PRE 14A 1 d694370dpre14a.htm PRE 14A PRE 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

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

Check the appropriate box:

 

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

CENTURYLINK, INC.
(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):
x   No fee required.
¨   Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

   

 

  (2)  

Aggregate number of securities to which transaction applies:

   

 

  (3)  

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

   

 

  (4)  

Proposed maximum aggregate value of transaction:

   

 

  (5)   Total fee paid:
   
   

 

¨   Fee paid previously with preliminary materials.
¨   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

   

 

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Preliminary Proxy Materials

dated March 24, 2014;

Subject to completion

 

LOGO

 

2014 Notice of Annual Meeting

and Proxy Statement

and

Annual Financial Report

 

 

May 28, 2014

10:00 a.m. local time

100 CenturyLink Drive

Monroe, Louisiana


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IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 28, 2014

This proxy statement and related materials are

available at www.envisionreports.com/ctl.

All references in this proxy statement or related materials to “we,” “us,” “our,” the “Company” or “CenturyLink” refer to CenturyLink, Inc. In addition, each reference to (i) the “Board” refers to our Board of Directors, (ii) our “executives” or “executive officers” refers to our nine executive officers listed in the tables beginning on page 3 of this proxy statement, (iii) “meeting” refers to the 2014 annual meeting of our shareholders described further herein, (iv) “named executives,” “named officers,” “named executive officers” or “NEOs” refers to the five executive officers listed in the Summary Compensation Table appearing on page 49 of this proxy statement, (v) “senior officers” refers to our Chief Executive Officer, each other officer subject to Section 16 of the Securities Exchange Act of 1934, and any other officer who reports directly to our Chief Executive Officer, (vi) “Embarq” refers to Embarq Corporation, which we acquired on July 1, 2009, (vii) “Qwest” refers to Qwest Communications International Inc., which we acquired on April 1, 2011, (viii) “Savvis” refers to SAVVIS, Inc., which we acquired on July 15, 2011, and (ix) the “SEC” refers to the U.S. Securities and Exchange Commission. Unless otherwise provided, all information is presented as of the date of this proxy statement.


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CenturyLink, Inc.

100 CenturyLink Drive

Monroe, Louisiana 71203

 

 

Notice of Annual Meeting of Shareholders

 

 

 

TIME AND DATE    10:00 a.m. local time on May 28, 2014
PLACE   

Corporate Conference Room

CenturyLink Headquarters

100 CenturyLink Drive

Monroe, Louisiana

ITEMS OF BUSINESS   

(1)    Elect as directors the 13 nominees named in the accompanying proxy statement

  

(2)    Ratify the appointment of KPMG LLP as our independent auditor for 2014

  

(3)    Ratify a bylaw amendment providing proxy access rights

  

(4)    Conduct a non-binding advisory vote regarding our executive compensation

  

(5)    Act upon a shareholder proposal if properly presented at the meeting

  

(6)    Transact such other business as may properly come before the meeting and any adjournment.

RECORD DATE    You can vote if you were a shareholder of record on April 10, 2014.
PROXY VOTING    Shareholders are invited to attend the meeting in person. Even if you expect to attend, it is important that you vote by telephone or the Internet, or by completing and returning a proxy or voting instruction card.

 

Stacey W. Goff

Secretary

April [], 2014


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TABLE OF CONTENTS

 

