policies and practices relating to its political activities.

 

 

Succession Planning

  

 

  The Board actively monitors our management succession and development plans.

  The Board receives regular updates on employee engagement, diversity, and retention matters.

 

 

Alignment with Stockholder Interests

 

 

Clawback and Anti-Hedging and Pledging Policies

  

 

  Clawback policy permits the Company to recoup certain compensation payments in the event of a significant restatement of financial results.

  Directors and officers are prohibited from:

   Executing short sales of Alcoa securities and derivative or speculative transactions in Alcoa securities;

   Using financial instruments (including prepaid variable forward contracts, equity swaps, collars, and exchange funds) that are designed to hedge or offset any decrease in the market value of Alcoa securities; and

   Holding Alcoa securities in margin accounts or pledging Alcoa securities as collateral.

 

 

Stock Ownership

  

 

  Robust stock ownership guidelines.

   The CEO and each of the other NEOs must retain equity equal in value to six times and two- to three- times their base salaries, respectively.

   Non-employee directors must retain equity in value of at least $750,000.

 

 

Sustainability

  

 

  Alcoa is committed to operating sustainably.

  We established the Safety, Sustainability and Public Issues Committee to dedicate Board time and focus on sustainability matters, among other matters.

  We publish an annual Sustainability Report.

 

 

LOGO   10  


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2019 PROXY STATEMENT   

 

 

Proxy Summary (continued)

 

 

 

Corporate Responsibility

Our three core values—Act with Integrity, Operate with Excellence, Care for People—provide the foundation for our approach to corporate responsibility.

Through the Alcoa Foundation and other programs at Alcoa, the Company engages with local communities and non-governmental organizations on numerous sustainability and related initiatives. Approximately 50% of Alcoa Foundation’s annual budget is used toward local initiatives in the areas of education, environment, governance and community enhancement, and the other 50% is dedicated to global signature partnerships and programs focused on climate change and biodiversity.

Presented below are some of the highlights of Alcoa’s corporate responsibility program. You can find additional details about these and other related programs on our website at www.alcoa.com.

 

   

Act with Integrity

 

  

We are open, honest and accountable.

 

 

Ethics and Compliance

  

 

  Our Company-wide ethics and compliance program ensures that integrity guides our business every day, and in every decision we make.

  Our entire workforce is required to adhere to our ethics policies and procedures, and to comply with all applicable laws and regulations.

  We expect our suppliers to adhere to sustainability standards based on our core values.

  We assist certain suppliers in emerging and lagging categories to improve their sustainability programs, and work with third parties to enhance supplier assessment against broader social, environmental, and governance metrics.

 

 

Code of Conduct and Related Policies Promoting Ethical Behavior

  

 

  Alcoa’s Code of Conduct and related policies (including Anti-Corruption and Human Rights) apply to all Company directors, officers, and employees.

  Our Code of Conduct and these policies set forth expectations regarding how we conduct business worldwide.

  Training on our Code of Conduct and other policies is required for all employees.

  We maintain an Integrity Line available to employees, suppliers and the general public to report ethical or compliance issues 24/7 at www.alcoa.com.

 

   

Operate with Excellence

 

  

We relentlessly pursue outstanding and sustainable results.

 

 

Sustainability

  

 

  Sustainability is an integral part of Alcoa’s culture and core strategy, and it drives us to minimize our impacts and maximize our value throughout the world.

  In 2018, we launched ELYSISTM, a joint venture with Rio Tinto, to advance larger scale development and commercialization of Alcoa’s patent-protected smelting technology that produces oxygen and eliminates all direct greenhouse gas (“GHG”) emissions from the traditional aluminum smelting process.

  We report in accordance with Global Reporting Initiative (GRI) standards.

  We evaluate issues identified by leading sustainability ranking organizations, such as the Dow Jones Sustainability Indices and CDP (formerly the Carbon Disclosure Project), to ensure we are considering our sustainability initiatives through both an internal and broader market perspective, including based on stockholder input.

  We participate in the Aluminum Stewardship Initiative to further encourage sustainability in our supply chain.

  Our SUSTANATM line of aluminum products is produced with low carbon emissions and recycled content.

  Aluminum is an inherently sustainable product.

 

 

  11   LOGO


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2019 PROXY STATEMENT   

 

 

Proxy Summary (continued)

 

 

 

 

 

Environmental Initiatives

  

 

  We endorse biodiversity conservation to minimize disturbance of any original habitat and seek to avoid protected areas including by:

   Committing not to explore, mine or operate in World Heritage Sites

   Reclamation projects

   Developing industry-leading processes to mitigate disruption to vegetation, animals, and natural resources

  We are leaders in land rehabilitation, which allows us to be among the few to mine in the Jarrah Forest in Western Australia and in the Amazon rainforest in Brazil.

  Our long-term sustainability goals include:

   To maintain a five-year average ratio of 1:1 for active mining disturbance to mine rehabilitation across the Company (excluding long-term infrastructure).

   From a 2015 baseline, a 15% reduction in bauxite residue land requirements per metric ton of alumina produced by 2030.

   From a 2015 baseline, a 15% reduction by 2025, and a 20% reduction by 2030, or the intensity of our GHG (direct + indirect) emissions from smelting.

 

   

Care for People

 

  

We treat all people with dignity and provide a diverse, inclusive work
culture.

 

 

Diversity and Inclusion

  

 

  We believe that superior Company performance requires a variety of employee experiences, backgrounds, and characteristics.

  We hold our leaders accountable for diversity and inclusion and have incorporated diversity goals into our executives’ annual incentive program.

  Our business unit leaders report twice a year to other members of the executive team on diversity metrics and initiatives in their business units.

  We earned a perfect score on the 2018 Corporate Equality Index, a national benchmark survey and report on corporate policies related to lesbian, bisexual, gay and transgender workplace equality, administered by the Human Rights Campaign Foundation.

  We were named to the 2019 Bloomberg Gender-Equality Index, which recognizes companies committed to transparency in gender reporting and advancing women’s equality.

  We have developed a trusting workplace program, which, in 2018, included the launch of the Harassment and Bully-Free Workplace Policy

 

 

Employee Training and Development

  

 

  We created a three-year learning and development strategy, including enhancements to current programs such as Technical Leadership Excellence and Advancing Supervisory Excellence, with the goal of identifying new ways to connect with our global workforce for a more effective and engaging learning experience that is aligned with our business.

  We have implemented a frequent check-in process for managers/employees and have launched new technology to simplify the performance process and ensure our employees, managers and human resources professionals have access to the same information.

  All of our employees have access to AlcoaLearn, our global online learning management system, which houses thousands of online courses.

  We support employee participation in professional certification, leadership development and other external training programs.

 

 

LOGO   12  


Table of Contents

 

2019 PROXY STATEMENT   

 

 

Proxy Summary (continued)

 

 

 

 

 

Talent Acquisition

  

 

  We implemented a global recruitment process that provides a portal for all job postings within the Company. To cultivate the best candidates within the company and promote mobility and career growth, we focus on our internal people first.

  At the local level, we seek to hire from the local candidate pool whenever possible. We engage with universities to identify top local talent, and we offer internships and apprenticeships to help develop the local workforce.

 

 

Compensation

  

 

  To attract, retain, and motivate our employees, we provide compensation that is competitive within the relevant labor market and reward exceptional performance.

  In 2018, we linked 30% of our annual incentive goals to non-financial metrics relating to sustainability (up from 20% in 2017)—safety, diversity representation in the workforce, reductions in GHG emissions due to process improvements, and improved energy efficiency.

 

 

Community Engagement

  

 

  Alcoa actively participates in every community in which we operate through partnerships to address local needs in a sustainable manner. One of our goals is stimulating economic activity at the local and regional levels to enable improved quality of life for employees including by:

   Providing stable, fair-paying jobs

   Procuring goods and services from suppliers

   Investing in community infrastructure, such as a hospital in Juruti, Brazil

  40% of employees volunteer in the community through community service projects sponsored by the Alcoa Foundation.

 

 

Human Rights

  

 

  We are committed to human rights wherever we operate in the world and have a dedicated Human Rights Policy.

  In 2018, we launched the Alcoa Human Rights Council (the “Council”) to improve our human rights programs guided by the International Labour Organization’s Core Conventions and the U.N. Guiding Principles on Business and Human Rights. The Council has sponsorship at the executive level and representatives from each business unit and key resource unit.

 

 

Safety and Health

  

 

  In 2018, we had zero fatalities.

  We strive to have zero fatalities and no life-threatening or life-altering injuries and illnesses. We have a safety strategy based on the use of reliable systems and a supportive safety culture. A number of different programs are implemented under these pillars, including:

   Critical safety risk management standards

   A risk-based audit program

   Consistent root cause analysis for incident investigations

   Critical control field verifications to assess if work is being conducted using required safeguards

   Human performance training and the implementation of tools to prevent deviations and minimize consequences when deviations occur, including the authority to stop work

   A safety leadership standard

   Safety leadership training

   Safety culture measurements

   The integration of safety into talent management

 

 

  13   LOGO


Table of Contents

 

2019 PROXY STATEMENT   

 

 

Item 1 Election of Directors

 

LOGO

 

Alcoa’s Board, upon the recommendation of the Governance and Nominating Committee, has nominated 12 directors for election at this year’s Annual Meeting to hold office until the next Annual Meeting in 2020. Directors are elected on an annual basis for one-year terms.

All of the nominees currently serve as directors on the Alcoa Board and were elected to the Board by the stockholders at the 2018 Annual Meeting. Each has agreed to be named in this Proxy Statement.

We expect that each director nominee will be able to serve, if elected. If any director nominee is not able to serve, proxies may be voted for substitute nominees, unless the Board chooses to reduce the number of directors serving on the Board.

Majority Voting for Directors

Alcoa’s Bylaws provide a majority voting standard for election of directors in uncontested elections. Each director will be elected by the affirmative vote of a majority of the votes cast, meaning that the number of votes cast “FOR” a director nominee exceeds fifty percent (50%) of the number of votes cast with respect to that director’s election.

If an incumbent director nominee is not elected in an uncontested election and no successor has been elected at such meeting, the director must promptly tender his or her resignation to the Board. The Governance and Nominating Committee (excluding the nominee, if applicable) then will make a recommendation to the Board as to whether to accept or reject the resignation, or whether other action should be taken. The Board, excluding the nominee, will act on the resignation and publicly disclose its decision in accordance with the Bylaws.

An election of directors is considered to be contested if there are more nominees for election than positions on the Board to be filled by election at the meeting of stockholders. In a contested election, the required vote is a plurality of votes cast. The election of directors at the Annual Meeting is an uncontested election of directors.

Director Nominees

The Board has affirmatively determined that each of the nominees qualifies for election under the Company’s criteria for evaluation of directors (see “Minimum Qualifications for Director Nominees and Board Member Attributes”). Below is biographical information about the director nominees and their specific experience, skills, and qualifications that has led the Board and the Governance and Nominating Committee to conclude that they should continue to serve as directors on Alcoa’s Board. In addition, the Board has determined that each non-employee director nominee qualifies as an independent director under the New York Stock Exchange (“NYSE”) corporate governance listing standards and the Company’s Director Independence Standards. See “Director Independence.”

Director Qualifications, Skills, and Attributes

Our directors have substantial leadership, management, and industrial experience and expertise in the fields of international business, government relations and regulation, and in environmental, social, and governance (“ESG”) matters. The diversity of experience of our directors, illustrated in the skills matrix and director biographies below, is brought to bear in Board deliberations, during which multiple perspectives are considered in developing dynamic solutions to achieve our strategic priorities to reduce complexity, drive returns, and strengthen the balance sheet.

Because the table below is a summary, it does not include all of the skills, experiences, qualifications, and diversity that each director offers. In addition, as described in the Company’s Corporate Governance Guidelines, all directors should be, and are, financially literate.

 

LOGO   14  


Table of Contents

 

2019 PROXY STATEMENT   

 

 

Item 1 Election of Directors (continued)

 

 

 

                         
Director Qualifications, Attributes, and Skills   LOGO        LOGO        LOGO        LOGO        LOGO        LOGO        LOGO        LOGO        LOGO        LOGO        LOGO        LOGO     

Leadership Experience. Significant leadership experience, including serving as a CEO, senior executive, division president or functional leader within a complex organization enhances the Board’s leadership role

 

      

 

      

 

      

 

      

 

      

 

      

 

      

 

      

 

      

 

      

 

      

 

      

 

Industry Knowledge. Experience in the Company’s businesses and industries, including mining, refining, manufacturing, energy, and metals, contributes to the Board’s practical understanding in defining and directing Company strategy

 

                  

 

      

 

      

 

          

 

      

 

      

 

      

 

   

Financial Literacy. Knowledge of finance or financial reporting; experience with debt/capital market transactions and/or mergers and acquisitions strengthen the Board’s oversight of financial reporting and internal controls

 

      

 

      

 

      

 

      

 

      

 

      

 

      

 

      

 

      

 

      

 

      

 

      

 

Risk Assessment/ Management. Experience overseeing complex risk management matters strengthens the Board’s oversight of risks facing our Company

 

      

 

      

 

      

 

      

 

      

 

      

 

      

 

      

 

      

 

      

 

      

 

      

 

Labor/Human Resources. Experience in management of labor relations and/or in human resources and talent management contributes to the Board’s practical understanding in Company decision-making and strategy

 

          

 

          

 

      

 

      

 

          

 

      

 

      

 

      

 

   

Compensation. Experience with executive compensation and broad-based incentive programs contributes to the Board’s expertise in long- and short-term compensation planning

 

          

 

      

 

      

 

      

 

      

 

      

 

      

 

      

 

      

 

      

 

   

International. Experience doing business internationally or focused on international issues and operations and exposure to markets, economies, and cultures outside the U.S. contributes to a diversity of perspectives in Board decision-making

 

      

 

      

 

      

 

      

 

      

 

              

 

      

 

          

 

      

 

Government/Regulatory. Experience in government and regulatory affairs, and regulated industries, including as part of a business and/or through positions with government organizations and regulatory bodies, contributes to the Board’s understanding of the regulatory environment and working with government agencies

 

      

 

      

 

      

 

          

 

      

 

      

 

      

 

          

 

      

 

      

 

Scientific Innovation/Technology. Technical or scientific knowledge and experience implementing technology strategies strengthens the Board’s expertise in research and development, long-term planning, and strategy

 

      

 

                  

 

      

 

              

 

      

 

      

 

      

 

Legal. Experience acquired through a law degree in understanding legal risks and obligations strengthens the Board’s oversight of risks facing our Company

 

              

 

          

 

      

 

      

 

                   

Environmental/Sustainability. Experience in ESG matters, community affairs, and/or corporate responsibility initiatives including sustainability, diversity and inclusion supports our goals to operate ethically, with accountability and transparency

 

          

 

      

 

      

 

      

 

      

 

                  

 

      

 

      

 

 

  15   LOGO


Table of Contents

 

2019 PROXY STATEMENT   

 

 

Item 1 Election of Directors (continued)

 

 

 

As further illustrated below, our directors represent a range of backgrounds and overall experience. Our policy on Board diversity relates to the selection of nominees for the Board. Our policy provides that while diversity and variety of experiences and viewpoints represented on the Board should always be considered, a director nominee should not be chosen nor excluded solely or largely because of race, color, gender, national origin, or sexual orientation or identity. Currently, our Board is 33% women and 17% racially/ethnically diverse, and includes a range of ages: less than 50 (8%); 50-59 (34%); 60-69 (33%); and 70-75 (25%). In selecting a director nominee, the Governance and Nominating Committee focuses on skills, expertise and background that would complement the existing Board, recognizing that the Company’s businesses and operations are diverse and global in nature.

Background information about the director nominees, including their business experience, individual skills, and qualifications that each director contributes to the Board’s effectiveness as a whole, are described in the following pages.

 

 

The Board of Directors recommends a vote “FOR” the election of each director nominee in Item 1.

 

 

LOGO   16  


Table of Contents

 

2019 PROXY STATEMENT   

 

 

Item 1 Election of Directors (continued)

 

 

 

LOGO  

 

Michael G. Morris (Chairman)

 

Director since: 2016

 

Age: 72

 

Committees: Executive Committee (Chair)

 

Other Current Public Directorships:

L Brands, Inc.; The Hartford Financial Services Group, Inc.

 

Career Highlights and Qualifications: Mr. Morris was Chairman of American Electric Power Company, Inc. (AEP), one of the nation’s largest utility generators and owner of the largest electricity transmission system in the United States, from 2004 through 2013. He served as President and Chief Executive Officer of AEP from 2004 until his retirement in 2011. From 1997 to 2003, Mr. Morris was Chairman, President, and Chief Executive Officer of Northeast Utilities. Prior to that time, he held positions of increasing responsibility in energy and natural gas businesses.

Other Current Affiliations: Mr. Morris serves as Chairman of the Eastern Michigan University Board of Regents as well as Chair of the Finance Committee of the Michigan State University Law College. Mr. Morris is on the board of PLH Group, Inc., a private energy distribution company. He is also Chair of the Columbus Downtown Development Corporation, a non-profit organization dedicated to the development of facilities in the city. Mr. Morris serves on the board of Battelle Institute, which oversees many of the U.S. national labs.

Previous Directorships: Alcoa Inc. (2008-2016); AEP (2004-2013); Spectra Energy Partners GP, LLC (2013-2018)

Attributes and Skills: Mr. Morris has proven business acumen, having served as the Chief Executive Officer of large, complex organizations. Mr. Morris’ experience in the energy field is a valuable resource to the Company, which has significant energy assets. In addition, Mr. Morris is a leader in developing the carbon sequestration process, a technology that could be used in reducing GHG emissions.

 

LOGO  

 

Mary Anne Citrino

 

Director since: 2016

 

Age: 59

 

Committees: Governance and Nominating Committee; Safety, Sustainability and Public Issues Committee

 

Other Current Public Directorships:

HP Inc.; Ahold Delhaize; Barclays plc

Career Highlights and Qualifications: Ms. Citrino has served as Senior Advisor of The Blackstone Group L.P., a multinational private equity, alternative asset management and financial services corporation, since 2015, and was Senior Managing Director of Blackstone Advisory Partners L.P. from 2004 until 2015. At Blackstone, she has advised a broad range of clients in the consumer products industry, including Procter & Gamble, Kraft Foods, and Nestlé. Before joining Blackstone, she spent more than 20 years advising clients at Morgan Stanley, where she served as a Managing Director.

Other Current Affiliations: Ms. Citrino serves on the Retail & Tourism Advisory Board of the Partnership Fund for New York City.

Previous Public Company Directorships: Health Net, Inc. (2009-2016); Dollar Tree Inc. (2005-2018)

Attributes and Skills: Ms. Citrino’s more than 30-year career as an investment banker provides the Board with substantial knowledge regarding business operations strategy, as well as financial and investment expertise, which is important to Alcoa as it pursues its strategic plans.

 

  17   LOGO


Table of Contents

 

2019 PROXY STATEMENT   

 

 

Item 1 Election of Directors (continued)

 

 

 

LOGO  

 

Timothy P. Flynn

 

Director since: 2016

 

Age: 62

 

Committees: Compensation and Benefits Committee; Safety, Sustainability and Public Issues Committee

 

Other Current Public Directorships:

JPMorgan Chase & Co.; Walmart Stores, Inc.; United Health Group

 

Career Highlights and Qualifications: Mr. Flynn was Chairman of KPMG International, a global professional services organization that provides audit, tax, and advisory services, from 2007 until his retirement in October 2011. He served as Chairman from 2005 to 2010 and Chief Executive Officer from 2005 to 2009 of KPMG LLP in the U.S., the largest individual member firm of KPMG International. Before serving as Chairman and CEO, Mr. Flynn was Vice Chairman, Audit and Risk Advisory Services at KPMG, with operating responsibility for the Audit, Risk Advisory, and Financial Advisory Services practices.

Other Current Affiliations: Mr. Flynn serves as a trustee for the University of St. Thomas-Minnesota.

Previous Directorships: Mr. Flynn was a director of The Chubb Corporation (2013-2016).

Attributes and Skills: Through his leadership positions at KPMG, Mr. Flynn gained perspective on the evolving business and regulatory environment, and he brings to the Board his experience with many of the issues facing complex, global companies, as well as expertise in financial services and risk management.

 

LOGO  

 

Kathryn S. Fuller

 

Director since: 2016

 

Age: 72

 

Committees: Compensation and Benefits Committee; Governance and Nominating Committee (Chair);

Executive Committee

Career Highlights and Qualifications: Ms. Fuller serves as Vice Chair of the Board of Directors of the Smithsonian’s National Museum of Natural History, the world’s preeminent museum and research complex, having served as Chair until November 2016. She currently serves on the board, and chairs the Nominating and Governance Committee of, The Robert Wood Johnson Foundation, a leading philanthropic organization in the field of health and health care. Ms. Fuller serves on the board and is the former Chair of the Institute at Brown for Environment & Society (Brown University) which seeks to prepare leaders to understand and holistically manage complex social and environmental systems. In 2017, Ms. Fuller was elected to be a member of the American Academy of Arts and Sciences, one of the oldest learned societies in the United States that is devoted to the advancement and study of key societal, scientific, and intellectual issues.

Ms. Fuller retired as Chair of The Ford Foundation, a nonprofit organization, in September 2010, after having served in that position since May 2004.

Ms. Fuller served as President and Chief Executive Officer of World Wildlife Fund U.S. (WWF), one of the world’s largest nature conservation organizations from 1989 until July 2005. Ms. Fuller continues her affiliation with WWF as President Emerita and an honorary member of the Board of Directors. Ms. Fuller was a Public Policy Scholar at the Woodrow Wilson International Center for Scholars, a nonpartisan institute established by Congress for advanced study of national and world affairs, for the academic year beginning in October 2005.

 

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Ms. Fuller had various responsibilities with WWF and The Conservation Foundation, including executive vice president, general counsel, and director of WWF’s public policy and wildlife trade monitoring programs and has held several positions in the U.S. Department of Justice.

Other Current Affiliations: Ms. Fuller serves on the advisory board of the University of Texas at Austin Lady Bird Johnson Wildflower Center and chairs the audit and compensation committees of the Summit Foundation, a private foundation dedicated to achieving gender equality, protecting the earth’s biodiversity, and making cities livable.

Previous Directorships: Alcoa Inc. 2002-2016.

Attributes and Skills: Ms. Fuller has led three internationally recognized and respected organizations. Her experience in managing world-class organizations, combined with her proven leadership skills, international experience, and environmental and health focus, contribute to the diversity of the Board. The Company recognizes that it must earn the right to continue to do business in the communities in which it operates, and values the input of directors, such as Ms. Fuller, with a broad perspective on sustainable development.

 

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Roy C. Harvey

 

Director since: 2016

 

Age: 45

 

Committees: Executive Committee

Career Highlights and Qualifications: Mr. Harvey is the President and Chief Executive Officer of Alcoa.

Mr. Harvey has served as Chief Executive Officer of Alcoa since November 2016 and as President since May 2017. From October 2015 until November 1, 2016, the date of Separation, Mr. Harvey was Executive Vice President of Alcoa Inc. and President of its Global Primary Products business. From June 2014 to October 2015, he was Executive Vice President, Human Resources and Environment, Health, Safety and Sustainability at Alcoa Inc. As part of that role, he also oversaw the Alcoa Foundation, one of the largest corporate foundations in the U.S. In addition, Mr. Harvey held a variety of operational and financial assignments across the U.S., Europe, and Latin America during his career at Alcoa Inc., predominantly in its upstream business. As the Chief Operating Officer for Global Primary Products from July 2013 to June 2014, he oversaw the day-to-day global operations of the mining, refining, smelting, casting, and energy businesses. Prior to that role, he was Chief Financial Officer for Global Primary Products from December 2011 to July 2013. Mr. Harvey also interfaced with securities analysts and investors globally as Director of Investor Relations from September 2010 to November 2011, and he was Director of Corporate Treasury from January 2010 to September 2010. Mr. Harvey joined Alcoa Inc. in 2002 as a business analyst for Global Primary Products in Knoxville, Tennessee.

Attributes and Skills: As the only management representative on the Board, Mr. Harvey’s leadership of, and extensive experience and familiarity with, Alcoa’s businesses provides the Board with invaluable insight into the Company’s operations and strategic direction. His broad range of operational, financial, investor relations, and other roles have given him an in-depth and well-rounded understanding of the Company.

 

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James A. Hughes

 

Director since: 2016

 

Age: 56

 

Committees: Audit Committee; Safety, Sustainability and Public Issues Committee

 

Other Current Public Directorships:

TPI Composites Inc., PNM Resources, Inc.

Career Highlights and Qualifications: Mr. Hughes has served as Chief Executive Officer and Managing Director of Prisma Energy Capital, a private entity focused on investments in energy storage, since December 2017. He is the former Chief Executive Officer and Director of First Solar, Inc., a leading global provider of comprehensive photovoltaic solar systems which use its advanced module and system technology. He joined First Solar, Inc. in March 2012 as Chief Commercial Officer and was appointed Chief Executive Officer in May 2012. He stepped down as Chief Executive Officer on June 30, 2016 and resigned from its board on September 1, 2016. Prior to joining First Solar, Mr. Hughes served, from October 2007 until April 2011, as Chief Executive Officer and Director of AEI Services LLC, a private company that owned and operated power distribution, power generation (both thermal and renewable), natural gas transportation and services, and natural gas distribution businesses in emerging markets worldwide. From 2004 to 2007, he engaged in principal investing with a privately held company based in Houston, Texas that focused on micro-cap investments in North American distressed manufacturing assets. Previously, he served as President and Chief Operating Officer of Prisma Energy International, with interests in international electric and natural gas utilities. Prior to that role, Mr. Hughes spent almost a decade with Enron Corporation in positions that included President and Chief Operating Officer of Enron Global Assets, President and Chief Operating Officer of Enron Asia Pacific, Africa, and China, and Assistant General Counsel of Enron International.

Other Current Affiliations: Mr. Hughes is the former Chairman and serves as a Director of the Los Angeles Branch of the Federal Reserve Bank of San Francisco. He also serves on the board of directors of Battery Mineral Resources Limited, a battery-minerals mining company with operations primarily in North America.

Previous Directorships: First Solar, Inc. (2012-2016) and APR Energy PLC (2013-2015).

Attributes and Skills: Mr. Hughes’s extensive experience in the energy sector and previous leadership positions at large energy and utility companies enable him to contribute valuable business, operational, and management expertise to the Board given the Company’s portfolio of energy assets. Mr. Hughes’ service on the board of the Los Angeles Branch of the Federal Reserve Bank of San Francisco also imparts significant financial expertise. Mr. Hughes is an audit committee financial expert.

 

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James E. Nevels

 

Director since: 2016

 

Age: 67

 

Committees: Compensation and Benefits Committee; Governance and Nominating Committee;

Executive Committee

 

Other Current Public Directorships:

First Data Corporation; WestRock Company

Career Highlights and Qualifications: Mr. Nevels founded The Swarthmore Group, an investment advisory firm, in 1991 and has served as its Chairman since that time. He has more than 38 years of experience in the securities and investment industry and is a member of The Swarthmore Group’s Executive Committee. Mr. Nevels was appointed by the President of the United States to the Advisory Committee to the Pension Benefit Guaranty Corporation and served as Chairman from 2005 until 2007. In December 2001, Mr. Nevels was appointed by the Governor of Pennsylvania as Chairman of the Philadelphia School Reform Commission and served through September 2007, overseeing the turnaround of the Philadelphia School System, then the ninth largest school district in the United States. In addition, Mr. Nevels served as a member of the Board of The Federal Reserve Bank of Philadelphia from 2010 to 2015 and served as Chair of the Board from 2014 through 2015.

 

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Other Current Affiliations: Mr. Nevels served as the Lead Independent Director of WestRock Company from 2017 through 2018. Mr. Nevels is currently chairman of the board of CJP/IKON LLC, a member of the Board of Trustees of the Pro Football Hall of Fame (Emeritus Status), a member of the Council of Foreign Relations, a member of the Board of Trustees of PGA Reach, and a member of the board of directors of the Pennsylvania Fly Fishing Museum Association.

Previous Directorships: The Hershey Company (2009-2015, was Chairman and lead independent director from 2015 through 2017); XL Group board (2017-2018).

Attributes and Skills: Mr. Nevels’ background and experience as an investment advisor and director and chairman of large public companies gives Alcoa the benefit of his broad knowledge and perspective on the governance and leadership of publicly traded companies, as well as financial expertise.

 

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James W. Owens

 

Director since: 2016

 

Age: 73

 

Committees: Compensation and Benefits Committee (Chair); Governance and Nominating Committee

 

Other Current Public Directorships:

International Business Machines Corporation (IBM)

Career Highlights and Qualifications: Mr. Owens served as Chairman and Chief Executive Officer of Caterpillar Inc., a leading manufacturer of construction and mining equipment, diesel, and natural gas engines and industrial gas turbines, from February 2004 through June 2010. He was Executive Chairman from June to October 2010, when he retired from the company.

Mr. Owens served as Vice Chairman of Caterpillar from December 2003 to February 2004 and as Group President from 1995 to 2003, responsible at various times for 13 of the company’s 25 divisions. Mr. Owens joined Caterpillar in 1972 as a corporate economist and was named chief economist of Caterpillar Overseas S.A. in Geneva, Switzerland in 1975. He held managerial positions in the Accounting and Product Source Planning Departments and then became managing director of Caterpillar’s joint venture in Indonesia until 1990, when he was elected a Corporate Vice President and named President of Solar Turbines Incorporated, a Caterpillar subsidiary. He served as Vice President and Chief Financial Officer from 1993-1995. He was also former Chairman and Executive Committee member of the Business Council.

Other Current Affiliations: Mr. Owens is the former Chairman of the Board of Trustees of N.C. State University, and a board member of the Peterson Institute for International Economics. He is also a member of the Council on Foreign Relations. Mr. Owens will retire from the IBM board of directors in April 2019.

Previous Directorships: Alcoa Inc. (2005-2016); Caterpillar Inc. (2004-2010, as Chairman); Morgan Stanley (2011-May 2018).

Attributes and Skills: Mr. Owens’ previous leadership positions, including as Chairman and Chief Executive Officer of a significant, complex global industrial company, bring to the Board proven business acumen, governance, and management experience, and economics expertise.

 

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Carol L. Roberts

 

Director since: 2016

 

Age: 59

 

Committees: Audit Committee (Chair); Compensation and Benefits Committee; Executive Committee

 

Other Current Public Directorships:

VF Corporation

Career Highlights and Qualifications: Ms. Roberts was Senior Vice President and Chief Financial Officer of International Paper Company (IP), a global leader in packaging and paper with manufacturing operations in 24 countries, from 2011 until 2017 when she retired. Ms. Roberts has over 35 years of industrial manufacturing experience, having worked in multiple facilities and across various functions at IP. Before being named Chief Financial Officer in 2011, Ms. Roberts led IP’s

 

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largest business, the Industrial Packaging Group. While in that role, she led IP’s acquisition of Weyerhaeuser’s packaging business. Ms. Roberts also served as IP’s Vice President of People Development for three years, during which she developed human resources programs that had a major impact on IP’s talent posture and employee engagement. Ms. Roberts served in a variety of operational and technical roles since beginning her career with IP in 1981 as an associate engineer at the company’s Mobile, Alabama mill.

Other Current Affiliations: Ms. Roberts serves on the Board of Trustees for the University of Memphis and on the board of Divergent 3D, a private, 3D printing manufacturer of automotive parts.

Previous Directorships: Alcoa Inc. (2014-2016).

Attributes and Skills: Ms. Roberts’ career spans engineering, manufacturing, business management, human resources, and finance, bringing deep cross-functional knowledge and experiences to the Board. Her role as Chief Financial Officer of IP has provided a strong foundation for valuable contributions to Board discussions relating to financial, accounting, and strategic matters. Ms. Roberts is an audit committee financial expert.

 

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Suzanne Sitherwood

 

Director since: 2016

 

Age: 58

 

Committees: Audit Committee; Safety, Sustainability and Public Issues Committee

 

Other Current Public Directorships:

Spire Inc.

Career Highlights and Qualifications: Ms. Sitherwood has been the Chief Executive Officer of Spire Inc. (“Spire”) since February 2012 and has been its President and a member of its board since September 2011. She serves on Spire’s Strategy Committee.

Spire is the fifth largest publicly-traded natural gas company in the U.S., serving nearly 1.7 million customers. Spire’s gas-related businesses include Spire Marketing, Spire STL Pipeline and Spire Storage. Under Ms. Sitherwood’s leadership, Spire quadrupled its enterprise value through the acquisition of four natural gas utilities serving customers across Alabama, Mississippi, and Missouri. Prior to joining Spire, Ms. Sitherwood was President of three natural gas utilities at AGL Resources serving more than 1.6 million customers.

Other Current Affiliations: Ms. Sitherwood serves as deputy chair of the Federal Reserve Bank of St. Louis. She also serves on the boards of Civic Progress St. Louis, United Way of Greater St. Louis, St. Louis Regional Chamber, and the American Gas Association.

Attributes and Skills: With more than 35 years of experience in the natural gas industry, serving in roles ranging from chief engineer to vice president of gas operations and capacity planning, to the President and Chief Executive Officer of a public company owning five natural gas utilities, Ms. Sitherwood possesses significant leadership and management experience working in a regulatory environment while implementing strategic growth initiatives. Ms. Sitherwood is an audit committee financial expert.

 

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Steven W. Williams

 

Director since: 2016

 

Age: 63

 

Committees: Compensation and Benefits Committee; Governance and Nominating Committee; Executive Committee

 

Other Current Public Directorships:

Suncor Energy Inc.

Career Highlights and Qualifications: Mr. Williams is Chief Executive Officer of Suncor Energy, having served in such role since May 2012, and served as President of Suncor Energy from December 2011 to November 2018. Mr. Williams has

 

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announced his intention to retire from Suncor in May 2019. His career with Suncor Energy began in 2002 when he was appointed Executive Vice President, Corporate Development and Chief Financial Officer. He also served at Suncor Energy as Executive Vice President, Oil Sands, from 2003 to 2007 and as Chief Operating Officer, from 2007 to 2011. Mr. Williams has more than 40 years of international energy industry experience, including 18 years at Esso/Exxon.

Other Current Affiliations: Mr. Williams is a fellow of the Institution of Chemical Engineers, a member of the Institute of Directors, and is a member of the National Association of Corporate Directors. He is one of 12 founding chief executive officers of Canada’s Oil Sands Innovation Alliance (COSIA), a member of the advisory board of Canada’s Ecofiscal Commission and a member of the Board of the Business Council of Canada.

Attributes and Skills: Mr. Williams has decades of experience in leadership positions at large, publicly-traded energy companies that he brings to our Board. His expertise in the energy sector, both on the operational and financial side, brings valuable insight and experience to the Board. Mr. Williams also has extensive experience with business leadership organizations and advising government organizations regarding businesses and the economy.

 

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Ernesto Zedillo

 

Director since: 2016

 

Age: 67

 

Committees: Audit Committee; Safety, Sustainability and Public Issues Committee (Chair)

 

Other Current Public Directorships:

Citigroup Inc.; The Procter & Gamble Company

Career Highlights and Qualifications: Dr. Zedillo has been at Yale University since 2002, where he is the Frederick Iseman ’74 Director of the Yale Center for the Study of Globalization; Professor in the Field of International Economics and Politics; Professor of International and Area Studies; and Professor Adjunct of Forestry and Environmental Studies. He was a Distinguished Visiting Fellow at the London School of Economics in 2001.

Dr. Zedillo was President of Mexico from December 1994 to December 2000. He served in the Federal Government of Mexico as Undersecretary of the Budget (1987-1988); as Secretary of Economic Programming and the Budget and board member of various state-owned enterprises, including PEMEX, Mexico’s national oil company (1988-1992); and as Secretary of Education (1992-1993). Earlier, he was with the central bank of Mexico where he served as deputy manager of economic research and deputy director and was the founding General Director of the Trust Fund for the Coverage of Exchange Risks, a mechanism created to manage the rescheduling of the foreign debt of the country’s private sector that involved negotiations and complex financial operations with hundreds of firms and international banks.

Also in Mexico, he taught economics at the National Polytechnic Institute and El Colegio de Mexico.

Other Current Affiliations: Dr. Zedillo belongs to the international advisory board of BP. He is also a senior advisor to the Credit Suisse Research Institute and the Chair of the Natural Resource Governance Institute, a non-profit institution.

Previous Directorships: Alcoa Inc. (2002-2016); Electronic Data Systems Corporation (2007-2008); Union Pacific Corporation (2001-2006); Promotora de Informaciones, S.A. (2010-2017).

Attributes and Skills: From his broad experience in government and international politics and his prior service as President of Mexico, Dr. Zedillo brings international perspective and insight to matters such as government relations and economic, political, and public issues in the various countries in which Alcoa operates to our Board. Dr. Zedillo also has significant financial experience and is an audit committee financial expert.