      Page  

GENERAL INFORMATION ABOUT THE ANNUAL MEETING

     1   

ELECTION OF DIRECTORS

     2   

CORPORATE GOVERNANCE

     9   

Governance Guidelines

     9   

Independence

     11   

Committees of the Board

     11   

Director Nomination Process

     12   

Compensation Setting Process

     14   

Risk Oversight

     14   

Top Leadership Positions and Structure

     15   

Waivers of Governance Requirements

     15   

Access to Information

     15   

RATIFICATION OF THE SELECTION OF THE INDEPENDENT AUDITOR

     16   

AUDIT COMMITTEE REPORT

     17   

PROPOSAL TO RATIFY A NEW PROXY ACCESS BYLAW

     18   

ADVISORY VOTE ON EXECUTIVE COMPENSATION

     20   

SHAREHOLDER PROPOSAL

     21   

OWNERSHIP OF OUR SECURITIES

     24   

Principal Shareholders

     24   

Executive Officers and Directors

     25   

COMPENSATION DISCUSSION AND ANALYSIS

     26   

Executive Summary

     26   

Pay for Performance

     27   

Our Compensation Philosophy

     28   

Our Compensation Practices

     29   

Use of “Benchmarking” Data

     30   

Overview of Elements and Amounts of Compensation

     31   

Summary of 2013 Compensation for our Named Executive Officers

     32   

Salary

     34   

Annual Incentive Bonuses

     34   

Long-Term Equity Incentive Compensation

     38   

Qwest Retention Grants

     41   

Other Benefits

     41   

Our Compensation Decision-Making Process

     43   

Forfeiture of Prior Compensation

     46   

Stock Ownership Guidelines

     47   

Use of Employment Agreements

     47   

Tax Gross-ups

     47   

Anti-Hedging and Anti-Pledging Policies

     47   

Deductibility of Executive Compensation

     48   

Impact of FASB ASC Topic 718

     48   

COMPENSATION COMMITTEE REPORT

     48   

EXECUTIVE COMPENSATION

     48   

Overview

     48   

Incentive Compensation and Other Awards

     50   

Pension Benefits

     55   

Deferred Compensation

     57   

Potential Termination Payments

     57   

 

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      Page  

DIRECTOR COMPENSATION

     62   

Overview

     62   

Cash and Stock Payments

     63   

Other Benefits

     63   

Director Stock Ownership Guidelines

     64   

PERFORMANCE GRAPH

     65   

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     66   

TRANSACTIONS WITH RELATED PARTIES

     66   

Recent Transactions

     66   

Review Procedures

     66   

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     66   

ADDITIONAL INFORMATION ABOUT THE MEETING

     66   

Quorum

     66   

Vote Required to Elect Directors

     66   

Vote Required to Adopt Other Proposals at the Meeting

     67   

Effect of Abstentions

     67   

Effect of Non-Voting

     67   

Revocations

     67   

Voting by Participants in Our Benefit Plans

     67   

Cost of Proxy Solicitation

     68   

Other Matters Considered at the Meeting

     68   

Conduct of the Meeting

     68   

Postponement or Adjournment of the Meeting

     68   

OTHER MATTERS

     68   

Shareholder Nominations and Proposals for the 2015 Annual Meeting

     68   

Proxy Materials

     69   

Annual Financial Report

     69   

Appendix A — Proposed Amendments to Bylaws

     A-1   

Appendix B — Annual Financial Report

     B-1   

 

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CenturyLink, Inc.

100 CenturyLink Drive

Monroe, Louisiana 71203

 

 

PROXY STATEMENT

April [], 2014

 

 

GENERAL INFORMATION ABOUT THE ANNUAL MEETING

Why am I receiving these proxy materials?

Our Board of Directors is soliciting your proxy to vote at our 2014 annual meeting of shareholders because you owned shares of our stock at the close of business on April 10, 2014, the record date for the meeting, and are entitled to vote those shares at the meeting. Our proxy materials are being made available to you on the Internet beginning on or about April [], 2014. This proxy statement summarizes information regarding matters to be considered at the meeting. You do not need to attend the meeting to vote your shares. For additional information on our proxy materials, see “Other Matters — Proxy Materials” appearing below.

When and where will the meeting be held?

The meeting will be held at 10:00 a.m. local time on Wednesday, May 28, 2014, in the corporate conference room at our corporate headquarters, 100 CenturyLink Drive, Monroe, Louisiana. If you would like directions to the meeting, please see our website, http://ir.centurylink.com.

What matters will be considered at the meeting?

Shareholders will vote on the following matters at the meeting:

 

Matter

  Board Voting
Recommendation
  Page Reference

•    election of the 13 director nominees named herein (Item 1)

  For each nominee   2

•    ratification of the appointment of KPMG LLP as our independent auditor for 2014 (Item 2)

  For   16

•    ratification of a bylaw amendment providing proxy access rights (Item 3)

  For   18

•    non-binding advisory vote regarding our executive compensation (Item 4)

  For   20

•    the shareholder proposal described in this proxy statement if it is properly presented at the meeting (Item 5)

  Against   21

How many votes may I cast?

You may cast one vote for every share of our common stock or Series L preferred stock that you owned on the record date. Our common stock and Series L preferred stock vote together as a single class on all matters. In this proxy statement, we refer to these shares as our “Common Shares” and “Preferred Shares,” respectively, and as our “Voting Shares,” collectively. As of the record date, we had [] Common Shares and [7,018] Preferred Shares outstanding.

What is the difference between holding shares as a shareholder of record and as a beneficial owner?

If shares are registered in your name with our transfer agent, Computershare Investor Services L.L.C., you are the “shareholder of record” of those shares and you may directly vote these shares, together with any shares credited to your account if you are a participant in our automatic dividend reinvestment and stock purchase service or our employee stock purchase plans.

 

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If your shares are held on your behalf in a stock brokerage account or by a bank or other nominee, you are the “beneficial owner” of shares held in “street name.” We have requested that our proxy materials be made available to you by your broker, bank or nominee, who is considered the shareholder of record of those shares.

If I am a shareholder of record, how do I vote?

If you are a shareholder of record, you may vote in person at the meeting or by proxy in any of the following three ways:

 

   

call 1-800-652-8683 and follow the instructions provided;

 

   

log on to the Internet at www.envisionreports.com/ctl and follow the instructions at that site; or

 

   

request a paper copy of our proxy materials and, following receipt thereof, mark, sign and date your proxy card and return it to Computershare.

Please note that you may not vote by telephone or the Internet after 1:00 a.m. Central Time on May 28, 2014.

If I am a beneficial owner of shares held in street name, how do I vote?

As the beneficial owner, you have the right to instruct your broker, bank or nominee how to vote your shares by using any voting instruction card supplied by them or by following their instructions for voting by telephone, the Internet, or in person.

If I am a benefit plan participant, how do I vote?

Please see “Additional Information About the Meeting — Voting by Participants in Our Benefit Plans” appearing below.

Do I need identification to attend the meeting in person?

Yes. Please bring proper identification, together with the Notice Regarding Availability of Proxy Materials mailed to you, which will serve as your admission ticket. If your shares are held in street name, please bring acceptable proof of ownership, such as a letter from your broker or an account statement stating or showing that you beneficially owned Voting Shares on the record date.

Where can I find additional information about the conduct of the meeting, voting requirements, and other similar matters relating to the meeting?

Please see “Additional Information About the Meeting” appearing below.

ELECTION OF DIRECTORS

(Item 1 on Proxy or Voting Instruction Card)

The first proposal for consideration at the meeting is the election of each of the 13 candidates named below as a director for a one-year term expiring at our 2015 annual meeting of shareholders, or until his or her successor is duly elected and qualified.

Acting upon the recommendation of its Nominating and Corporate Governance Committee, the Board has nominated the 13 below-named directors to stand for re-election to one-year terms at the meeting. Unless authority

 

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is withheld, all votes attributable to Voting Shares represented by each duly executed and delivered proxy will be cast for the election of each of the 13 below-named nominees. Under our bylaw nominating procedures, these nominees are the only individuals who may be elected at the meeting. For additional information on our nomination process, see “Corporate Governance — Director Nomination Process.” If for any reason any such nominee should decline or become unable to stand for election as a director, which we do not anticipate, the persons named as proxies may vote instead for another candidate designated by the Board, without re-soliciting proxies.

As discussed further under “Additional Information About the Meeting — Vote Required to Elect Directors,” each of the 13 nominees must receive a majority of the votes cast to be elected at the meeting.

 

 

Nominees For Election to the Board:

Listed below is information on each of the 13 individuals nominated to stand for re-election to the Board. As discussed further elsewhere herein, five of our below-listed nominees formerly served as directors of Embarq or Qwest prior to our acquisitions of those companies.

The Board recommends that you vote “FOR” each of the following nominees:

 

LOGO   

Virginia Boulet, age 60; a director since 1995; Managing Director of Legacy Capital LLC, an investment banking firm based in New Orleans, Louisiana, since March 2014; Special Counsel at Adams and Reese LLP, a law firm, from 2002 to March 2014; prior to then, practiced as a corporate and securities attorney for Phelps Dunbar, L.L.P. from 1992 to 2002 and Jones Walker LLP from 1983 to 1992; currently a director of W&T Offshore, Inc.

 

Key Qualifications, Experiences and Skills:

 

•     Legal experience representing telecommunications companies and regarding business combinations

 

•     Director of another publicly-held company

LOGO   

Peter C. Brown, age 55; a director since July 1, 2009; Chairman of Grassmere Partners, LLC, a private investment firm, since July 2009; held several executive level positions, including Chairman of the Board, President and Chief Executive Officer, with AMC Entertainment Inc., a theatrical exhibition company, between 1991 and 2009; founded EPR Properties, a NYSE-listed real estate investment trust formerly known as Entertainment Properties Trust, in 1997 and served as its non-executive Chairman of the Board of Trustees until 2003; currently a director of EPR Properties and Cinedigm Corp.; formerly a director of National CineMedia, Inc. within the past five years and a director of Embarq prior to July 1, 2009.