 

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Nominating Board Candidates—Procedures and Director Qualifications

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Stockholder Recommendations for Director Nominees

The Governance and Nominating Committee (for purposes of this section, the “Committee”) will consider candidates for the Board recommended by stockholders. Any stockholder wishing to recommend a candidate for director should submit the recommendation in writing to our principal executive offices: Alcoa Corporation, Governance and Nominating Committee, c/o Secretary, 201 Isabella Street, Suite 500, Pittsburgh, Pennsylvania 15212-5858. The written submission should comply with all requirements set forth in the Company’s Certificate of Incorporation and Bylaws. The Committee will consider all candidates recommended by stockholders who comply with the foregoing procedures and satisfy the minimum qualifications for director nominees and Board member attributes.

Advance Notice Director Nominations

Alcoa’s Bylaws provide that any stockholder entitled to vote at an annual stockholders’ meeting may nominate one or more director candidates for election at that Annual Meeting by following certain prescribed procedures. To be timely, the stockholder must provide to Alcoa’s Secretary written notice of the stockholder’s intent to make such a nomination or nominations not earlier than 120 days and not later than the close of business 90 days before the first anniversary date of the immediately preceding Annual Meeting, except as otherwise provided in the Bylaws. If the number of directors is increased by the Board and there is no public announcement at least 100 days prior to the first anniversary date of the immediately preceding Annual Meeting, a previously submitted timely notice will be considered timely with regard to nominees for the new positions on the Board if received before the close of business on the tenth day following public announcement of the increase of the size of the Board.

If a stockholder intends to nominate directors for a special meeting of the Board at which directors will be elected, to be timely, the stockholder must provide written notice to Alcoa’s Secretary not earlier than 120 days prior and not later than the close of business 90 days prior to the special meeting. If the first public announcement of the special meeting is less than 100 days prior to the special meeting, a notice will be timely if received within ten days of the public announcement of the special meeting.

A stockholder nominating a director for election must provide the information regarding that nominee in the format required by the Bylaws, and otherwise comply with all applicable requirements in the Bylaws. Any such notice must be sent to our principal executive offices: Alcoa Corporation, 201 Isabella Street, Suite 500, Pittsburgh, Pennsylvania 15212-5858, Attention: Secretary. For the 2020 Annual Meeting, such notice must be delivered to the Secretary no earlier than January 9, 2020 and no later than February 8, 2020.

Proxy Access Director Nominations

In addition to advance notice procedures, our Bylaws also include provisions permitting, subject to certain terms and conditions set forth therein, stockholders who have maintained continuous qualifying ownership of at least 3% of outstanding Alcoa Corporation common stock for at least three years to nominate a number of director candidates not to exceed the greater of two candidates or 20% of the number of directors then in office who will be included in our annual meeting proxy statement. Alcoa Corporation first became an independent, publicly-traded company on November 1, 2016 and, as a result, eligible stockholders will first be able to nominate a proxy access candidate for the Company’s 2020 annual meeting of stockholders. Eligible stockholders who wish to nominate a proxy access candidate must follow the procedures described in our Bylaws. Proxy access candidates and the stockholder nominators meeting the qualifications and requirements set forth in our Bylaws will be included in the Company’s proxy statement and ballot. To be timely, an eligible stockholder’s proxy access notice must be delivered to our principal executive offices, Alcoa Corporation, 201 Isabella Street, Suite 500, Pittsburgh, Pennsylvania 15212-5858, Attention: Secretary, no earlier than 150 days and no later than 120 days before the one-year anniversary of the date that we commenced mailing of our definitive proxy statement (as stated in such proxy statement) for the immediately preceding annual meeting, except as otherwise provided in the Bylaws. For the 2020 Annual Meeting, such notice must be delivered to the Secretary no earlier than October 21, 2019 and no later than November 20, 2019.

 

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Minimum Qualifications for Director Nominees and Board Member Attributes

The Committee is charged with determining the criteria, objectives and procedures for selecting members of the Board. The Board membership criteria are set forth in the Company’s Corporate Governance Guidelines, and the committee will consider such criteria in the context of the existing composition and needs of the Board and its committees.

Alcoa has adopted the following criteria for identification, evaluation and selection of directors (which apply regardless of the nominator):

 

Directors must have demonstrated the highest ethical behavior and must be committed to the Company’s values.

Directors must be committed to seeking and balancing the legitimate long-term interests of all of the Company’s stakeholders, including its stockholders, customers, employees and the communities where the Company has an impact. Directors must not be primarily beholden to any special interest group or constituency.

It is the objective of the Board that all non-management directors be independent. In addition, no director should have, or appear to have, a conflict of interest that would impair that director’s ability to make decisions consistently in a fair and balanced manner.

Directors must be independent in thought and judgment. They must each have the ability to speak out on difficult subjects; to ask tough questions and demand accurate, honest answers; to constructively challenge management; and at the same time, act as an effective member of the team, engendering by his or her attitude an atmosphere of collegiality and trust.

Each director must have demonstrated excellence in his or her area and must be able to deal effectively with crises and to provide advice and counsel to the Chief Executive Officer and other members of executive management of the Company.

Directors should have proven business acumen, serving or having served as a Chief Executive Officer, Chief Operating Officer or Chief Financial Officer of a significant, complex organization, or other senior leadership role in a significant, complex organization; or serving or having served in a significant policy-making or leadership position in a well-respected, nationally or internationally recognized educational institution, not-for-profit organization or governmental entity; or having achieved a widely recognized position of leadership in the director’s field of endeavor, which adds substantial value to the oversight of material issues related to the Company’s business.

Directors must be committed to understanding the Company and its industry; to regularly preparing for, attending and actively participating in meetings of the Board and its committees; and to ensuring that existing and future individual commitments will not materially interfere with the director’s obligations to the Company. The number of other board memberships in light of the demands of a director nominee’s principal occupation, should be considered, as well as travel demands for meeting attendance.

Directors must understand the legal responsibilities of board service and fiduciary obligations. All members of the Board should be financially literate and have a sound understanding of business strategy, business environment, corporate governance and board operations. At least one member of the Board must satisfy the requirements of an “audit committee financial expert.”

Directors must be self-confident and willing and able to assume leadership and collaborative roles as needed. They need to demonstrate maturity, valuing board and team performance over individual performance and respect for others and their views.

New director nominees should be able to, and be committed to, serve as a member of the Board for an extended period of time.

While diversity and a variety of experiences and viewpoints represented on the Board should always be considered, a director nominee should not be chosen nor excluded solely or largely because of race, color, gender, national origin or sexual orientation or identity. In selecting a director nominee, the Governance and Nominating Committee will focus on any special skills, expertise or background that would complement the existing Board, recognizing that the Company’s businesses and operations are diverse and global in nature.

Directors should have reputations, both personal and professional, consistent with the Company’s image and reputation.

Process of Evaluation of Director Candidates

Candidates for nomination to the Board may be suggested by current directors, members or management, stockholders, or a third-party search firm engaged to assist with director recruitment. Based upon the recommendations of the Committee, the Board will recommend director nominees to the stockholders, and is responsible for selecting directors to fill vacancies

 

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between stockholder meetings. The Committee will make a preliminary review of a prospective candidate’s background, career experience and qualifications based on available information. If a consensus is reached by the Committee that a particular candidate would likely contribute positively to the Board’s mix of skills and experiences, the Committee will conduct interviews with the candidate and may invite other Board members or senior Alcoa executives to interview the candidate to assess the candidate’s overall qualifications. The Committee will consider the candidate against the criteria it has adopted in the context of the Board’s then current composition and the needs of the Board and its committees, and make a recommendation to the Board as to whether the candidate should be nominated for election. This procedure is the same for all candidates, including director candidates identified by stockholders.

Non-Employee Director Compensation Program

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Our non-employee director compensation program is designed to attract and retain outstanding director candidates who have the requisite experience and background as set forth in our Corporate Governance Guidelines, as well as to recognize the substantial time and effort necessary to exercise oversight of a complex global organization like Alcoa and fulfill the other responsibilities required of our directors. Non-employee directors receive a retainer of cash and equity-based compensation totaling $240,000 per year (plus committee service fees, if applicable) for service on the Board. In addition, Mr. Morris receives a non-executive Chairman fee in the amount of $150,000, which amount was recommended to the Board by the Committee based on a comparative market analysis prepared by Pay Governance LLC (“Pay Governance”), the independent compensation consultant selected by the Compensation and Benefits Committee. Mr. Harvey, our sole employee director, does not receive additional compensation for his Board service.

Consistent with its charter, the Committee reviews director compensation periodically and recommends changes to the Board as it deems appropriate. In 2018, the Committee reviewed the director compensation program based on a market analysis, provided by Pay Governance, of Alcoa’s program relative to non-employee director compensation programs of companies in the CEO compensation benchmarking peer group (as set forth under the Executive Compensation” section), which concluded that overall compensation is slightly below market median. No changes were made to the non-employee directors compensation program in 2018.

Director Fees

The table below sets forth the components of compensation for our non-employee directors approved by the Board with respect to 2018:

 

  Annual Compensation Element    Amount  

 

  Cash Retainer for Non-Employee Directors

 

  

 

$

 

 

120,000

 

 

 

 

 

  Equity Award for Non-Employee Directors

 

  

 

$

 

 

120,000

 

 

(1) 

 

 

 

  Annual Cash Fees(2)

 

  

 

  Non-Executive Chairman Fee

 

  

 

$

 

 

150,000

 

 

 

 

 

  Audit Committee Chair Fee (includes Audit Committee Member Fee)

 

  

 

$

 

 

27,500

 

 

 

 

 

  Audit Committee Member Fee

 

  

 

$

 

 

11,000

 

 

 

 

 

  Compensation and Benefits Committee Chair Fee

 

  

 

$

 

 

20,000

 

 

 

 

 

  Other Committee Chair Fee

 

  

 

$

 

 

16,500

 

 

 

 

  

 

  Stock Ownership Requirement

 

  

 

$

 

 

750,000

 

 

 

 

(1)

The annual equity award is granted in the form of restricted share units for continuing directors following the annual meeting, and generally will vest in one year in accordance with the Alcoa Corporation Non-Employee Director Compensation Policy. Vested restricted share units will be settled in a lump sum or installments following termination of service on the Board, in accordance with the elections made by non-employee directors.

 

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(2)

Each non-employee director may elect to defer all or part of his or her cash compensation pursuant to the Alcoa Corporation Directors’ Deferred Fee Plan, as amended (“Deferred Fee Plan”). Directors may elect to defer their cash compensation into various investment options or into restricted share units that are fully vested at grant. Deferred cash amounts are paid in cash either in a lump sum or installments following termination of service on the Board in accordance with the elections made by non-employee directors. Cash fees that are deferred into restricted share units will be settled in a lump sum or installments following termination of service on the Board, in accordance with the elections made by non-employee directors.

2018 Director Compensation

The following table sets forth the total compensation of the Company’s non-employee directors for the year ended December 31, 2018.

 

  Name   

Fees Earned or

Paid in Cash

($)(1)

    

Stock Awards

($)(2)

    

Total

($)

 

 

  Michael G. Morris

 

  

 

$

 

 

270,000

 

 

 

 

  

 

$

 

 

120,007

 

 

 

 

  

 

$

 

 

390,007

 

 

 

 

 

  Mary Anne Citrino

 

  

 

$

 

 

120,000

 

 

 

 

  

 

$

 

 

120,007

 

 

 

 

  

 

$

 

 

240,007

 

 

 

 

 

  Timothy P. Flynn

 

  

 

$

 

 

120,000

 

 

 

 

  

 

$

 

 

120,007

 

 

 

 

  

 

$

 

 

240,007

 

 

 

 

 

  Kathryn S. Fuller

 

  

 

$

 

 

136,500

 

 

 

 

  

 

$

 

 

120,007

 

 

 

 

  

 

$

 

 

256,507

 

 

 

 

 

  James A. Hughes

 

  

 

$

 

 

131,000

 

 

 

 

  

 

$

 

 

120,007

 

 

 

 

  

 

$

 

 

251,007

 

 

 

 

 

  James E. Nevels

 

  

 

$

 

 

120,000

 

 

 

 

  

 

$

 

 

120,007

 

 

 

 

  

 

$

 

 

240,007

 

 

 

 

 

  James W. Owens

 

  

 

$

 

 

140,000

 

 

 

 

  

 

$

 

 

120,007

 

 

 

 

  

 

$

 

 

260,007

 

 

 

 

 

  Carol L. Roberts

 

  

 

$

 

 

147,500

 

 

 

 

  

 

$

 

 

120,007

 

 

 

 

  

 

$

 

 

267,507

 

 

 

 

 

  Suzanne Sitherwood

 

  

 

$

 

 

131,000

 

 

 

 

  

 

$

 

 

120,007

 

 

 

 

  

 

$

 

 

251,007

 

 

 

 

 

  Steven W. Williams

 

  

 

$

 

 

120,000

 

 

 

 

  

 

$

 

 

120,007

 

 

 

 

  

 

$

 

 

240,007

 

 

 

 

 

  Ernesto Zedillo

 

  

 

$

 

 

147,500

 

 

 

 

  

 

$

 

 

120,007

 

 

 

 

  

 

$

 

 

267,507

 

 

 

 

(1)

This column reflects the cash fees earned by directors for Board and committee service to Alcoa from January 1, 2018 through December 31, 2018, whether or not such fees were deferred. For 2018 compensation, four of our directors deferred their cash fees, or a portion thereof, into restricted share units in the following amounts: Ms. Citrino, $119,902; Mr. Flynn, $119,902; Mr. Williams, $119,902; and Dr. Zedillo, $73,637.

(2)

This column reflects the aggregate grant date fair value, determined in accordance with the Financial Accounting Standard Board’s Accounting Standards Codification 718, Compensation—Stock Compensation (“ASC Topic 718”), of the restricted share unit awards granted by Alcoa on May 11, 2018. A discussion of the relevant assumptions is set forth in Note M to the consolidated financial statements set forth in the 2018 Annual Report. As of December 31, 2018, each of our directors held 2,224 unvested restricted share units.

Stock Ownership Guideline for Non-Employee Directors

To further align the interests of directors with the long-term interests of our stockholders, non-employee directors are required to own, until retirement from the Board, at least $750,000 of our common stock, including restricted share units. Cash-settled deferred share units relating to Alcoa common stock (acquired at Separation due to certain directors’ service on the board of our former parent company pursuant to the Deferred Fee Plan) are counted for purposes of meeting the stock ownership requirement. Whether non-employee directors hold shares of Alcoa common stock, restricted share units, or deferred share units, they have the same economic interest in the performance of the Company, which further aligns the directors’ interests with those of our stockholders. Non-employee directors are expected to invest 50% of their annual compensation in Alcoa stock (or stock equivalents), until they satisfy the director stock ownership guideline, and they are required to maintain that investment until they retire from the Board. It is the opinion of the Board that this policy reinforces a focus on long-term stockholder value.

 

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Item 1 Election of Directors (continued)

 

 

 

The following table shows the value of each non-employee director’s holdings in Alcoa common stock, restricted share units, and deferred share units as of January 1, 2019, based on the average closing price per share of our common stock on the NYSE for all active trading days in December 2018, in accordance with stock ownership guideline for non-employee directors.

 

  Non-Employee Directors   

Value of Alcoa Stock,

Restricted Share Units and

Deferred Share Units

 

 

  Michael G. Morris

 

  

 

$

 

 

1,564,887

 

 

 

 

 

  Mary Anne Citrino

 

  

 

$

 

 

 312,803

 

 

 

 

 

  Timothy P. Flynn

 

  

 

$

 

 

 400,800

 

 

 

 

 

  Kathryn S. Fuller

 

  

 

$

 

 

930,611

 

 

 

 

 

  James A. Hughes

 

  

 

$

 

 

 227,368

 

 

 

 

 

  James E. Nevels

 

  

 

$

 

 

 228,297

 

 

 

 

 

  James W. Owens

 

  

 

$

 

 

1,216,362

 

 

 

 

 

  Carol L. Roberts

 

  

 

$

 

 

 609,391

 

 

 

 

 

  Suzanne Sitherwood

 

  

 

$

 

 

 227,368

 

 

 

 

 

  Steven W. Williams

 

  

 

$

 

 

 395,705

 

 

 

 

 

  Ernesto Zedillo

 

  

 

$

 

 

1,505,575

 

 

 

 

Prohibitions against Short Sales, Hedging, Margin Accounts and Pledging

The Company’s Insider Trading Policy (the Policy”) prohibits directors, executive officers, employees, and others from engaging in short sale transactions in Alcoa securities and prohibits the purchase or use, directly or indirectly, of financial instruments that are designed to hedge or offset any decrease in the market value of the Company’s securities (including prepaid variable forward contracts, equity swaps, collars, and exchange funds).The Policy also prohibits holding the Company’s securities in margin accounts or pledging Alcoa’s securities as collateral. See “Compensation Discussion and Analysis—What We Don’t Do” for additional information regarding our no hedging and no pledging policies.

 

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Corporate Governance

 

LOGO

 

The Board has adopted a number of policies to support our values and good corporate governance, which are central to the success of our business and in advancing stockholder interests.

Corporate Governance Highlights

The following governance documents are available on our website, www.alcoa.com, under “Investors—Corporate Governance—Governance Documents.”

 

 

Certificate of Incorporation and Bylaws

 

Committee Charters

 

Corporate Governance Guidelines, including Director Independence Standards

 

Code of Conduct

Paper copies of the documents listed above can be obtained by writing to the Alcoa Corporation, Attention: Secretary, 201 Isabella Street, Suite 500, Pittsburgh, Pennsylvania 15212-5858.

Please see the Proxy Statement Summary for highlights of Alcoa’s corporate governance program. You can find details about these and other corporate governance policies and practices within this Proxy Statement.

Corporate Governance Guidelines

The Board has adopted Corporate Governance Guidelines, which are designed to assist the Board in the exercise of its duties and responsibilities to the Company. They reflect the Board’s commitment to monitor the effectiveness of decision-making at the Board and management level with a view to achieving Alcoa’s strategic objectives. They are subject to modification by the Board at any time.

Code of Conduct

The Company’s Code of Conduct applies equally to the directors and to all officers and employees of the Company, as well as those of our controlled subsidiaries, affiliates and joint ventures. The Code of Conduct incorporates a Code of Ethics applicable to the Chief Executive Officer, Chief Financial Officer and other Financial Professionals, including the principal accounting officer. We conduct annual surveys regarding compliance with the policies.