 

Key Qualifications, Experiences and Skills:

 

•     Experience as a former chief executive of a publicly-held company

 

•     Qualifies as an “audit committee financial expert”

 

•     Director of other publicly-held companies

 

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LOGO   

Richard A. Gephardt, age 73; a director since July 1, 2009; Chief Executive Officer and President of Gephardt Group, LLC, a multi-discipline consulting firm, since January 2005; consultant to Goldman Sachs & Co. since January 2005; strategic advisor in the government affairs practice group of DLA Piper between 2005 and 2009; senior advisor to FTI Consulting between 2007 and 2009; member of the U.S. House of Representatives from 1976 to 2005, representing Missouri’s Third District and holding key leadership positions, including House Minority Leader; currently a director of Centene Corporation, Ford Motor Company, Spirit Aerosystems Holdings, Inc. and United States Steel Corporation; formerly a director of Dana Holding Company within the past five years, and a director of Embarq prior to July 1, 2009.

 

Key Qualifications, Experiences and Skills:

 

•   Government and labor relations expertise

 

•   Director of other publicly-held companies

LOGO   

W. Bruce Hanks, age 59; a director since 1992; a consultant with Graham, Bordelon and Co., Inc., an investment management and financial planning company, since 2005; Athletic Director of the University of Louisiana at Monroe from 2001 to 2004; held various executive positions at CenturyLink from 1980 through 2001, most notably Chief Operating Officer, Senior Vice President — Corporate Development and Strategy, Chief Financial Officer, and President — Telecommunications Services; worked as a certified public accountant with Peat, Marwick & Mitchell for three years prior to then; currently an advisory director of IberiaBank Corporation; also served in the past on the executive boards of several telecommunications industry associations and the boards of other publicly-owned companies.

 

Key Qualifications, Experiences and Skills:

 

•   Prior executive experience with, and historical knowledge of, our company and its prior acquisitions

 

•   Former experience as a certified public accountant

 

•   Qualifies as an “audit committee financial expert”

 

•   Prior experience as a director of other publicly-owned companies

LOGO   

Gregory J. McCray, age 51; a director since 2005; Chief Executive Officer of Aero Communications, Inc., which provides installation, engineering and support services to the communications industry, since July 2013; interim Chief Executive Officer of ACAL Energy Ltd., which develops fuel cell engine technology, between January 2013 and July 2013; Chairman and Chief Executive Officer of Antenova Limited, a global wireless components development company, between 2003 and December 2012; Chairman and Chief Executive Officer of PipingHot Networks, a wireless start-up, from 2000 to 2002; Senior Vice President, Customer Operations, at Lucent Technologies from 1997 to 2000; Sales Vice President, U.S. Eastern Region, at Lucent Technologies from 1994 to 1997; held engineering, product management and other managerial roles at AT&T and IBM from 1984 to 1993.

 

Key Qualifications, Experiences and Skills:

 

•   Executive experience in the communications and technology industries

 

•   Experience as a chief executive of privately-held companies that have engaged in several acquisition and divestiture transactions

 

•   Engineering expertise in communications industry

 

•   International business experience

 

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LOGO   

C. G. Melville, Jr., age 73; a director since 1968; retired in 1992 after serving as President of Melville Equipment, Inc., a family-owned distributor of marine and industrial equipment, for nearly 30 years; Chief Executive Officer of a family-owned telephone company for six years prior to its sale to CenturyLink in 1968.

 

Key Qualifications, Experiences and Skills:

 

•   Experience owning and managing telecommunications companies

 

•   Experience as a former chief executive of family-owned privately-held companies

LOGO   

Fred R. Nichols, age 67; a director since 2003; retired in 2000 from Cox Communications, Inc., where he served as Executive Vice President of Operations since 1999; held various executive positions at TCA Cable TV, Inc. (which was publicly-traded between 1982 and its sale to Cox in 1999) from 1980 to 1999, most notably serving as Chairman, President and Chief Executive Officer from 1997 to 1999 and President and Chief Operating Officer from 1989 to 1997; also served in the past on the executive boards of (i) two cable industry trade associations, (ii) Telesynergy, a cable television programming consortium, and (iii) C-SPAN, a cable television network; prior to joining TCA in 1980, worked as a commercial banker for nine years and as a certified public accountant with Peat, Marwick & Mitchell for three years.