Only the Audit Committee can amend or grant waivers from the provisions of the Code of Conduct, and any such amendments or waivers applicable to directors and executive officers will be posted promptly on our website, www.alcoa.com. No waivers have been granted.

Online training on the Code of Conduct is mandatory for all salaried employees. Shop floor employees complete live training, which includes materials focused on the Company’s policies and procedures and information on how to ask questions and raise concerns through the Company’s Integrity Line and other resources.

Board Information

LOGO

Director Independence

Providing objective, independent judgment is at the core of the Board’s oversight function. Under the Company’s Director Independence Standards, which conform to the corporate governance listing standards of the NYSE, a director is not considered “independent” unless the Board affirmatively determines that the director has no material relationship with the Company or any subsidiary in the consolidated group. The Director Independence Standards include a list of categories of material relationships affecting the determination of a director’s independence. Any relationship that falls below a threshold set forth in the Director

 

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Corporate Governance (continued)

 

 

 

Independence Standards, or is not otherwise listed in the Director Independence Standards or the NYSE listing standards, and is not required to be disclosed under Item 404(a) of SEC Regulation S-K, is deemed to be an immaterial relationship.

The Board has affirmatively determined that all the directors are independent except Mr. Harvey, who is employed by the Company (and therefore does not meet the independence standards set forth in the NYSE listing standards and Director Independence Standards). In the course of making its determination regarding independence, the Board did not find any material relationships that would impair a director’s independence, other than Mr.  Harvey’s employment.

Board Leadership Structure

The Company’s current Board leadership structure provides for a non-executive Chairman of the Board who is appointed by the independent directors of the Board. The Board believes this current structure of separating the roles of Chairman and Chief Executive Officer allows for better alignment of corporate governance with the interests of stockholders. The Board also believes that this structure allows our Chief Executive Officer to focus on operating and managing the Company and the Chairman to provide guidance and oversight.

Our Corporate Governance Guidelines provide that the non-executive Chairman will: call and chair all meetings of the Board, including executive sessions of the independent directors; chair the annual stockholders meeting; ensure that he or she is available for consultation and direct communication with major stockholders or joint venture partners, as appropriate; oversee Board governance, including approval of meeting agendas and meeting schedules to assure that all agenda items are adequately addressed; ensure personal availability for consultation and communication with independent directors; call special meetings of the independent directors, as the Chairman may deem appropriate; and provide guidance and communication to the Chief Executive Officer in matters of strategic importance.

Board Meetings and Attendance

The Board met seven times in 2018. In 2018, all directors attended at least 75% of the meetings of the Board and the committees on which he or she served and, actual director attendance at meetings of the Board and committees on which they served averaged 94%. Under Alcoa’s Corporate Governance Guidelines, all directors are expected to attend the annual meeting of stockholders, and all directors attended the 2018 Annual Meeting.

The following table sets forth the Board committees and the current members of each of the committees:

 

     

    Audit    

 

        Compensation
and Benefits
       

Governance and

Nominating

 

       

Safety,
Sustainability
and
 Public Issues 

 

       

  Executive  

 

         

Mary Anne Citrino*

 

                

 

      

 

      
         

Timothy P. Flynn*

 

         

 

             

 

      
         

Kathryn S. Fuller*

 

         

 

      

Chair

 

             

 

         

Roy C. Harvey(1)

 

                              

 

         

James A. Hughes*

 

  

 

                    

 

      
         

Michael G. Morris*(2)

 

                              

Chair

 

         

James E. Nevels*

 

         

 

      

 

             

 

         

James W. Owens*

 

         

Chair

 

      

 

             
         

Carol L. Roberts*

 

  

Chair

 

      

 

                    

 

         

Suzanne Sitherwood*

 

  

 

                    

 

      
         

Steven W. Williams*

 

         

 

      

 

             

 

         

Ernesto Zedillo*

 

  

 

                        

Chair

 

        
         

2018 Meetings

 

  

6

 

      

5

 

      

4

 

      

5

 

      

0

 

*

Independent Director

(1)

As a management director, Mr. Harvey attends each committee meeting, except to the extent the Board or committee requests to meet without him present or the Board or committee is meeting in executive session.

(2)

As non-executive Chairman of the Board, Mr. Morris attends each Board and committee meeting.

 

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Corporate Governance (continued)

 

 

 

Board and Committee Annual Self-Evaluation Process

The Governance and Nominating Committee developed and oversees the formal annual, multi-faceted process to assess the performance and effectiveness of the full Board, the operations of its committees, and the contributions of directors. The self-evaluation process is designed to solicit robust feedback regarding the Board and individual directors and ensure the compliance, continuous improvement, and accountability of our Board.

 

LOGO

Director-to-Director Interviews:

The evaluation process is led by our independent Chairman and consists of one-on-one interviews, guided by written reference materials conducted by:

 

 

The Chairman with individual directors regarding the function of the Board and each committee, as well as individual peer performance reviews

 

The committee chairs with their members regarding the function of each committee

 

The Chairman with the NEOs regarding management’s working relationship with the Board

 

The Chair of the Governance and Nominating Committee with each director regarding the performance of the Chairman

Feedback:

A summary of results identifying any themes or issues that have emerged is discussed in Board and committee executive sessions, and individual director feedback is communicated by the Chairman as appropriate

Ongoing Evaluation Actions:

In addition to the formal annual Board and committee self-evaluation process described above, our evaluation process incorporates:

 

 

Periodic input from committee chairs, the CEO and senior management on topical agendas

 

Regular executive sessions without management present

 

Review of the appropriateness of a director’s continued service following a substantial change in principal occupation

 

Review of potential conflicts and over-boarding concerns following a director’s request to serve on the governance and/or advisory board of other corporations or entities including non-profit or charitable organizations

 

Consideration of individual director performance when evaluating directors for possible re-nomination to the Board

 

An annual review of committee charters, Corporate Governance Guidelines and other Board policies

 

An annual review of the formal Board and committee self-evaluation process

 

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Corporate Governance (continued)

 

 

 

Committees of the Board

There are five standing committees of the Board. The Board has adopted written charters for each committee, which are available on our website at www.alcoa.com under “Investors—Corporate Governance—Governance Documents.”

Each of the Audit, Compensation and Benefits, Governance and Nominating, and Safety, Sustainability and Public Issues Committees consists solely of directors who have been determined by the Board to be independent in accordance with SEC regulations, NYSE listing standards, and the Company’s Director Independence Standards (including the heightened independence standards and considerations for members of the Audit and Compensation and Benefits Committees).

 

   

  COMMITTEE

 

  

RESPONSIBILITIES

 

   
  Audit Committee   

   Oversees the integrity of the financial statements and internal controls, including review of the scope and the results of the audits of the internal and independent auditors.

   Appoints the independent auditors and evaluates their independence and performance.

   Reviews the organization, performance, and adequacy of the internal audit function.

   Pre-approves all audit, audit-related, tax, and other services to be provided by the independent auditors.

   Oversees the Company’s compliance with legal, ethical, and regulatory requirements.

   Approves the audit committee report for inclusion in the Proxy Statement.

   Discusses with management and the auditors the Company’s policies with respect to risk assessment and risk management, including major financial risk exposures and cybersecurity.

 

Each member of the Audit Committee is financially literate, and the Board has determined that each of Mses. Roberts and Sitherwood and Mr. Hughes and Dr. Zedillo qualifies as an “audit committee financial expert” under applicable SEC rules.

 

   

Compensation and Benefits Committee

  

   Establishes the Chief Executive Officer’s compensation based upon an evaluation of performance in light of approved goals and objectives.

   Reviews and approves the compensation of the Company’s other officers.

   Oversees the implementation and administration of the Company’s compensation and benefits plans, including pension, savings, incentive compensation and equity-based plans.

   Reviews and approves general compensation and benefit policies.

   Reviews and advises the Board with respect to clawback policies.

   Approves the Compensation Discussion and Analysis and the Compensation Committee Report for inclusion in the Proxy Statement.

   Has the sole authority to retain and terminate a compensation consultant, as well as to approve the consultant’s fees and other terms of engagement (see “Compensation Consultant”).

 

The Compensation and Benefits Committee may form, and delegate its authority to, subcommittees and management, when appropriate, including to a management employee benefits committee that administers certain broad-based employee benefit plans and to the Chief Executive Officer to determine and approve annual incentive and LTI awards for officer employees of the Company as prescribed by the Compensation and Benefits Committee. Officers do not determine the amount or form of executive or director compensation, although the Chief Executive Officer provides recommendations to the Compensation and Benefits Committee regarding compensation changes and incentive compensation for the other officers. For more information on the responsibilities and activities of the committee, including its processes for determining executive compensation, see the “Compensation Discussion and Analysis” section.

 

 

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Corporate Governance (continued)

 

 

 

   

  COMMITTEE

 

  

RESPONSIBILITIES

 

   

Governance and Nominating Committee

  

   Identifies individuals qualified to become Board members and recommends them to the full Board for consideration, including evaluating all potential candidates, whether initially recommended by management, other Board members, or stockholders.

   Makes recommendations to the Board regarding Board committee assignments.

   Develops and annually reviews the Company’s Corporate Governance Guidelines, and oversees other corporate governance matters.

   Reviews related person transactions in accordance with the Company’s policy on such transactions.

   Oversees an annual performance evaluation of the Board and its committees.

   Periodically reviews and makes recommendations to the Board regarding director compensation.

 

   

Safety, Sustainability and Public Issues Committee

  

   Provides guidance on matters relating to the Company’s corporate and social responsibility, including safety and health, good corporate citizenship, environmental sustainability, and social issues.

   Oversees Alcoa’s initiatives, policies, and practices to ensure alignment with its values.

   Considers, and brings to the attention of the Board, as appropriate, current and emerging safety and health, environmental and sustainability, social, and political trends and major global legislative and regulatory developments or other government relations, trade or public policy issues.

   Advises on significant stakeholder concerns relating to safety, the environment, sustainability, corporate and social responsibility, and other public issues.

   Oversees Alcoa’s policies and practices relating to its political activities, diversity and inclusion, and charitable contributions.

   Considers developments affecting the Company’s corporate reputation and provides guidance regarding the protection of the Company’s reputation.

 

In 2017, the name of this committee was changed from the “Public Issues Committee” to the “Safety, Sustainability and Public Issues Committee” to emphasize the importance of safety at all levels of the Company and highlight the specific responsibilities of this committee in regard to safety oversight. All Board members are invited to the meetings of the Safety, Sustainability and Public Issues Committee.

 

   

Executive Committee

 

  

   Has the authority to act on behalf of the Board, including during the intervals between regularly scheduled Board meetings when Board action is needed.

 

 

The Board’s Role in Risk Oversight

The Board is actively engaged in overseeing and reviewing the Company’s strategic direction and objectives, taking into account (among other considerations) Alcoa’s risk profile and exposures. It is management’s responsibility to manage risk and bring to the Board’s attention the most material risks to the Company. The Board has oversight responsibility for the processes established to report and monitor systems for material risks applicable to the Company. The Board annually reviews Alcoa’s enterprise risk management process and receives regular updates on risk exposures.

The Board, as a whole, has responsibility for risk oversight, including succession planning relating to the Chief Executive Officer and risks relating to the competitive landscape, strategy, business conditions, and capital requirements. The committees of the Board also oversee Alcoa’s risk profile and exposures relating to matters within the scope of their authority. The Board regularly receives detailed reports from the committees regarding risk oversight in their areas of responsibility.

The Audit Committee discusses the Company’s risk profile, risk management, and exposure (and Alcoa’s policies relating to the same) with management, the internal auditors, and the independent auditors. Such discussions include the Company’s major financial risk exposures and the steps management has taken to monitor and control these exposures.

 

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Corporate Governance (continued)

 

 

 

The Audit Committee also is charged with oversight of Alcoa’s risks relating to cybersecurity, including review of the state of the Company’s cybersecurity, emerging cybersecurity developments and threats, and the Company’s strategy to mitigate cybersecurity risks.

The Compensation and Benefits Committee considers risks related to the attraction and retention of talent, the design of compensation programs and incentive arrangements, and the investment management of the Company’s principal retirement and savings plans. The Compensation and Benefits Committee periodically reviews Alcoa’s incentive structure to avoid encouraging material risk-taking through financial incentives. Based on these determinations, the Company believes that it is not reasonably likely that Alcoa’s compensation and benefit plans incentivize undue risk or create risks that are reasonably likely to have a material adverse effect on us. See “Compensation Discussion and Analysis—Executive Compensation Policies and Practices—What We Do—Maintain a Conservative Compensation Risk Profile.”

The Governance and Nominating Committee considers risks related to corporate governance and oversees succession planning for the Board and the appropriate assignment of directors to the Board committees for risk oversight and other areas of responsibilities.

The Safety, Sustainability and Public Issues Committee considers risks related to the Company’s reputation, and risks relating to safety and health, public policy, environmental sustainability, and social issues.

The Company believes that the Board leadership structure supports its role in risk oversight. There is open communication between management and directors, and all directors are actively involved in the risk oversight function.

Communications with Directors

The Board welcomes input and suggestions. Stockholders and other interested parties wishing to contact the Chairman or the non-management directors as a group may do so by sending a written communication to the attention of the Chairman c/o Alcoa Corporation, 201 Isabella Street, Suite 500, Pittsburgh, Pennsylvania 15212-5858.

To communicate issues or complaints regarding questionable accounting, internal accounting controls or auditing matters, send a written communication to the Audit Committee c/o Alcoa Corporation, 201 Isabella Street, Suite 500, Pittsburgh, Pennsylvania 15212-5858. Alternatively, you may place an anonymous, confidential, toll free call in the United States to Alcoa’s Integrity Line at 1-800-346-7319. You may also make reports by web, email, or standard mail. For a listing of web, email and mailing addresses, and of Integrity Line telephone numbers outside the United States, go to www.alcoa.com—Who We Are—Ethics and Compliance—Integrity Line.” See also www.alcoa.com—Investors—Corporate Governance.

Communications addressed to the Board or to a Board member are distributed to the Board or to any individual director or directors, as appropriate, depending upon the facts and circumstances outlined in the communication. On behalf of the Board, the Secretary’s Office will submit to the Board all communications received, excluding only those items that are not related to Board duties and responsibilities, such as junk mail and mass mailings; product complaints and product inquiries; new product or technology suggestions; job inquiries and resumes; advertisements or solicitations; and surveys.

Related Person Transactions

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Review, Approval and Ratification of Transactions with Related Persons

The Company has a written Related Person Transaction Approval Policy regarding the review, approval, and ratification of transactions between the Company and related persons. The policy applies to any transaction in which Alcoa or a subsidiary is a participant, where the amount involved exceeds $120,000 and a related person has a direct or indirect material interest. A related person means any director or executive officer of the Company, any nominee for director, any stockholder known to the Company to be the beneficial owner of more than 5% of any class of the Company’s voting securities, and any immediate family member of any such persons.

Under this policy, reviews are conducted by management to determine which transactions or relationships should be referred to the Governance and Nominating Committee for consideration. The Governance and Nominating Committee then reviews the material facts and circumstances regarding a transaction and determines whether to approve, ratify, revise, or

 

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Corporate Governance (continued)

 

 

 

reject a related person transaction, or to refer it to the full Board or another committee of the Board for consideration. The Related Person Transaction Approval Policy operates in conjunction with other aspects of the Company’s compliance program, including its Code of Conduct that requires all directors, officers, and employees to be free from the influence of any conflict of interest when they carry out their duties with respect to the Company.

The Board has considered the following types of potential related person transactions and pre-approved them under the Related Person Transaction Approval Policy as not presenting material conflicts of interest:

(i)

employment of executive officers (except employment of an executive officer that is an immediate family member of another executive officer, director, or nominee for director) as long as the executive officer’s compensation is reported or would have been reported (if such executive officer was a “named executive officer”) under Regulation S-K Item 402;

(ii)

director compensation that is required to be reported, and is reported, under a SEC regulation;

(iii)

any transaction with another entity if a related person’s interest arises only from:

  (a)

such person’s position as a director of the other entity; or

  (b)

The direct or indirect ownership by such person, together with the ownership by his or her immediate family member, of less than a 10% equity interest in the aggregate of the other entity (other than a partnership); or

  (c)

both such position as a director and ownership as described in (a) and (b) above; or

  (d)

such person’s position as a limited partner in a partnership in which the person, together with his or her immediate family member, have an interest of less than 10%, and the related person is not a general partner of, and does not hold another position in, the partnership.

(iv)

transactions, such as the receipt of dividends, in which all stockholders receive proportional benefits;

(v)

transactions involving competitive bids;

(vi)

transactions involving the rendering of services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority; and

(vii)

transactions with a related person involving services as a bank depositary of funds, transfer agent, registrar, trustee under a trust indenture, or similar services.

Transactions with Related Persons in 2018

There were no related person transactions in 2018.

Compensation Matters

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Compensation Committee Interlocks and Insider Participation

No member of the Compensation and Benefits Committee has served as one of our officers or employees at any time. None of our executive officers serves as a member of the compensation committee of any other company that has an executive officer serving as a member of our Board. None of our executive officers serves as a member of the board of directors of any other company that has an executive officer serving as a member of our Compensation and Benefits Committee.

Compensation Consultant

The Compensation and Benefits Committee directly retained an independent consultant, Pay Governance. Pay Governance provided advice during 2018 as requested by the Compensation and Benefits Committee on the amount and form of certain executive compensation components, including, among other items, advising on executive compensation market practices and trends, insights on executive compensation and relevant SEC and proxy advisory firm developments, and an analysis and review of the compensation plans for executives. See “Compensation Discussion and Analysis—Executive Compensation Policies and Practices—What We Do—The Compensation Committee Retains, an Independent Compensation Consultant.” The Compensation and Benefits Committee performed its annual assessment of the consultant’s independence and found no conflict of interest. In its assessment, the Compensation and Benefits Committee considered, among other matters: that Pay Governance provides no other services to the Company; the amount of fees

 

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Corporate Governance (continued)

 

 

 

received from the Company by Pay Governance as a percentage of Pay Governance’s total revenue; the policies and procedures that Pay Governance has in place to prevent conflicts of interest; any business or personal relationships between the consultant(s) at Pay Governance performing consulting services and any Compensation and Benefits Committee members or any executive officer; and any ownership of Company stock by the consultant(s). In addition to information provided by Pay Governance, the Company utilized broad-based comparative compensation survey data from Willis Towers Watson, which survey data was not customized for the Company (other than to remove insurance and financial service companies), in order to assist the Company with its general understanding as to whether its compensation programs were competitive with the market.

Recovery of Incentive Compensation

The Alcoa Corporation 2016 Stock Incentive Plan, as amended and restated (the “2016 Stock Incentive Plan”), and the Annual Cash Incentive Compensation Plan, as amended and restated (the “Annual Incentive Plan”), each provide that if the Board learns of (i) any violation of the Company’s Code of Conduct or similar codes and/or policies that results in significant financial or reputational harm to the Company, as determined in the Board’s sole discretion, then the Board will, to the extent permitted by law, effect the full or partial cancellation or recovery of awards previously granted to a former or current executive officer or (ii) any misconduct by a current or former executive officer that contributed to the Company having to restate all or a portion of its financial statements, then the Board will, to the full extent permitted by governing law, in all appropriate cases, effect the cancellation and recovery of any incentive compensation previously granted to such executive officer if: (A) the amount of the incentive compensation was calculated based upon the achievement of certain financial results that were subsequently the subject of a restatement, (B) the executive engaged in intentional misconduct that caused or partially caused the need for the restatement, and (C) the amount of the incentive compensation had the financial results been properly reported would have been lower than the amount actually awarded. Furthermore, all incentive compensation (including incentive compensation that has already vested) is subject to the terms and conditions, if applicable, of any other recoupment policy adopted by the Company from time to time or any recoupment requirement imposed under applicable laws, rules, regulations or stock exchange listing standards.

 

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2019 PROXY STATEMENT   

 

 

Beneficial Ownership

 

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who beneficially own more than ten percent of a registered class of the Company’s equity securities, to file initial reports of ownership and reports of changes in ownership of the Company’s common stock and other equity securities with the SEC within specified periods. Due to the complexity of the reporting rules, the Company undertakes to file such reports on behalf of its directors and executive officers and has instituted procedures to assist them with these obligations. Based solely on a review of filings with the SEC and written representations from the Company’s directors and executive officers, the Company believes that in 2018 all of its directors and executive officers filed the required reports on a timely basis with respect to Alcoa’s equity securities under Section 16(a).

Stock Ownership of Certain Beneficial Owners

The following table sets forth the number and percentage of shares of our common stock beneficially owned as of December 31, 2018 (unless otherwise noted) by persons we know to be the beneficial owners of more than 5% of the outstanding shares of our common stock, as reported by such stockholders to the SEC.

 

  Name and Address of Beneficial Owner    Title of Class     

Amount and Nature of

Beneficial Ownership (#)

    

Percent

of Class(1)

 

  Capital World Investors
  333 South Hope Street
  Los Angeles, CA 90071

     Common Stock        22,889,418 (2)        12.3

  Capital Research Global Investors
  333 South Hope Street
  Los Angeles, CA 90071

     Common Stock        18,631,554 (3)        10.0

  The Vanguard Group
  100 Vanguard Boulevard
  Malvern, PA 19355

     Common Stock        16,735,368 (4)        9.0

  Wellington Management Group LLP, Wellington Group
  Holdings LLP and Wellington Investment Advisors
  Holdings LLP
  c/o Wellington Management Company LLP
  280 Congress Street
  Boston, MA 02210

     Common Stock        10,619,360 (5)        5.7
1.

Percentages are based on 185,512,424 shares of Alcoa common stock outstanding as of March 1, 2019.

2.

Based solely on information contained in a Schedule 13G/A filed by Capital World Investors on February 14, 2019. Capital World Investors, a division of Capital Research and Management Company (“CRMC”), reported aggregate beneficial ownership of 22,889,418 shares, with sole power to vote 22,889,418 shares, sole power to dispose of 22,889,418 shares, shared power to vote zero shares, and shared power to dispose of zero shares.

3.

Based solely on information contained in a Schedule 13G filed by Capital Research Global Investors on February 14, 2019. Capital Research Global Investors, a division of CRMC, reported aggregate beneficial ownership of 18,631,554 shares, with sole power to vote 18,631,554 shares, sole power to dispose of 18,631,554 shares, shared power to vote zero shares, and shared power to dispose of zero shares.

4.

Based solely on information contained in a Schedule 13G/A filed by The Vanguard Group on February 11, 2019. The Vanguard Group and certain affiliated entities reported aggregate beneficial ownership of 16,735,368 shares, with sole power to vote 91,355 shares, sole power to dispose of 16,638,141 shares, shared power to vote 24,168 shares, and shared power to dispose of 97,227 shares.

5.

Based solely on information contained in a Schedule 13G filed by Wellington Management Group LLP, Wellington Group Holdings LLP, and Wellington Investment Advisors Holdings LLP (the “Wellington Entities”) on February 12, 2019. The Wellington Entities reported that the Wellington Entities collectively have aggregate beneficial ownership of 10,619,360 shares, each with the sole power to vote zero shares, sole power to dispose of zero shares, shared power to vote 4,263,195 shares, and shared power to dispose of 10,619,360 shares.

 

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2019 PROXY STATEMENT   

 

 

Beneficial Ownership (continued)

 

 

 

Stock Ownership of Directors and Executive Officers

The following table shows the ownership of Alcoa common stock, as of March 1, 2019, by each director, the NEOs, and all directors and executive officers (serving as of such date) as a group. Executive officers and directors are subject to stock ownership guidelines. Please see the “Compensation Discussion and Analysis” for a discussion of executive stock ownership guidelines and the “Stock Ownership Guideline for Non-Employee Directors” for a discussion of non-employee director stock ownership guidelines.

 

         

   Name of Beneficial Owner

 

 

Total Beneficial      

Ownership(2)       

 

 

Percentage      

of Class      

Beneficially      

Owned      

 

 

Additional      

Underlying      

Stock  Units(3)      

 

 

Total      

 

       

  Directors

 

               
       

  Michael G. Morris

 

     

 

    9,199        

 

 

     

 

 

*      

 

 

 

 

     

 

  46,392        

 

 

     

 

     55,591        

 

 

 

       

  Mary Anne Citrino

 

     

 

    8,888        

 

 

     

 

 

*      

 

 

 

 

     

 

    2,224        

 

 

     

 

     11,112        

 

 

 

       

  Timothy P. Flynn

 

     

 

  12,014        

 

 

     

 

 

*      

 

 

 

 

     

 

    2,224        

 

 

     

 

     14,238        

 

 

 

       

  Kathryn S. Fuller

 

     

 

    5,853        

 

 

     

 

 

*      

 

 

 

 

     

 

  27,206        

 

 

     

 

     33,059        

 

 

 

       

  James A. Hughes

 

     

 

    5,853        

 

 

     

 

 

*      

 

 

 

 

     

 

    2,224        

 

 

     

 

       8,077        

 

 

 

       

  James E. Nevels

 

     

 

    5,886        

 

 

     

 

 

*      

 

 

 

 

     

 

    2,224        

 

 

     

 

       8,110        

 

 

 

       

  James W. Owens

 

     

 

    7,522        

 

 

     

 

 

*      

 

 

 

 

     

 

  35,688        

 

 

     

 

     43,210        

 

 

 

       

  Carol L. Roberts

 

     

 

    5,853        

 

 

     

 

 

*      

 

 

 

 

     

 

  15,795        

 

 

     

 

     21,648        

 

 

 

       

  Suzanne Sitherwood

 

     

 

    5,853        

 

 

     

 

 

*      

 

 

 

 

     

 

    2,224        

 

 

     

 

       8,077        

 

 

 

       

  Steven W. Williams

 

     

 

  11,833        

 

 

     

 

 

*      

 

 

 

 

     

 

    2,224        

 

 

     

 

     14,057        

 

 

 

       

  Ernesto Zedillo

 

     

 

    9,526        

 

 

     

 

 

*      

 

 

 

 

     

 

  43,958        

 

 

     

 

     53,484        

 

 

 

       

  Named Executive Officers

 

                                       
       

  Roy C. Harvey(1)

 

     

 

306,152        

 

 

     

 

 

*      

 

 

 

 

     

 

341,133        

 

 

     

 

   647,285        

 

 

 

       

  William F. Oplinger

 

     

 

129,803        

 

 

     

 

 

*      

 

 

 

 

     

 

  87,209        

 

 

     

 

   217,012        

 

 

 

       

  Jeffrey D. Heeter

 

     

 

  32,234        

 

 

     

 

 

*      

 

 

 

 

     

 

  54,889        

 

 

     

 

     87,123        

 

 

 

       

  Leigh Ann Fisher

 

     

 

101,634        

 

 

     

 

 

*      

 

 

 

 

     

 

  42,583        

 

 

     

 

   144,217        

 

 

 

       

  Timothy D. Reyes

 

     

 

  27,499        

 

 

     

 

 

      

 

 

 

 

     

 

  38,302        

 

 

     

 

     65,801        

 

 

 

       

  Tómas M. Sigurðsson

 

     

 

  70,883        

 

 

     

 

 

*      

 

 

 

 

     

 

  43,939        

 

 

     

 

   114,822        

 

 

 

       

  All Directors and Executive Officers as a Group (20 individuals)

 

     

 

817,113        

 

 

     

 

 

*      

 

 

 

 

     

 

873,951        

 

 

     

 

1,691,064        

 

 

 

*

Indicates that the percentage of beneficial ownership does not exceed 1%, based on 185,512,424 shares of Company common stock outstanding as of March 1, 2019.

(1)

Mr. Harvey also is a director of the Company.

(2)

This column shows beneficial ownership of Company common stock as calculated under SEC rules. This column includes shares held of record, shares held by a bank, broker or nominee for the person’s account, shares held through family trust arrangements, shares held jointly with the named individuals’ spouses, vested share units held by non-employee directors that are payable upon separation from service from the Board, and for executive officers, share equivalent units held in the Company’s retirement savings plan that confer voting rights through the plan trustee with respect to shares of Company common stock as follows: Mr. Harvey, 871; Mr. Oplinger, 526; and Ms. Fisher, 1,128. This column also includes shares of Company common stock that may be acquired under employee stock options that are exercisable as of March 1, 2019 or will become exercisable within 60 days thereafter as follows: Mr. Harvey, 261,731; Mr. Oplinger, 50,143; Mr. Heeter, 11,787; Ms. Fisher, 78,826; Mr. Reyes, 7,354; Mr. Sigurðsson, 46,039; and all executive officers as a group 483,628. Non-employee directors do not have Company stock options. This column does not include performance-based restricted share units or time-based restricted share units granted to the executive officers that will not or could not be earned and/or paid within 60 days of March 1, 2019.

 

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2019 PROXY STATEMENT   

 

 

Beneficial Ownership (continued)

 

 

 

(3)

For executive officers and non-employee directors, respectively, this column includes deferred share units held under the deferred compensation plan for executives and deferred share units (acquired at Separation due to certain directors’ service on the board of our former parent company) pursuant to the Deferred Fee Plan. Deferred share units are payable in cash and do not have voting rights. For non-employee directors, this column includes unvested restricted share units, which have time-based vesting and are payable following a director’s separation from service from the Board, pursuant to the terms of the Company’s Non-Employee Director Compensation Policy. For executive officers, this column includes unvested time-based awards of restricted share units and stock options that will not or could not be earned and/or paid within 60 days of March 1, 2019. For executive officers, this column does not include performance restricted share units, which, in addition to service-based vesting criteria, have performance-based criteria that render the total amount of shares ultimately issuable indeterminable until such awards are deemed earned and payable by the Compensation and Benefits Committee.

 

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2019 PROXY STATEMENT   

 

 

Item 2 Ratification of the Appointment of Independent Auditor

 

LOGO

 

Under its charter, the Audit Committee of the Board has sole authority and is directly responsible for the appointment, retention, compensation, oversight, evaluation, and termination of the independent registered public accounting firm (the “independent auditors”) retained to audit the Company’s financial statements.

The Audit Committee evaluated the qualifications, performance, and independence of the Company’s independent auditors, and based on its evaluation, has appointed PricewaterhouseCoopers LLP as the Company’s independent auditors for fiscal year 2019. PricewaterhouseCoopers LLP served as the Company’s independent auditors during 2018. The independent auditors have unrestricted access to the Audit Committee to discuss audit findings and other financial matters. The Audit Committee believes that PricewaterhouseCoopers LLP is knowledgeable about the Company’s operations and accounting practices. The Audit Committee and the Board believe that the retention of PricewaterhouseCoopers LLP to serve as the Company’s independent auditors is in the best interests of the Company and its stockholders.

The Audit Committee is responsible for the approval of the engagement fees and terms associated with the retention of PricewaterhouseCoopers LLP. The Audit Committee considers whether the services provided by PricewaterhouseCoopers LLP are compatible with maintaining the independence of the Company’s independent auditors. In addition to assuring the regular rotation of the lead audit partner as required by law, the Audit Committee is involved in the selection and evaluation of the lead audit partner and considers whether, in order to assure continuing auditor independence, there should be a regular rotation of the independent auditors.

Although the Bylaws do not require that we seek stockholder ratification of the appointment of PricewaterhouseCoopers LLP as our independent auditors, we are doing so as a matter of good corporate governance. If the stockholders do not ratify the appointment, the Audit Committee will reconsider the selection of PricewaterhouseCoopers LLP.

Representatives of PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions from stockholders.

 

The Board of Directors recommends a vote “FOR” Item 2, to ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent auditor for 2019.

 

 

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2019 PROXY STATEMENT   

 

 

Item 2 Ratification of the Appointment of Independent Auditors (continued)

 

 

 

Report of the Audit Committee

In accordance with its charter, the Audit Committee of the Board is responsible for assisting the Board to fulfill its oversight of:

 

 

the integrity of the Company’s financial statements and internal controls,

 

the Company’s compliance with legal and regulatory requirements,

 

the independent auditors’ qualifications and independence, and

 

the performance of the Company’s internal audit function and independent auditors.

It is the responsibility of Alcoa’s management to prepare the Company’s financial statements and to develop and maintain adequate systems of internal accounting and financial controls. The Company’s internal auditors are responsible for conducting internal audits intended to evaluate the adequacy and effectiveness of the Company’s financial and operating internal control systems.

PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm for 2018 (the independent auditor), is responsible for performing an independent audit of the Company’s consolidated financial statements and issuing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States of America (GAAP) and/or other applicable principles. The independent auditors also review the Company’s interim financial statements in accordance with applicable auditing standards.

In evaluating the independence of PricewaterhouseCoopers LLP, the Audit Committee has (i) received the written disclosures and the letter from PricewaterhouseCoopers LLP required by applicable requirements of the Public Company Accounting Oversight Board (PCAOB) regarding the audit firm’s communications with the Audit Committee concerning independence, (ii) discussed with PricewaterhouseCoopers LLP the firm’s independence from the Company and management and (iii) considered whether PricewaterhouseCoopers LLP’s provision of non-audit services to the Company is compatible with the auditors’ independence. In addition, the Audit Committee assures that the lead audit partner is rotated at least every five years in accordance with SEC and PCAOB requirements, and considered whether there should be a regular rotation of the audit firm itself in order to assure the continuing independence of the outside auditors. The Audit Committee has concluded that PricewaterhouseCoopers LLP is independent from the Company and its management.

The Audit Committee has reviewed with the independent auditors and the Company’s internal auditors the overall scope and specific plans for their respective audits, and the Audit Committee regularly monitors the progress of both in assessing the Company’s compliance with Section 404 of the Sarbanes-Oxley Act, including their findings, required resources, and progress to date.

At every regular meeting, the Audit Committee meets separately, with the independent auditor and the Company’s Vice President—Internal Audit, with and without management present, to review the results of their examinations, their evaluations of the Company’s internal controls, and the overall quality of the Company’s accounting and financial reporting. The Audit Committee also meets separately at its regular meetings with the Chief Financial Officer, the Controller, the General Counsel, and the Chief Ethics and Compliance Officer.

The Audit Committee has met and discussed with management and the independent auditors the fair and complete presentation of the Company’s financial statements. The Audit Committee has also discussed and reviewed with the independent auditors all matters required to be discussed under the rules adopted by the PCAOB. The Audit Committee has discussed significant accounting policies applied in the financial statements, as well as alternative treatments. Management has represented that the consolidated financial statements have been prepared in accordance with GAAP, and the Audit Committee has reviewed and discussed the audited consolidated financial statements with both management and the independent auditors.

Relying on the foregoing reviews and discussions, the Audit Committee recommended to the Board, and the Board approved, inclusion of the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, for filing with the SEC. In addition, the Audit Committee has approved, subject to stockholder ratification, the selection of PricewaterhouseCoopers LLP as the Company’s independent auditor for 2019.

The Audit Committee

Carol L. Roberts, Chair

James A. Hughes

Suzanne Sitherwood

Ernesto Zedillo

 

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Item 2 Ratification of the Appointment of Independent Auditors (continued)

 

 

 

Audit Committee Pre-Approval Policy

The Audit Committee has adopted policies and procedures for pre-approval of audit, audit-related, tax, and other services, and for pre-approval of fee levels for such services. These procedures require that the terms and fees for the annual audit service engagement be approved by the Audit Committee. The Audit Committee is required to pre-approve the services performed by the independent auditor in order to assure that the provision of such services does not impair the auditor’s independence. Unless a type of service to be provided by the independent auditor has received pre-approval under this policy, it will require specific pre-approval by the Audit Committee before the service is provided. Any proposed services exceeding pre-approved cost levels under the policy will require specific pre-approval by the Audit Committee before the service is provided. The term of any pre-approval is 12 months from the date of pre-approval, unless the Audit Committee specifically provides for a different period. The Audit Committee will periodically revise the list of pre-approved services, based on subsequent determinations. Under the policy, the Audit Committee has delegated limited pre-approval authority to the Chair of the Audit Committee; the Chair is required to report any pre-approval decisions to the Audit Committee at its next scheduled meeting. All services set forth in the following table were approved by the Audit Committee before being rendered.

Auditor Fees

The following table shows fees for professional services rendered by PricewaterhouseCoopers LLP for the fiscal year ended December 31, 2018 and December 31, 2017 (in thousands).

 

      2018      2017  

  Audit Fees

   $ 7,822      $ 7,737  

  Audit-Related Fees

   $ 32      $ 102  

  Tax Fees

   $ 44      $ 41  

  All Other Fees

   $ 23      $ 22  

  Total

   $ 7,921      $ 7,902  

Audit Fees consisted of fees related to the annual integrated audit of the Company’s consolidated financial statements and review of the interim financial statements, statutory audits, and issuance of comfort letters and consents, and effects of foreign currency exchange rates on the audit fee.

Audit-Related Fees consisted of fees relating to audits of employee benefit plans, agreed-upon or expanded audit procedures for accounting or regulatory requirements and compliance audits.

Tax Fees consisted of fees relating to international tax support.

All Other Fees consisted of fees relating to a captive insurance company audit and for subscription to PricewaterhouseCoopers’s online resource.