 

Key Qualifications, Experiences and Skills:

 

•   Executive experience in the communications industry

 

•   Experience as a former chief executive of a publicly-held company that engaged in multiple acquisitions

 

•   Former experience as a certified public accountant and commercial banker

LOGO   

William A. Owens, age 73; a director since July 1, 2009; non-executive Chairman of the Board of CenturyLink since July 1, 2009; Managing Director and Chairman of AEA Investors Asia, a private equity company, since 2006; Vice Chairman, President and Chief Executive Officer of Nortel Networks Corporation, a global supplier of communications equipment, from 2004 to 2005; Chairman and Chief Executive Officer of Teledesic LLC, a satellite communications company, from 1998 to 2003; Vice Chairman, President and Chief Operating Officer of Science Applications International Corporation, a technology and engineering company, from 1996 to 1998; served in the U.S. military from 1962 to 1996, holding various key leadership positions, including Vice Chairman of the Joint Chiefs of Staff; currently a director of AEA Investors LP, Polycom, Inc., Viasystems Group, Inc. and Wipro Limited; formerly a director of Unifrax Corporation and Amerilink within the past five years; Chairman of the Board of Embarq prior to July 1, 2009.

 

Key Qualifications, Experiences and Skills:

 

•   Executive experience in the communications industry

 

•   Experience as a former chief executive of publicly-held companies

 

•   Government relations expertise

 

•   International business experience

 

•   Director of other domestic and international publicly-held companies

 

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LOGO   

Harvey P. Perry, age 69; a director since 1990; non-executive Vice Chairman of the Board of Directors of CenturyLink since 2004; retired from CenturyLink in 2003; joined CenturyLink in 1984, serving as Secretary and General Counsel for approximately 20 years and Executive Vice President and Chief Administrative Officer for almost five years; prior to then, worked as an attorney in private practice for 15 years.

 

Key Qualifications, Experiences and Skills:

 

•     Prior executive experience with, and historical knowledge of, our company and its prior acquisitions

 

•     Legal experience representing telecommunications companies

LOGO   

Glen F. Post, III, age 61; a director since 1985; Chief Executive Officer of CenturyLink since 1992, and President since July 1, 2009 (and from 1990 to 2002); Chairman of the Board of CenturyLink between 2002 and 2009; Vice Chairman of the Board of CenturyLink between 1993 and 2002; held various other positions at CenturyLink between 1976 and 1993, most notably Treasurer, Chief Financial Officer and Chief Operating Officer.

 

Key Qualifications, Experiences and Skills:

 

•     Executive experience in the telecommunications business

 

•     Experience as our chief executive

LOGO   

Michael J. Roberts, age 63; a director since April 1, 2011; President and Chief Executive Officer and founder of LYFE Kitchen, an emerging chain of lifestyle restaurants, since February 2011; Chief Executive Officer and founder of Westside Holdings LLC, a marketing and brand development company, from 2006 to 2013; served as President and Chief Operating Officer of McDonald’s Corporation, a foodservice retailer, from 2004 to 2006; served as Chief Executive Officer of McDonald’s USA during 2004 and as President of McDonald’s USA from 2001 to 2004; currently a director of W.W. Grainger, Inc.; formerly a director of Standard Parking Corporation within the past five years, and a director of Qwest prior to April 1, 2011.

 

Key Qualifications, Experiences and Skills:

 

•     Experience as a chief executive

 

•     Marketing and branding expertise

 

•     Director of other publicly-held companies

 

•     Qualifies as an “audit committee financial expert”

LOGO   

Laurie A. Siegel, age 58; a director since July 1, 2009; a business and human resources consultant since 2012; retired in September 2012 from Tyco International Ltd., a diversified manufacturing and service company, where she served as Senior Vice President of Human Resources and Internal Communications since 2003; held various positions with Honeywell International Inc. from 1994 to 2002, including Vice President of Human Resources — Specialty Materials; prior to then, was director of global compensation at Avon Products and a principal of Strategic Compensation Associates; a director of Embarq prior to July 1, 2009.

 

Key Qualifications, Experiences and Skills:

 

•     Executive experience with a multi-national company

 

•     Human resources and executive compensation expertise

 

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LOGO   

Joseph R. Zimmel, age 60; a director since 2003; a business and financial consultant since 2002; Advisory Director of the Goldman Sachs Group from 2001 to 2002; Managing Director of the Communications, Media & Entertainment Group for the Americas in the investment banking division of Goldman, Sachs & Co. from 1999 to 2001, after acting as Managing Director and a co-head of the group from 1992 to 1999; Managing Director in the mergers and acquisitions department of Goldman, Sachs & Co. from 1988 to 1992; currently a director of FactSet Research Systems Inc. and formerly a director of Digitas Inc. within the past five years.