 

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2019 PROXY STATEMENT   

 

 

Item 3 Advisory Vote to Approve 2018 Named Executive Officer Compensation

 

LOGO

 

As required by Section 14A of the Exchange Act, the Board is asking you to approve, on an advisory basis, the executive compensation programs and policies and the resulting 2018 compensation of the NEOs listed in the “Summary Compensation Table” in this Proxy Statement, commonly referred to as the “Say on Pay” vote. At the 2017 Annual Meeting, stockholders voted to hold an advisory “Say on Pay” vote on an annual basis. Accordingly, Alcoa has determined to submit an annual advisory vote on our executive compensation program to our stockholders at each annual meeting until the Company seeks another advisory vote on the frequency of the advisory vote on executive compensation, which is anticipated to occur at the 2023 Annual Meeting.

The Say on Pay vote is advisory; therefore, the result will not be binding on the Company, the Board, or the Compensation and Benefits Committee and it will not affect, limit or augment any existing compensation or awards. The Compensation and Benefits Committee will, however, take into account the outcome of the vote when considering future compensation arrangements. In 2018, our Say on Pay proposal received support from approximately 96% of the shares voted at our Annual Meeting.

You should read the “Compensation Discussion and Analysis” and the compensation tables in determining whether to approve this proposal.

The Board recommends that the stockholders approve the following resolution:

RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed in the Company’s Proxy Statement for the 2019 Annual Meeting of Stockholders pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, the executive compensation tables and the related narrative discussion, is hereby APPROVED.

 

The Board of Directors recommends a vote “FOR” Item 3, advisory vote to approve 2018 named executive officer compensation.

 

 

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Executive Compensation

 

LOGO

 

Summary

In 2018, we focused our efforts on strengthening our Company to deliver on our strategic priorities and building on our position as a global leader in bauxite, alumina, and aluminum products through all market cycles.

The compensation programs described below in the Compensation Discussion and Analysis (“CD&A”) have been developed by the Compensation and Benefits Committee of Alcoa (for purposes of this section, the “Compensation Committee” or the “Committee”). Certain compensation programs were developed by the Compensation and Benefits Committee of the board of directors of Alcoa Inc. (subsequently renamed Arconic Inc., the “Arconic Compensation Committee”) prior to Separation and subsequently retained by the Company following review by our Compensation Committee.

Overview of 2018 Performance-Based Compensation

In early 2018, the Committee undertook an evaluation of our pay-for-performance practices with the goals of motivating our executive leadership team and strengthening stockholder alignment, while ensuring that unnecessary risk was appropriately mitigated within our pay programs. The result of this evaluation included the following with respect to our 2018 compensation:

 

The Committee continues to review the compensation elements of our NEOs relative to similarly situated officers in their respective peer groups and to align those components based on the experience and contributions of each NEO.

 

Our annual IC plan had several design changes: (i) addition of Adjusted EBITDA excluding special items (not normalized) as further described below, which better aligns our IC payout with the market experience of our stockholders; (ii) weighting financial measures at 70% and non-financial measures at 30% (from 80% and 20%, respectively, for 2017) to reinforce the importance of safety to the Company; (iii) increase of the Safety and Environmental metric weighting from 10% to 20%, further emphasizing the importance of the environment and focusing the organization on several safety initiatives launched in 2018; and (iv) elimination of the individual multiplier (however, the Committee continues to evaluate NEO individual contributions when determining IC payouts).

 

Maintaining the equity mix for our NEOs at 60% performance-based restricted share units (“PRSUs”) (at target), 20% stock options, and 20% time-based restricted share units (“RSUs”).

 

For the PRSUs granted in 2018, establishing a three-year cumulative performance cycle from January 1, 2018 through December 31, 2020 that maintains equally-weighted performance metrics of return on capital (“ROC”) improvement and TSR (relative to the S&P 500 Index); we continue to believe that these metrics strengthen the alignment between executives’ and stockholders’ interests.

In addition, the Committee established performance metrics and targets for both the 2018 IC under our Annual Incentive Plan and the 2018 tranche of the PRSU awards granted in 2016 by the Arconic Compensation Committee (the “legacy Arconic PRSU awards”), which were each measured over the one-year period of January 1, 2018 through December 31, 2018. The Company assumed the legacy Arconic PRSU awards at the time of the Separation.

The Compensation Committee believes that we have very strong pay for performance alignment with stockholders. While we made great strategic progress, and achieved certain targets, we did not achieve all of them. As a result, our overall metric performance under the 2018 IC was at 63.5% of target, and we had below target performance as to the 2018 tranche of the legacy Arconic PRSUs granted in 2016. The 2016 legacy Arconic PRSU awards vested with an aggregate pay-out of either 35.7% or 38.3% of target, depending on the NEO’s associated legacy Arconic business unit.

With respect to the legacy Arconic PRSU awards, the 2018 tranche of the 2016 PRSU award value is computed in accordance with ASC Topic 718 and included in the 2018 row of the “Stock Awards” column of the SCT. The performance goals under the legacy 2016 PRSU awards were established annually for each tranche, and therefore the 2018 tranche is included in addition to the grant date fair value of the 2018 PRSU awards, which have a three-year performance period. 2018 represents the final tranche of the legacy PRSUs, as all performance periods for legacy Arconic PRSU awards have been completed.

 

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2019 PROXY STATEMENT   

 

 

Executive Compensation | Compensation Discussion and Analysis | Executive Compensation Philosophy

 

 

 

Compensation Discussion and Analysis

LOGO

This CD&A describes Alcoa’s executive compensation philosophy and the pay programs applicable to the below-referenced NEOs in 2018.

The 2018 NEOs are comprised of our President and Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), and the next three most highly compensated executive officers of Alcoa (other than the CEO and CFO) at December 31, 2018. A 6th NEO is included, Tómas M. Sigurðsson, who assumed a new role with Alcoa effective November 1, 2018 as Senior Vice President, Strategic Alliances and, as such, is no longer an executive officer for SEC purposes.

 

 

Roy C. Harvey, President and CEO

 

William F. Oplinger, Executive Vice President and CFO

 

Jeffrey D. Heeter, Executive Vice President, General Counsel and Secretary

 

Leigh Ann Fisher, Executive Vice President and Chief Administrative Officer

 

Timothy D. Reyes, Executive Vice President and President Aluminum

 

Tómas M. Sigurðsson, Senior Vice President, Strategic Alliances

This CD&A is organized as follows: (i) Executive Compensation Philosophy; (ii) Executive Compensation Policies and Practices; (iii) Stockholder Engagement and 2018 Say-on-Pay vote; (iv) Executive Compensation Process and 2018 Executive Compensation; (v) Section 162(m); (vi) Other Compensation Plans and Arrangements of Alcoa; and (vii) Double-Trigger Termination and Change in Control Terms in Annual Incentive and LTI Awards.

Executive Compensation Philosophy

 

Our executive compensation philosophy is based on three guiding principles to drive pay-for-performance and alignment of the compensation program with the interests of our stockholders:

 

  1.

Target total compensation at the median of market, while using the annual and long-term equity incentive plans to reward exceptional performance and attract and retain exceptional talent. The Committee seeks to maintain a competitive level and mix of pay reflective of the market in which we compete for talent. We do this by reviewing the levels and mix of compensation paid to executive officers in similar positions within our peer group. The Committee reviews each NEO’s compensation relative not only to their respective peer group but also based on their contributions to Alcoa.

  2.

Ensure that equity is the most significant portion of total compensation for NEOs, which aligns our NEOs’ interests with those of our stockholders.

  3.

Choose annual and LTI metrics that focus management’s actions on achieving the greatest possible positive impact on financial performance, without creating undue risk.

The Committee used its experience and business judgment to determine the appropriate compensation metrics, targets, and awards for our executive officers, including the NEOs, in 2018. As part of this determination, the Committee assessed numerous factors, including:

 

 

Individual, business unit, and corporate performance;

 

Market positioning, based on peer group data, targeting the market median;

 

Complexity and importance of each NEO’s role and his or her related responsibilities;

 

Aggressiveness of the performance targets;

 

Unanticipated events impacting financial results;

 

Retention of key individuals in a competitive talent market; and

 

Leadership and growth potential.

Our executive compensation philosophy is reviewed annually and refined by the Committee to align with our strategic priorities, corporate values, business needs, stockholder value, and peer group practices.

 

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Executive Compensation | Compensation Discussion and Analysis | Executive Compensation Policies and Practices

 

 

 

Executive Compensation Policies and Practices

 

Our executive compensation programs, policies, and practices are highlighted below.

What We Do

Pay for Performance. We believe in a “pay for performance” philosophy that links executive compensation to measured performance in key financial and non-financial areas, as well as the long-term interests of stockholders. For purposes of short-term compensation, the Company evaluated performance against rigorous business metrics to incentivize performance, including with respect to free cash flow, EBITDA, safety and diversity. With respect to LTI awards, the Committee chose ROC improvement and relative TSR as the performance metrics, measured over a three-year period, in support of our strategic priority to drive returns to stockholders. In certain instances, we normalize for market factors, as further described in this CD&A.

Consider Peer Groups in Establishing Compensation. To help determine 2018 total direct compensation for our NEOs, the Committee developed and approved the use of two peer groups: one for our CEO (the “CEO Peer Group”), which consists of 16 companies (and also is used as a secondary peer group for our other NEOs), and a second group, consisting of over 250 companies, for our other NEOs (the “Non-CEO Peer Group”). The CEO Peer Group was determined primarily based upon Global Industry Classification Standards, revenue, and market capitalization. The Non-CEO Peer Group was based primarily upon revenue, and is limited to companies who also participated in the Willis Towers Watson Executive Compensation Survey, excluding financial services and insurance companies. The component companies for the CEO Peer Group are listed below.

 

Air Products and Chemicals Inc.   AK Steel Holding Corporation   Commercial Metals Company   Freeport-McMoRan Inc
Eastman Chemical Company   Huntsman Corporation   International Paper Co   Newmont Mining Corporation
Nucor Corporation   PPG Industries Inc   Praxair, Inc   Reliance Steel & Aluminum Co
Steel Dynamics Inc.   United States Steel Corporation   The Sherwin-Williams Co   WestRock Company

Review Tally Sheets. For 2018, the Committee utilized and reviewed tally sheets that summarized various elements of historic and current compensation for the CEO and other NEOs, which helped the Committee synthesize the various components of the 2018 executive compensation program. This information included compensation opportunities, actual compensation, and historical awards.

Maintain Robust Stock Ownership Guidelines. Alcoa maintains stock ownership requirements that align the interests of management with those of stockholders by requiring executives to hold substantial equity in Alcoa until retirement. Our stock ownership guidelines require that the CEO and each of the other NEOs retain equity equal in value to a multiple of their base salaries, as shown below. All of our NEOs satisfied their stock ownership requirements as of December 31, 2018, with the exception of our CEO, who only became our CEO at the time of the Separation in November 2016. These guidelines reinforce management’s focus on long-term stockholder value, their commitment to Alcoa, and require a meaningful level of ownership for all NEOs. Until stock ownership requirements are met, each NEO is required to retain 50% of any shares acquired upon the vesting of RSUs/restricted stock (time or performance based) or upon exercise of stock options. For purposes of satisfying this requirement, “shares” include shares of Alcoa Common Stock owned outright by the NEO, units in the Alcoa Retirement Savings Plan or Deferred Compensation Plan, and unvested time-based RSUs. The “Stock Ownership of Directors and Executive Officers” table on page 38 includes stock options, which do not count toward satisfying the stock ownership requirements until vested and exercised. The Committee continues to monitor the NEOs’ progression and achievement of their respective stock ownership requirements.

 

Stock Ownership Guidelines Calculations

 

Salary as of 12/31      X      Stock Ownership
Multiple
     /      Alcoa’s Average Closing Price
for December
     =      Shares Required for Stock
Ownership Guidelines

 

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Executive Compensation | Compensation Discussion and Analysis | Executive Compensation Policies and Practices (continued)

 

 

 

  Named Executive Officer    Stock Ownership Guideline
Multiple of Salary
  Roy C. Harvey    6x

  William F. Oplinger

   3x

  Jeffrey D. Heeter

   2x

  Leigh Ann Fisher

   2x

  Timothy D. Reyes

   2x

  Tomas M. Sigurðsson

    2x*
*

Applicable until such time that Mr. Sigurðsson ceased to be an executive officer.

Schedule Equity Award Grants to Promote Transparency and Consistency. Alcoa’s practice has been to grant equity awards on the same day as its first Committee meeting each year, typically held in January or February, with an exercise price for stock options based on the closing market price per share of Alcoa stock on the grant date.

Clawback Policies Incorporated into Incentive Plans. Alcoa’s Annual Incentive Plan and 2016 Stock Incentive Plan each contain “clawback” provisions regarding recoupment of compensation. In 2018, amendments to the Annual Incentive Plan and the 2016 Stock Incentive Plan were approved that further enhanced the plans’ already robust recoupment features to provide that if the Board learns of any violation of the Company’s Code of Conduct or similar codes and/or policies that results in significant financial or reputational harm to Alcoa, as determined in the Board’s discretion, then the Board may cause the full or partial cancellation and recovery of awards previously granted to any current or former executive officer.

Double-Trigger Equity Vesting in the Event of a Change in Control. Double-trigger vesting generally means that if outstanding awards under the 2016 Stock Incentive Plan are replaced by the acquirer or related entity in a change in control of Alcoa, those replacement awards will not immediately vest on a “single trigger” basis. Vesting would accelerate only if the participant is terminated without “cause” or resigns for “good reason” (as those terms are defined in the Alcoa Corporation Change in Control Severance Plan) within 24 months following the change in control. Performance-based stock awards will be converted to time-vested stock awards upon a change in control and, similarly, would be subject to the same double-trigger vesting provisions.

Pay Competitive Salaries. The Committee reviewed and set the 2018 salaries of its executive officers, including the NEOs, after consideration of the median of the peer group for their respective positions, individual contributions, previous salary changes, experience, and other factors.

Provide Appropriate Benefits. Our NEOs participate in the same benefit plans as our salaried employees for their respective countries. We provide retirement and benefit plans to senior executives for the same reasons as for other employees—to provide a competitive compensation package that offers an opportunity for retirement, savings, and health and welfare benefits. Retirement plans for senior executives generally pay the same formula amount as retirement plans for salaried employees.

Maintain a Conservative Compensation Risk Profile. We review our compensation risk profile on an annual basis. The Committee periodically evaluates the risk profile of our compensation programs and when establishing policies and approving annual and LTI plan designs. Additionally, the Board annually considers risks related to compensation in its oversight of enterprise risk management. These evaluations include a consideration of the ways in which we believe compensation risk is effectively managed or mitigated, including as follows:

 

The use of corporate-wide metrics encourages cooperation between businesses by focusing on the same goals;

 

The mix between short-term and long-term incentives, and balance between cash and equity programs;

 

Caps on incentives;

 

Use of multiple financial and nonfinancial performance measures in our incentive plans;

 

Discretion retained by the Committee to adjust awards;

 

Stock ownership guidelines requiring holding substantial equity in Alcoa until retirement;

 

Clawback policies applicable to all forms of annual and LTI compensation;

 

Anti-hedging and anti-pledging provisions in the insider trading policy; and

 

Restricting stock option awards to 20% of the overall value of equity awards to NEOs.

 

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Executive Compensation | Compensation Discussion and Analysis | Executive Compensation Policies and Practices (continued)

 

 

 

The Compensation Committee Retains an Independent Compensation Consultant. In 2018, the Committee directly retained an independent compensation consultant, Pay Governance, that provided advice as requested by the Committee on the amount and form of certain executive compensation, including, among other items, executive compensation best practices, insights concerning SEC and say-on-pay developments, and analysis and review of Alcoa’s compensation plans for executives. The independent consultant did not provide any services to Alcoa other than the services provided directly to the Committee. Alcoa utilized broad-based comparative compensation survey data from Willis Towers Watson, which was not customized for Alcoa (other than to remove insurance and financial services companies), to assist with its general understanding as to whether its compensation programs were competitive with the market.

What We Don’t Do

No Employment Contracts. We do not have employment contracts with any of our NEOs.

No Short Selling, Hedging or Pledging of Alcoa Stock. Short sales of Alcoa securities (i.e., sales of securities that are not then owned) and derivative or speculative transactions, including puts and calls, in Alcoa securities by our directors, officers and employees are prohibited. No director, officer or employee or any designee of such director, officer or employee is permitted to purchase or use financial instruments (including prepaid variable forward contracts, equity swaps, collars, and exchange funds) that are designed to hedge or offset any decrease in the market value of Alcoa securities. Directors and officers are prohibited from holding Alcoa securities in margin accounts and from pledging Alcoa securities as collateral.

No Excise Tax Gross-Ups for Participants in the Change in Control Severance Plan. The Change in Control Severance Plan provides that no excise or other tax gross-ups will be paid, and that severance benefits will be available only upon termination of employment for “good reason” by an officer or without cause by Alcoa. For a discussion of the Alcoa Corporation Change in Control Severance Plan, see “Other Compensation Plans and Arrangements of Alcoa” and “Potential Payments Upon Termination or Change in Control.”

No Significant Perquisites. Consistent with our executive compensation philosophy, we limit the perquisites provided to executive officers to business-related relocation and international assignments that serve reasonable business purposes.

Limited Tax Gross-Ups Reserved for Certain Critical Business-Related Purposes. Alcoa does not provide our NEOs with tax gross-ups or reimbursements on perquisites, other than in limited circumstances for business-related relocation and international assignments which are deemed to be in the best interests of the Company to retain our executive talent, and are consistent with market practice.

No Dividend Equivalents on Stock Options and Stock Appreciation Rights, and No Payment of Dividend Equivalents on Unvested Stock Awards. Alcoa currently does not pay a regular dividend. If and to the extent that we determine to pay dividends in the future, dividend equivalents would be accrued and paid on certain awards only if and when such awards vest. Such dividend equivalents would be calculated at the same rate as any dividends paid on our common stock. Dividend equivalents would not be paid on stock options or stock appreciation rights. Alcoa paid accrued dividends (prior to Separation) in 2018 associated with the 2015 legacy LTI awards from Arconic.

No Discounting of Stock Options or Repricing of Underwater Stock Options (including cash-outs). The 2016 Stock Incentive Plan prohibits the discounting and the repricing of stock options, including cash-outs, without stockholder approval.