 

Key Qualifications, Experiences and Skills:

 

•     Advisory experience in the communications industry

 

•     Acquisition and investment banking expertise

 

•     Qualifies as an “audit committee financial expert”

 

•     Director of other publicly-owned companies

Executive Officers Who Are Not Directors:

Listed below is information on each of our executive officers who are not directors. Unless otherwise indicated, each person has been engaged in the principal occupation shown for more than the past five years.

 

LOGO    William E. Cheek, age 58; President — Wholesale Operations since July 1, 2009; served as President — Wholesale Markets for Embarq from 2006 to 2009; served in similar capacities at divisions or affiliates of Sprint Nextel Corporation from 2004 to 2006.
LOGO    David D. Cole, age 56; Executive Vice President — Controller and Operations Support since May 2013; served as Senior Vice President — Controller and Operations Support from April 2011 to May 2013 and as Senior Vice President — Operations Support from 1999 to April 2011.
LOGO    R. Stewart Ewing, Jr., age 62; Executive Vice President, Chief Financial Officer and Assistant Secretary.

 

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LOGO    Stacey W. Goff, age 48; Executive Vice President, General Counsel and Secretary since July 2009; served as Senior Vice President, General Counsel and Secretary prior to then.
LOGO    Maxine L. Moreau, age 52; Executive Vice President — Network Services since May 2013; served as Senior Vice President — Network Services from May 2012 to May 2013, as Senior Vice President, Integration and Process Improvement from 2010 to May 2012, as Senior Vice President, Centralized Operations, from 2009 to 2010, and as Vice President of Operations from 2006 to 2009.
LOGO    Karen A. Puckett, age 53; Executive Vice President and Chief Operating Officer since July 2009; served as President and Chief Operating Officer from 2002 to July 2009.
LOGO    Scott A. Trezise, age 45; Executive Vice President — Human Resources since August 2013; served as Senior Vice President — Human Resources for The Shaw Group Inc. from June 2010 until its acquisition by Chicago Bridge & Iron Company N.V. in February 2013; served as Vice President of Human Resources for Honeywell International Inc. from 2005 to June 2010.
LOGO    Jeffrey H. Von Deylen, age 50; President — Data Hosting Operations since May 2013; served as Senior Vice President — Global Operations and Client Services from July 15, 2011 to May 2013; served as Chief Financial Officer and a director of Savvis from 2003 to July 15, 2011.

 

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CORPORATE GOVERNANCE

Governance Guidelines

Our Board has adopted corporate governance guidelines, which it reviews at least annually. For information on how you can obtain a complete copy of our guidelines, see “— Access to Information” below.

Among other things, our corporate governance guidelines provide as follows:

Director Qualifications

 

   

The Board of Directors will have a majority of independent directors. The Nominating and Corporate Governance Committee is responsible for reviewing with the Board, on an annual basis, the requisite skills and characteristics of new Board members as well as the composition of the Board as a whole.

 

   

The Board expects directors who change the job or responsibility they held when they were elected to the Board to volunteer to resign from the Board.

 

   

On the terms and subject to the conditions specified in our bylaws, directors will be elected by a majority vote of the shareholders and any incumbent director failing to receive a majority of votes cast must promptly tender his or her resignation to the Board.

 

   

No director may serve on more than two other unaffiliated public company boards, unless this prohibition is waived by the Board.

 

   

No director may be appointed or nominated to a new term if he or she would be age 75 or older at the time of the election or appointment.

 

   

Annually, the Board will determine affirmatively which of our directors are independent for purposes of complying with our corporate governance guidelines and the listing standards of the New York Stock Exchange, or NYSE. A director will not be independent for these purposes unless the Board affirmatively determines that the director does not, either directly or indirectly through the director’s affiliates or associates, have a material commercial, banking, consulting, legal, accounting, charitable, familial or other relationship with the Company or its affiliates, other than as a director.

Director Responsibilities

 

   

The Board periodically reviews our long-term strategic plans, and annually holds a multi-day strategic planning session.

 

   

Directors are required to hold confidential all non-public information obtained due to their directorship position absent the express permission of the Board to disclose such information.

 

   

Unless otherwise determined by the Board, when a management director retires or ceases to be an active employee for any other reason, that director will be considered to have resigned concurrently from the Board.

Chairman; Lead Outside Director

 

   

The Board elects a Chairman from among its members. The Chairman may be a director who also has executive responsibilities, including the CEO (an executive chair), or may be one of the Company’s independent directors (a non-executive chair). The Board believes it is in the best interests of the Company for the Board to remain flexible with respect to whether to elect an executive chair or a non-executive chair so that the Board may provide for succession planning and respond effectively to changes in circumstances.