Stockholder Engagement and 2018 Say-on-Pay Vote

 

Routine and consistent investor outreach is fundamental to our commitment to engagement, communication, and transparency with our stockholders. Throughout the year, we proactively maintain relationships with our largest institutional stockholders, representing over 50% of our outstanding shares, and make efforts to be in contact with as many stockholders as possible, to solicit feedback and ensure our Board and management have insight into the issues that are most important to our stockholders. For example, in 2018, we incorporated stockholder feedback into the development of our capital allocation program that we executed in 2018 and have further developed for longer-term strategy.

 

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Executive Compensation | Compensation Discussion and Analysis | Stockholder Engagement and 2018 Say-on-Pay Vote (continued)

 

 

 

Stockholders have expressed support for Alcoa’s compensation programs, as evidenced by our 2018 Say-on-Pay vote (approximately 96% of the votes cast were in favor of the proposal). In addition, stockholders have provided positive feedback to us on our use of the ROC improvement and relative TSR metrics in our LTI program. As a result, the Committee did not make any substantial changes to Alcoa’s compensation programs for 2019. Additionally, the Committee will consider stockholder input, including the advisory Say-on-Pay vote, as it evaluates the design of executive compensation programs and specific compensation decisions for executive officers in the future. We communicate with our stockholders through various methods, all of which are designed to keep stockholders apprised of the Company’s operations, including through participation in numerous investor conferences, and maintain consistent contact with investors throughout every quarter.

Executive Compensation Process and 2018 Executive Compensation

 

The Committee followed the process illustrated below in determining the CEO’s and other NEOs’ compensation for 2018:

 

 

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To attract, motivate, align, and retain high performing executives, we designed our executive compensation program to target total compensation at the median of market, while providing cash and equity incentives that motivate exceptional performance.

Since demanding leadership challenges continue to confront the aluminum industry, the potential of an above target award of annual IC and LTI compensation is a proven, major retention factor, with a demonstrable impact on motivating managers to achieve strong operational and financial performance. While the reduced payout slope from target to minimum generally is steep, Alcoa also established payout multiples for overachievement that can be earned only with significant upside performance.

Alcoa designed its 2018 executive compensation program to pay for performance, with equity as the most significant portion of total compensation. As with last year, the Committee approved weighting performance-based incentives commensurate with each NEO’s level of responsibility. For 2018, 91% of our CEO’s target compensation and 77% to 83% of our other NEOs’ target compensation was incentive, performance-based and/or at-risk, with the remaining amounts in the form of base salary.

We established performance metrics and targets at the beginning of 2018 for the Annual Incentive Plan, the 2018 tranche of the legacy Arconic PRSU awards granted in 2016, and our 2018 three-year cumulative PRSU program.

 

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Executive Compensation | Compensation Discussion and Analysis | Components of 2018 Executive Compensation Program

 

 

 

Components of 2018 Executive Compensation Program

 

Component   Purpose   Design
   
Base Salary (cash)  

Base salary compensation reflects the experience of the NEO and expected day-to-day contributions, supported by competitive market data.

 

  Reviewed at least annually to consider changes in responsibility, experience, and market competitiveness.
   

Annual Incentive Compensation

(short-term cash opportunities)

  Short-term, at-risk pay designed to motivate achievement of annual performance goals in support of our strategic priorities.  

Market competitive targets established for NEOs.

 

Performance-based annual financial and non-financial metrics (EBITDA, Free Cash Flow, Safety, Environmental and Diversity). There are no payouts if performance is below threshold, and participants have an opportunity for above target payout when targets are exceeded.

 

   

Long-Term Incentive

(long-term equity opportunities)

  Long-term, at-risk pay designed to balance short-term at-risk pay, align the interests of executives with stockholders, support our strategic priorities, encourage executive retention, and align our programs with market practices.  

Our NEOs receive LTI compensation opportunities in three parts:

 

1)  PRSUs, to reward performance based on Relative TSR and ROC improvement;

2)  Time-Based RSUs, to retain NEOs through the challenges of a commodity driven business; and

3)  Stock Options, to reward solid business decisions that increase the stock price in alignment with the benefit realized by stockholders.

 

2018 Base Salaries

Each NEO’s base salary was reviewed in early 2018 with the following primary considerations: experience in the position, the median of the peer group for their respective positions, and individual contributions. Alcoa pays salaries to its NEOs to ensure an appropriate level of fixed compensation that enables the attraction and retention of highly skilled executives and mitigates the incentive to assume highly risky business strategies to maximize annual cash incentive compensation. The base salaries for our CEO and other NEOs were reviewed at the beginning of 2018. In an effort to link the NEOs’ base salaries more closely with the market median, the Committee adjusted each NEO’s base salary, as reflected in the below table. In particular, the 2017 base salaries for Messrs. Sigurðsson and Heeter and for Ms. Fisher were found to be below the market median. The 2018 base salaries were increased for all NEOs to more closely approximate market median for their respective positions.

 

  Name   

Salary as of        

March 1, 2017        

  

Salary as of        

March 1, 2018        

  Roy C. Harvey

 

   $925,000        

 

   $975,000        

 

  William F. Oplinger

 

   $605,000        

 

   $635,250        

 

  Jeffrey D. Heeter

 

   $390,000        

 

   $430,950        

 

  Leigh Ann Fisher

 

   $390,000        

 

   $419,250        

 

  Timothy D. Reyes

 

   $425,000        

 

   $437,750        

 

  Tómas M. Sigurðsson*

 

   $473,125        

 

   $501,512        

 

*

Mr. Sigurðsson’s salary is paid locally in Icelandic króna (ISK). Amounts herein and in all compensation tables, unless otherwise noted, were converted from ISK into U.S. Dollars and reflect the currency exchange rate reflected in Note 1 to the SCT.

 

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Executive Compensation | Compensation Discussion and Analysis | 2018 Annual Incentive Compensation

 

 

 

2018 Annual Incentive Compensation

Our IC plan had several design changes for 2018 as follows: (i) addition of Adjusted EBITDA excluding special items (not normalized) as further described below, which better aligns our IC payout with the experience of our stockholders, (ii) weighting financial measures at 70% and non-financial measures at 30% (from 80% and 20%, respectively, for 2017) to reinforce the importance of safety to the Company; (iii) increase of the Safety and Environmental metric weighting from 10% to 20%, further emphasizing the importance of the environment and focusing the organization on several safety initiatives launched in 2018, and (iv) elimination of the individual multiplier (however, the Committee continues to evaluate NEO individual contributions when determining IC payouts).

We based annual cash incentive opportunities for 2018 on the following parameters plus the individual goals and contributions of each NEO:

 

 

70% financial targets, based upon free cash flow (25%) and adjusted EBITDA excluding special items (25%), both normalized, and adjusted EBITDA excluding special items not normalized (20%) metrics, as more fully described below; and

 

30% non-financial targets, consisting of safety and GHG emission reductions (20%) and diversity (10%) metrics, each as more fully described below.

The below chart describes the specific 2018 metrics and results for Alcoa’s 2018 IC awards:

 

  Performance

  Metrics(1)

 

Metric

 Weight 

 

 Performance 

Minimum

(0%)

 

 Performance 

Threshold

(50%)

 

 Performance 

Target

(100%)

 

 Performance 

Maximum

(150%)

 

 Performance 

Super-

Maximum

(200%)

 

 Performance 

Results

   Achievement %   

  Weighted 

Result

  Financial Metrics (70%)

  Free Cash Flow-normalized ($M)(2)

  25%   260   410   585   885   1,185   47   0%   0.0%

  Adjusted EBITDA excluding special items-normalized ($M)(2)

  25%   2,009   2,184   2,359   2,559   2,759   2,014   1%   0.4%

  Adjusted EBITDA excluding special items -not normalized ($M)(2)

  20%   1,100   1,500   2,352   3,200   3,600   3,101   144%   28.8%

  Non-Financial Metrics (30%)

  Safety and Environmental

  FSI-Actual (count)(3)

  7.5%     5   4     2   3   150%   11.3%

  Zero Fatalities (count)(4)

  7.5%   1         0   0   200%   15.0%

  GHG emission reduction (Kmetric tons)

  5.0%     23.2   116.5     209.8   -145.0   0%   0.0%

  Diversity

  Global Women (%)(5)

  10%     14.6%   15.1%     15.3%   14.9%   80%   8.0%

  Total

  100%               63.5%
(1)

The maximum payout for each financial and non-financial metric is 200%.

(2)

Please see “Additional Information Regarding Financial Metrics” below for more information about how these numbers are calculated from Alcoa’s consolidated financial statements, and how normalization is applied.

(3)

The Fatal and Serious injuries (“FSI”)-Actual safety metric focuses on reducing the number of fatal and serious injuries/illnesses that are life-altering or life-ending and would be capped at a target pay-out if there is any fatality during the annual performance period.

(4)

This metric would only have a pay-out if there are zero fatalities.

(5)

This represents the percentage of female employees globally.

 

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Executive Compensation | Compensation Discussion and Analysis | 2018 Annual Incentive Compensation (continued)

 

 

 

Additional Information Regarding Financial Metrics

For incentive compensation purposes, the Company’s metrics for Free Cash Flow-normalized and Adjusted EBITDA excluding special items-normalized are calculated by taking Alcoa’s Free Cash Flow and Adjusted EBITDA (which are derived from the Company’s audited consolidated financial statements), normalizing such metrics for certain factors not in management’s control, and adjusting such metrics to exclude special items. Free Cash Flow and Adjusted EBITDA excluding special items are non-GAAP financial measures. Please see Attachment A for further discussion of the financial metrics as well as a reconciliation to the most directly comparable GAAP measures.

With respect to the normalized measures of Free Cash Flow and Adjusted EBITDA excluding special items, we normalize for aluminum (including premiums) and alumina pricing and currency exchange rates, each of which may have significant effects on financial results and are not impacted by management performance or otherwise within management’s control. For 2018, we also normalized for raw material costs for similar reasons. Additionally, we adjust for certain items deemed to be special items to the Company’s financial results. A description of the normalization and adjustment of these factors follows:

 

 

London Metal Exchange (“LME”) Pricing and Alumina Pricing Index (“API”): Without normalization, in years when the LME price of aluminum, or the price of alumina through the API, rises rapidly relative to plan (i.e., our forecasts), annual incentive compensation would be less effective as a performance incentive because management would receive an unearned benefit. Conversely, when LME and API prices for aluminum and alumina, respectively, fall dramatically relative to our plan, failure to normalize would demotivate employees by placing annual incentive compensation awards out of reach for reasons beyond their control. Our use of normalization enables us to drive operational and financial performance, particularly in recent years of volatile prices.

 

 

Currency Exchange Rates: Since our revenues are largely U.S. dollar-denominated, while costs in non-U.S. locations are largely denominated in local currency, the volatility of currency exchange rates may have a significant impact on earnings. As our commodities are traded in U.S. dollars, we typically have seen an inverse correlation to foreign currency exchange. Therefore, to avoid double counting, the normalization for the commodity price swings needs to be corrected by concurrent normalization of foreign exchange.

 

 

Premiums: In addition to LME, API, and foreign currency normalization, results historically have been adjusted to neutralize 50% of the fluctuations in regional aluminum premiums compared to plan.

 

 

Raw Materials: For 2018, results were normalized to neutralize 100% of the fluctuations in raw material costs compared to the plan. Similar to LME and API, when raw material costs rise rapidly relative to plan, failure to normalize would demotivate employees by placing annual incentive compensation awards out of reach for reasons beyond their control.

 

 

Special Items: Special item adjustments may be recommended to the Board for approval, such as restructuring programs, discretionary pension funding, and one-time production disruption events.

Because we generally do not hedge against fluctuations in foreign exchange rates or LME and API prices, normalization adjustments for LME, API, currency exchange rates, 50% of regional premiums, and raw material prices were made relative to the Free Cash Flow and Adjusted EBITDA excluding special items metrics used in determining the 2018 IC awards.

 

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Executive Compensation | Compensation Discussion and Analysis | 2018 Annual Incentive Compensation (continued)

 

 

 

2018 Target Annual Incentive Compensation Opportunities

In February 2018, the IC plan was reviewed, and it was determined the individual multipliers that have been historically applied were not common practice and therefore removed from the plan design. The following target incentive opportunities were set and approved by the Committee for each NEO based on his or her then-current job band and aligned with the median of applicable peer group market data.

 

       

  Named Executive Officer

 

  

Total Target

Annualized IC
Opportunity for
2018

(% of Base
Salary Earnings)

 

    

Total Target IC

Opportunity for 2018

Target $

 

    

Total IC Opportunity
for 2018

at Maximum  $(1)

 

 
     

  Roy C. Harvey

 

    

 

140%        

 

 

 

    

 

$1,353,333      

 

 

 

    

 

$2,706,666        

 

 

 

     

  William F. Oplinger

 

    

 

100%        

 

 

 

    

 

$   630,208      

 

 

 

    

 

$1,260,416        

 

 

 

     

  Jeffrey D. Heeter

 

    

 

75%        

 

 

 

    

 

$   318,094      

 

 

 

    

 

$   636,188        

 

 

 

     

  Leigh Ann Fisher

 

    

 

75%        

 

 

 

    

 

$   310,781      

 

 

 

    

 

$   621,562        

 

 

 

     

  Timothy D. Reyes

 

    

 

75%        

 

 

 

    

 

$   326,719      

 

 

 

    

 

$   653,438        

 

 

 

     

  Tómas M. Sigurðsson*

 

    

 

100%        

 

 

 

    

 

$   496,924      

 

 

 

    

 

$   993,848        

 

 

 

 

(1)

The maximum payout under the IC plan is 200% of target.

  *

Unless otherwise noted, amounts for Mr. Sigurðsson are converted from ISK into US Dollars and reflect the currency exchange rate described in Note 1 to the SCT.

2018 Annual Incentive Compensation Payout Determination and Amounts

In January 2019, the Committee met to consider 2018 Alcoa performance and individual contributions and to determine IC payouts for each NEO for 2018. At the beginning of 2018, each NEO’s performance goals and objectives were established in support of the overall organization and as to each function (as described below). The Committee undertook a qualitative review of each NEO’s contributions in determining the 2018 IC payouts, placing specific emphasis on each NEO’s roles and contributions to the success of the Company through 2018. The IC payouts reflect the achievements of the executive leadership team in a highly complex and ever-changing commodity environment. The following is a description of the Committee’s findings with respect to each NEO:

Mr. Harvey demonstrated leadership over the strategic focus of Alcoa Corporation. This focus included the deployment of a shared vision and strategy throughout the organization connecting the actions of employees to the long-term objectives of the Company. Mr. Harvey continued to oversee actions connected to our strategic priorities to reduce complexity, drive returns, strengthen the balance sheet, and drove the corporate values throughout the organization. As CEO, Mr. Harvey provided outstanding leadership and direction to the management team by guiding them through challenging financial and employee-focused decisions. Throughout the year, he maintained active engagement with the Chairman and the rest of the Board, providing full transparency on all aspects of the Company’s performance. Specifically, he concentrated on (i) safety, through targeted organizational changes, focused five-year planning and rigorous follow-through on safety related issues; (ii) strengthening the Company’s relationships with stakeholders; (iii) delivering financial results by meeting or exceeding plan targets; and (iv) strengthening the organization to support our operator-centric approach.

Mr. Oplinger demonstrated leadership of the finance, tax, treasury, and investor relations functions and made valuable contributions to the tactical and strategic decision-making of the Company. In 2018, Mr. Oplinger oversaw the strengthening of the balance sheet through the significant reduction of net pension liability and debt and continued to build the Company’s reputation among research analysts, rating agencies, and stockholders with clear investor strategy and messaging, resulting in improved corporate credit ratings.

Mr. Heeter demonstrated leadership of the legal, governance, ethics and compliance, and global security functions of the Company and provided strong business support and counsel to the executive team and the Company. In 2018, Mr. Heeter’s teams assisted in managing risks and liabilities facing the Company in the ordinary course of business; provided critical support to certain key business actions, including the establishment of the Elysis joint venture, the oversight of the common stock repurchase program and debt restructuring, and management of certain labor agreements across the globe; and continued to facilitate active and transparent engagement with the Board.

 

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Ms. Fisher demonstrated leadership of the Human Resources and Global Business Services functions, which included the design and implementation of the Company’s people development process in support of the Company’s values and overall culture, the installation of a new people system across the globe reducing complexity and enhancing the employee experience, and a continued focus on both the re-filling of the talent pipeline and driving diversity and inclusion across the organization. Ms. Fisher also championed digital transformation initiatives, driving efficiencies and productivity through automation.

Mr. Reyes demonstrated leadership of the Aluminum business unit, the largest business unit in Alcoa, including oversight of all operational aspects with a concentrated focus on safety resulting in improved safety performance. Mr. Reyes took decisive action to drive improved operational performance and competitiveness; demonstrated personal leadership of diversity initiatives, and worked with external agencies to influence and advocate for the future success of the aluminum industry.

Mr. Sigurðsson transitioned from the role of Executive Vice President and Chief Operating Officer to the role of Senior Vice President, Strategic Alliances, on November 1, 2018, with primary responsibility for managing and developing the Company’s key strategic relationships.

Based on the metrics outlined earlier in this section, Alcoa’s performance results under the 2018 IC program were 63.5% of target (before consideration of each NEO’s individual contributions). The resulting annual IC payout for our NEOs was based on the following formula, with performance and individual contributions measured from January 1, 2018 through December 31, 2018.