 

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The non-management directors meet in executive session at least quarterly. The lead outside director elected by the independent directors may call additional meetings of the non-management directors at any time. At all times during which the Chairman is a non-executive chair, all of the functions and responsibilities of the lead outside director shall be performed by the non-executive chair.

CEO Evaluation and Management Succession

 

   

The Nominating and Corporate Governance Committee conducts an annual review of the CEO’s performance and provides a report of its findings to the Board.

 

   

The Nominating and Corporate Governance Committee reports periodically to the Board on succession planning.

Recoupment of Compensation

 

   

If the Board or any committee of the Board determines that any bonus, incentive payment, commission, equity award or other compensation awarded to or received by an executive officer was based on any financial or operating result that was impacted by the executive officer’s knowing or intentional fraudulent or illegal conduct, we may recover from the executive officer the compensation the Board or any committee of the Board considers appropriate under the circumstances.

Stock Ownership Guidelines

 

   

We require our executive officers to beneficially own CenturyLink stock equal in market value to specified multiples of their annual base salary. All executive officers have three years from the date they first become subject to a particular ownership level to attain that target.

 

   

We require our outside directors to beneficially own CenturyLink stock equal in market value to five times their annual cash retainer. Outside directors have five years from their election or appointment date to attain that target.

 

   

For any year during which an executive or director does not meet his or her ownership target, the executive or director is expected to hold a specified percentage of the CenturyLink stock that the executive or director acquires through our equity compensation programs, excluding shares sold to pay taxes associated with the acquisition thereof.

 

   

The Compensation Committee administers the guidelines, and may modify their terms and grant hardship exceptions in its discretion.

 

   

See “Compensation Discussion and Analysis — Stock Ownership Guidelines” for information on the executive ownership multiples and the holding percentages currently in effect.

Standards of Business Conduct and Ethics

 

   

All of our directors, officers and employees are required to abide by our long-standing ethics and compliance policies and programs, which include standards of business conduct.

 

   

Any waiver of our policies, principles or guidelines relating to business conduct or ethics for executive officers or directors may be made only by the Board or one of its duly authorized committees.

Other

 

   

Directors have full access to our officers and employees.

 

   

Like most other NYSE-listed companies, (i) all of the Board’s standing committees are comprised solely of independent directors, (ii) we provide orientation for new directors, (iii) we maintain a continuing education program for our directors, and (iv) the Board and each committee conducts annual self-reviews.

 

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Independence

Based on the information made available to it, the Board of Directors has affirmatively determined that each of our non-management directors qualifies as an independent director under the standards referred to above under “— Governance Guidelines,” with the exception of Richard A. Gephardt, who is the Chief Executive Officer and President, and a principal, of a consulting firm from which we have purchased labor advisory services since 2011. In making these determinations, the Board, with assistance from counsel, evaluated responses to a questionnaire completed by each director regarding relationships and possible conflicts of interest. In its review of director independence, the Board considered all known commercial, banking, consulting, legal, accounting, charitable, familial or other relationships any director may have with us.

Some of our directors are employed by or affiliated with companies with which we do business in the ordinary course, either as a service provider, a customer or both. As required under the NYSE listing standards and our corporate governance guidelines, our Board examined the amounts spent by us with those companies and by those companies with us. In all cases the amounts spent under these transactions fell well below the threshold established in the NYSE listing standards and in our corporate governance guidelines. Consequently, our Board concluded that the amounts spent under these transactions did not create a material relationship with us that would interfere with the exercise of independent judgment by any of these directors other than Mr. Gephardt.

Committees of the Board

During 2013, the Board of Directors held ten meetings, including a three-day strategic planning session.

During 2013, the Board’s Audit Committee held eight meetings. The Audit Committee is currently composed of four independent directors, all of whom the Board has determined to be audit committee financial experts, as defined under the federal securities laws. The Audit Committee’s functions are described further below under “Audit Committee Report.”

The Board’s Compensation Committee met seven times during 2013. The Compensation Committee is currently composed of five directors, all of whom qualify as “non-employee directors” under Rule 16b-3 promulgated under the Securities Exchange Act of 1934 and all of whom, other than Harvey P. Perry, qualify as “outside directors” under Section 162(m) of the Internal Revenue Code. The Compensation Committee is described further below under “Compensation Discussion and Analysis.”