 

 

  Payout based on Alcoa Performance Results and Individual Contributions (January 1, 2018—December 31, 2018)

 

                 

Base

Salary Earnings ($)

(fiscal year)

 

  x   

Target Incentive  

Opportunity  

(%)  

 

  x  

Achievement

Based on

Plan Results (%)

 

  +/-  

Individual Contributions

Adjustment

 

  =  

Annual IC

Payout ($)

 

The foregoing performance determinations by the Committee and the above-described formula resulted in the following 2018 incentive compensation payout amounts to the NEOs:

 

               

  Name

 

 

    Earnings    

 

   

    IC Target %    

 

 

    IC Target $    

 

   

Financial

    Results %    

 

 

IC Based on
    Financial    
Results

 

   

Total IC %

with

Individual
  Contributions  

 

 

Total
Performance
    Based IC    

Payout

 

 
             

  Roy C. Harvey

 

  $

 

966,667

 

 

 

  140%

 

  $

 

1,353,333

 

 

 

  63.5%

 

  $

 

859,367

 

 

 

  70.0%

 

  $

 

947,333

 

 

 

             

  William F. Oplinger

 

  $

 

630,208

 

 

 

  100%

 

  $

 

630,208

 

 

 

  63.5%

 

  $

 

400,182

 

 

 

  69.8%

 

  $

 

439,885

 

 

 

             

  Jeffrey D. Heeter

 

  $

 

424,125

 

 

 

    75%

 

  $

 

318,094

 

 

 

  63.5%

 

  $

 

201,990

 

 

 

  69.8%

 

  $

 

222,030

 

 

 

             

  Leigh Ann Fisher

 

  $

 

414,375

 

 

 

    75%

 

  $

 

310,781

 

 

 

  63.5%

 

  $

 

197,346

 

 

 

  75.6%

 

  $

 

235,000

 

 

 

             

  Timothy D. Reyes

 

  $

 

435,625

 

 

 

    75%

 

  $

 

326,719

 

 

 

  63.5%

 

  $

 

207,466

 

 

 

  75.0%

 

  $

 

245,000

 

 

 

             

  Tómas M. Sigurðsson

 

  $

 

496,924

 

 

 

  100%

 

  $

 

496,924

 

 

 

  63.5%

 

  $

 

315,547

 

 

 

  50.0%

 

  $

 

248,472

 

 

 

 

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Table of Contents

 

2019 PROXY STATEMENT   

 

 

Executive Compensation | Compensation Discussion and Analysis | 2018 Equity Awards: Performance-Based Restricted Share Units, Time-Based Restricted Share Units and Time-Vested Stock Options

 

 

2018 Equity Awards: Performance-Based Restricted Share Units, Time-Based Restricted Share Units and Time-Vested Stock Options

In January 2018, Alcoa granted the 2018 LTI awards to the NEOs in order to align their interests with those of stockholders, link compensation to stock price appreciation over a multi-year period, and support retention. The 2018 LTI awards were in the form of 60% PRSUs (at target), 20% time-based RSUs, and 20% time-vested stock options. In each case, the grant value was based upon the job band of the NEO and their respective contributions to the Company at the time of grant.

Mix of Long-Term Incentive Awards

 

 

LOGO

 

 

PRSUs (60%). PRSU award performance is based on achievement against cumulative three-year performance targets (equally weighted as relative TSR and ROC improvement). Earned PRSUs will be settled in shares of common stock after the end of the three-year performance period. The maximum award level is 200% of the target award.

 

Time-based RSUs (20%). RSUs vest on the third anniversary of the grant date, providing a multi-year retention incentive.

 

Time-based stock options (20%). Stock options vest ratably over a three-year period (one-third vests each year on the anniversary of the grant date).

2018 Grants of Long-Term Incentive Awards to Each NEO

In January 2018, the Committee performed a qualitative review of each NEO’s performance, with specific review and emphasis upon their respective roles and contributions to the Company during the year, as well as a quantitative review of peer group median market compensation data. In light of each NEO’s critical role in the achievement of Company goals and performance of each NEO throughout 2017 (which included the application of their respective individual performance multipliers used for their 2017 IC payouts to their target LTI dollar amounts), the Committee granted the following 2018 LTI awards for each NEO (based on the closing price per share of the Company’s common stock on the grant date):

 

         

  Name

 

  

2018 LTI Fair Market
Value at Grant

 

    

Performance-Based
Restricted Share  Units
(Target)

 

    

Time-Based
Restricted Stock
Unit

 

    

Stock Options

 

 
       

  Roy C. Harvey

 

   $

 

7,813,034

 

 

 

    

 

87,950        

 

 

 

    

 

29,320        

 

 

 

    

 

73,290    

 

 

 

       

  William F. Oplinger

 

   $

 

2,000,775

 

 

 

    

 

22,520        

 

 

 

    

 

7,510        

 

 

 

    

 

18,770    

 

 

 

       

  Jeffrey D. Heeter

 

   $

 

1,200,529

 

 

 

    

 

13,510        

 

 

 

    

 

4,510        

 

 

 

    

 

11,260    

 

 

 

       

  Leigh Ann Fisher

 

   $

 

969,314

 

 

 

    

 

10,910        

 

 

 

    

 

3,640        

 

 

 

    

 

9,090    

 

 

 

       

  Timothy D. Reyes

 

   $

 

775,622

 

 

 

    

 

8,730        

 

 

 

    

 

2,910        

 

 

 

    

 

7,280    

 

 

 

       

  Tómas M. Sigurðsson

 

   $

 

1,430,465

 

 

 

    

 

16,100        

 

 

 

    

 

5,370        

 

 

 

    

 

13,420    

 

 

 

The 2018 PRSU awards have a performance period of January 1, 2018 through December 31, 2020. If the 2018 PRSU awards are earned, as determined by the Committee, the 2018 PRSUs will be paid out in shares of Company common stock on a one-unit to one-share basis. The amount of the 2018 PRSUs earned, if any, will be based on the Company’s performance against goals relating to the following metrics, with payout ranging from 0 to 200% of target for each NEO’s 2018 PRSU award:

 

 

ROC Improvement (50%): Return on capital improvement measured against the 2017 baseline of 7.56% (as normalized for LME and API pricing, 50% of regional premiums, foreign currency exchange rate fluctuations, and raw material prices), with the Committee reserving the discretion to normalize achievement by applying adjustments

 

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2019 PROXY STATEMENT   

 

 

Executive Compensation | Compensation Discussion and Analysis | 2018 Equity Awards: Performance-Based Restricted Share Units, Time-Based Restricted Share Units and Time-Vested Stock Options (continued)

 

 

 

(measured in basis points and determined by subtracting the baseline ROC from actual ROC results). The Committee considered the Company’s ROC goals to be challenging. Please see Attachment A for further discussion of the ROC calculation.

 

 

Relative TSR (50%): Relative TSR means total shareholder return relative to the S&P 500 Index performance over the performance period (measured in basis points and determined by subtracting S&P 500 Index TSR from the Company’s TSR, using straight line interpolation) with the pay-out achievement scale as follows:

 

0%    50%    100% (Target)    150%    200%

-5,000

 

   -2,500

 

   0%

 

   2,500

 

   5,000

 

Legacy Arconic Performance-Based Restricted Share Units—2018 Performance Targets

The legacy Arconic PRSU awards were granted in 2016 by the Arconic Compensation Committee and assumed by Alcoa at the time of Separation under the 2016 Stock Incentive Plan (and administered thereafter by the Committee). The legacy Arconic PRSU awards consist of three annual tranches, for which the performance goals were established for each tranche at the beginning of each respective year. Performance relative to the applicable goals, and the amount of shares earned for each one-year tranche of the three-year performance period, is determined annually by the Committee after the end of the one-year period. The total number of shares vested and to be paid under the legacy Arconic PRSU awards was approved by the Committee after the end of the three-year performance period.

2018 was the final tranche of the 2016 legacy Arconic PRSU awards, which were held by all NEOs (excluding Mr. Heeter, who was not eligible to participate in the Arconic PRSU program in 2016). The performance period for this tranche was measured from January 1, 2018 through December 31, 2018. In early 2018, the Committee established relative TSR and ROC metrics for this tranche, potential payout of which was based upon the following formula:

 

 

 

Payout Based on Full-Year Performance (January 1, 2018—December 31, 2018)

 

         

Target Opportunity

(Number of PRSUs)

  x   

% Achievement Based on

Alcoa Performance Targets

(relative TSR and ROC)

(100%)

 

  =   Potential Payout based on
Performance

Based on performance against the goals set forth in the below chart, the 2018 tranche of the 2016 legacy Arconic PRSU awards were earned as follows:

 

Alcoa Performance Targets

(January 1, 2018—December 31, 2018)

 

 

 

  Metric (%)

 

 

 

Weight

 

   

 

Minimum

(0%)

 

   

Threshold

(50%)

 

   

Target

(100%)

 

   

Maximum

(150%)

 

   

 

Super
Maximum
(200%)

 

   

Results

 

   

Weighted
Results

 

 
               

  ROC normalized to plan (measured in %)(1)(2)

 

   

 

50

 

 

   

 

5

 

 

   

 

6

 

 

   

 

7

 

 

   

 

8

 

 

   

 

9

 

 

   

 

6.08

 

 

   

 

27.1

 

 

               

  Relative TSR (measured in basis points)(3)

 

   

 

50

 

 

   

 

-1,667

 

 

 

   

 

-833

 

 

 

   

 

—  

 

 

 

   

 

833

 

 

 

   

 

1,667

 

 

 

   

 

-3,623

 

 

 

   

 

0.0

 

 

 

  Total

 

                                                         

 

 

 

 

27.1

 

 

 

(1)

This financial measure has not been calculated in accordance with GAAP. Please see “2018 Grants of Long-Term Incentive Awards to Each NEO” above and Attachment A for how the number is calculated from Alcoa’s audited financial statements.

(2)

ROC is normalized for LME, API, 50% regional premiums, currencies, and raw material prices.

 

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2019 PROXY STATEMENT   

 

 

Executive Compensation | Compensation Discussion and Analysis | 2018 Equity Awards: Performance-Based Restricted Share Units, Time-Based Restricted Share Units and Time-Vested Stock Options (continued)

 

 

  Named Executive Officer    2018 Tranche of Legacy
Arconic PRSU Grants  (Target)
    

2018 Tranche

Total Earned Shares for the
2016 PRSU Grants

 
   

  Roy C. Harvey

 

    

 

32,024       

 

 

 

    

 

8,679       

 

 

 

   

  William F. Oplinger

 

    

 

28,267       

 

 

 

    

 

7,661       

 

 

 

   

  Leigh Ann Fisher

 

    

 

4,143       

 

 

 

    

 

1,123       

 

 

 

   

  Timothy D. Reyes

 

    

 

4,143       

 

 

 

    

 

1,123       

 

 

 

   

  Tomas M. Sigurðsson

 

    

 

6,685       

 

 

 

    

 

1,812       

 

 

 

Legacy Arconic Performance-Based Restricted Share Units—2016 Award Payouts

The three-year performance period applicable to the legacy 2016 PRSU awards ended on December 31, 2018 and, as described above, the Committee had determined that the 2018 tranche of such award was earned. The Committee then reviewed the performance against the applicable goals of each of the tranches of the legacy 2016 PRSU awards and approved the following payouts for each of the NEOs either 35.7% or 38.3% of target depending on the applicable business unit prior to Separation:

 

       
  Named Executive Officer    2016 Performance-Based
Units (Target)
     Total Earned Shares for the
2016 PRSU Grants
(1)
     Cumulative Three-Year
Results
 
     

  Roy C. Harvey

 

    

 

96,072

 

 

 

    

 

34,331

 

 

 

    

 

35.7

 

 

     

  William F. Oplinger

 

    

 

84,801

 

 

 

    

 

32,480

 

 

 

    

 

38.3

 

 

     

  Leigh Ann Fisher

 

    

 

12,431

 

 

 

    

 

4,443

 

 

 

    

 

35.7

 

 

     

  Timothy D. Reyes

 

    

 

12,431

 

 

 

    

 

4,443

 

 

 

    

 

35.7

 

 

     

  Tomas M. Sigurðsson

 

    

 

20,057

 

 

 

    

 

7,168

 

 

 

    

 

35.7

 

 

(1)

Results for each one-year tranche were determined annually by the Committee after the end of the one-year period. The 2016 tranche was based on performance of the Global Primary Products business of Arconic for all NEOs other than Mr. Oplinger, for whom the 2016 tranche was based on Arconic Corporate performance for 10 months and Alcoa performance for 2 months, and the 2017 and 2018 tranches were based on Alcoa Corporate performance for each of the respective years. For more information regarding the amounts earned under the 2016 and 2017 tranches of the 2016 PRSU awards, please see Alcoa’s definitive proxy statements filed on March 17, 2017 and March 20, 2018, respectively.

Section 162(m)

 

While the Committee considers tax deductibility as one factor in determining executive compensation, the Committee also looks at other factors in making its decisions and retains the flexibility to award compensation that it determines to be consistent with the goals of our executive compensation program even if the awards are not deductible by us for tax purposes.

Section 162(m) of the Code generally places a $1 million limit on the amount of compensation a company can deduct in any one year for certain executive officers (and, beginning in 2018, certain former executive officers). Historically, the $1 million deduction limit generally has not applied to compensation that satisfies Section 162(m)’s requirements for qualified performance-based compensation. However, effective for taxable years beginning after December 31, 2017, the exemption for qualified performance-based compensation from the deduction limitation of Section 162(m) has been repealed, such that compensation paid to our NEOs in excess of $1 million will not be deductible unless it qualifies for the limited transition relief applicable to certain compensation arrangements in place as of November 2, 2017.

Although the Committee structured certain performance-based awards in a manner intended to be exempt from Section 162(m), and therefore not subject to its deduction limits, because of ambiguities and uncertainties as to the application and interpretation of the scope of the transition relief under the legislation repealing the performance-based compensation exemption from the Section 162(m) deduction limit, no assurance can be given that compensation intended to satisfy the requirements for exemption from Section 162(m), in fact, will. The Committee believes that stockholder interests are best served if its discretion and flexibility in awarding compensation is not restricted, even though some compensation awards may result in non-deductible compensation expenses.

 

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Executive Compensation | Compensation Discussion and Analysis | Other Compensation Plans and Arrangements of Alcoa (continued)

 

 

 

Other Compensation Plans and Arrangements of Alcoa

 

Change in Control Severance Plan

We maintain the Alcoa Corporation Amended and Restated Change in Control Severance Plan (the “CIC Severance Plan”). The CEO, CFO, and General Counsel, and other officers designated by the Committee are eligible to participate in the CIC Severance Plan. Under the CIC Severance Plan, an eligible employee who incurs a qualifying termination of employment, which is generally a termination without cause or resignation for good reason within two years following a change in control, will generally be entitled to receive:

 

cash severance equal to three times, in the case of the CEO, CFO and General Counsel, and two times, in the case of other participants, the sum of the employee’s annual base salary and his or her target incentive compensation with respect to the year of the change in control;

 

a pro-rated annual bonus;

 

continued life, accident and health benefits for up to three years, in the case of the CEO, CFO and General Counsel, and up to two years, in the case of other participants, following the qualifying termination of employment;

 

a cash lump sum amount representing the estimated equivalent of three years, in the case of the CEO, CFO and General Counsel, and two years, in the case of other participants, of Alcoa contributions to the Alcoa defined contribution plans in which the employee participates;

 

a cash lump sum amount representing the estimated incremental increase in defined benefit plan accrual or Employer Retirement Income Contributions (ERIC) that would have been accrued on behalf of the employee during the three years, in the case of the CEO, CFO and General Counsel, and two years, in the case of other participants, following the qualifying termination under the Alcoa defined benefit plans in which the employee participates, if any; and

 

reasonable outplacement services for a period of up to six months.

In addition, the eligible employee will be entitled to receive benefits under Alcoa’s post-retirement health care if the employee would have become entitled to benefits under this plan had he or she remained employed during the three years, in the case of the CEO, CFO and General Counsel, and two years in the case of other participants, following the qualifying termination. If amounts payable to an officer under the CIC Severance Plan would be subject to an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), such amounts will be reduced if necessary to maximize the after-tax payment to the officer.

Severance Agreements

Severance agreements were entered into by and between Alcoa and each of the CEO and CFO (together, the “CEO/CFO Severance Agreements”) and other NEOs (collectively, the “Officer Severance Agreements”), for the purpose of providing severance benefits to such officers upon a qualifying termination of employment that occurs other than in connection with a change in control. Payment is generally contingent upon the officer’s execution of a release of claims.

Under the CEO/CFO Severance Agreements, the officer will receive a payment of $50,000 upon a voluntary resignation where such officer provides three months’ notice to Alcoa contingent upon a release of claims. Upon an involuntary termination without cause, such officer is generally entitled to receive (i) cash severance equal to two times the officer’s annual base salary, (ii) a pro-rated annual bonus for the year in which the termination occurs, (iii) $50,000 in consideration of execution of a release of claims, (iv) continued health benefits for two years following termination, and (v) a cash lump sum amount designed to provide two years of additional pension or retirement benefits under the Company defined benefit plans or, as applicable, defined contribution plans in which the officer participates.

Under the Officer Severance Agreements, upon an involuntary termination of the officer’s employment without cause, the officer is generally entitled to receive (i) cash severance equal to the officer’s annual base salary, (ii) a pro-rated annual bonus for the year in which the termination occurs, (iii) continued health benefits for one year following termination, and (iv) either one year of additional accrual under the Alcoa defined benefit plans or a lump sum amount equal to ERIC (or equivalent non-U.S. benefit) for one year.

 

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2019 PROXY STATEMENT   

 

 

Executive Compensation | Compensation Discussion and Analysis | Double-Trigger Termination and Change in Control Terms in Annual Incentive and LTI Awards (continued)

 

 

Alcoa Corporation Deferred Compensation Plan

Under the Alcoa USA Corp. Deferred Compensation Plan, participants may defer base salary amounts and certain incentive plan awards until a later date. Generally, earnings on nonqualified deferred compensation include returns on notional investments that mirror the investment alternatives available to all salaried employees under the Alcoa Retirement Savings Plan for Salaried Employees.

Double-Trigger Termination and Change in Control Terms in Annual Incentive and LTI Awards

 

Change in Control Provisions in the Annual Incentive Plan

In the event of a change in control, officers and other key employees receiving compensation pursuant to the Annual Incentive Plan, at the discretion of the Committee, are paid a pro-rata portion of target incentive compensation for the calendar year for which awards were made, based on the days of service during such calendar year from the beginning of the calendar year through the date of the change in control.

Change in Control Provisions in the 2016 Stock Incentive Plan

The 2016 Stock Incentive Plan provides for double-trigger equity vesting in the event of a change in control (as defined in the 2016 Stock Incentive Plan). This generally means that if outstanding awards under the 2016 Stock Incentive Plan are replaced by the acquirer or related entity in a change in control of Alcoa, those replacement awards will not immediately vest on a “single trigger” basis, but vesting would accelerate only if the participant is terminated without cause or resigns for good reason (as those terms are defined in the CIC Severance Plan) within 24 months following the change in control.

Compensation Committee Report

The Compensation and Benefits Committee (the “Committee”) has:

 

1.

reviewed and discussed with management the “Compensation Discussion and Analysis” included in this Proxy Statement; and

2.

based on the review and discussions referred to in paragraph (1) above, the Committee recommended to the Board that the “Compensation Discussion and Analysis” be included in the Company’s Proxy Statement relating to the 2019 Annual Meeting of Stockholders.

The Compensation and Benefits Committee

James W. Owens, Chair

Timothy P. Flynn

Kathryn S. Fuller

James E. Nevels

Carol L. Roberts

Steven W. Williams

 

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2019 PROXY STATEMENT   

 

 

Executive Compensation (continued)

 

 

 

Summary Compensation Table

The following table sets forth information concerning the compensation