The Board’s Nominating and Corporate Governance Committee (which we refer to below as the “Nominating Committee”) met four times during 2013. The Nominating Committee is responsible for, among other things, (i) recommending to the Board nominees to serve as directors and officers, (ii) monitoring the composition and size of the Board and its committees, (iii) periodically reassessing our corporate governance guidelines described above, (iv) leading the Board in its annual review of the Board’s performance, (v) reviewing shareholder proposals and making recommendations to the Board regarding how to respond, (vi) conducting an intensive annual review of the performance of our Chief Executive Officer, including interviewing each of our other senior officers, and (vii) reporting to the Board on succession planning for senior executive officers and appointing an interim CEO if the Board does not make such an appointment within 72 hours of the CEO dying or becoming disabled. For information on the director nomination process, see “— Director Nomination Process” below.

The Board also maintains a Risk Evaluation Committee, which met four times during 2013. This Committee is described further below under the heading “— Risk Oversight.”

Each of the committees listed above is composed solely of independent directors under the standards referred to above under “— Governance Guidelines.”

 

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The table below lists the Board’s standing committees and their membership:

 

Outside Director(1)

  

Audit Committee
Member

  

Compensation
Committee
Member(2)

  

Nominating and
Corporate
Governance
Committee
Member

  

Risk Evaluation
Committee
Member

Virginia Boulet

      ü    Chair   

Peter C. Brown

   ü          ü

W. Bruce Hanks

   Chair          ü

Gregory J. McCray

         ü    ü

C. G. Melville, Jr.

         ü    Chair

Fred R. Nichols

      ü    ü   

William A. Owens

      ü    ü   

Harvey P. Perry

      ü      

Michael J. Roberts

   ü         

Laurie A. Siegel

      Chair      

Joseph R. Zimmel

   ü         

 

(1) Glen F. Post, III does not serve on any board committees, other than the Special Pricing Committee described below. Richard A. Gephardt does not serve on any board committees.
(2) The Compensation Committee maintains an Incentive Awards Subcommittee (the “Subcommittee”) comprised of Ms. Boulet, Mr. Nichols, Adm. Owens and Ms. Siegel.

 

 

If you would like additional information on the responsibilities of the committees listed above, please refer to the committees’ respective charters, which can be obtained in the manner described below under “— Access to Information.”

The Board has also established a Special Pricing Committee that has authority to approve the terms and offering prices of any CenturyLink securities sold pursuant to our outstanding shelf registration statement. This ad hoc committee is comprised of Peter C. Brown, W. Bruce Hanks, Glen F. Post, III and Joseph R. Zimmel.

During 2013, all of our directors attended at least 75% of the aggregate number of all board meetings and all meetings of board committees on which they served. In addition, each of our directors then in office attended the 2013 annual shareholders’ meeting.

Director Nomination Process

Nominations for the election of directors at our annual shareholders’ meetings may be made by the Board (upon the receipt of recommendations of the Nominating Committee) or by any shareholder of record who complies with our bylaws. Under our “advance notice” bylaw, any shareholder of record interested in making a nomination generally must deliver written notice to the Company’s Secretary not more than 180 days and not less than 90 days in advance of the first anniversary of the preceding year’s annual shareholders’ meeting. For the meeting this year, the Board has nominated the 13 nominees listed above under “Election of Directors” to stand for election as directors, and no shareholders submitted any nominations. For further information on deadlines for submitting nominations for our 2015 annual shareholders’ meeting, see “Other Matters — Shareholder Nominations and Proposals for the 2015 Annual Meeting.”

The written notice required to be sent by any nominating shareholder must include various information, including, as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination is being made, (i) the name and address of such shareholder, any such beneficial owner, and any other parties affiliated, associated or acting in concert therewith, (ii) their beneficial ownership interests in our Voting Shares, including disclosure of arrangements that might cause such person’s voting, investment or

 

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economic interests in our Voting Shares to differ from those of our other shareholders, (iii) certain additional information concerning such parties required under the federal proxy rules, (iv) a description of all agreements with respect to the nomination among the nominating shareholder, any beneficial owner, any person acting in concert with them, each proposed nominee and certain other persons, and (v) a representation whether any such person intends to solicit proxies or votes in support of their proposed nominees. With respect to each proposed nominee, the written notice must also, among other things, (i) set forth biographical and other data required under the federal proxy rules and a description of various compensation or other arrangements or relationships between each proposed nominee and the nominating shareholder and its affiliated parties and (ii) furnish both a completed and duly executed questionnaire and a duly executed agreement designed to disclose various aspects of the proposed nominee’s background, qualifications and certain specified arrangements with other persons, as well as to receive the proposed nominee’s commitment to abide by certain specified agreements and undertakings. We may require a proposed nominee to furnish other reasonable information or certifications. Shareholders interested in bringing before a shareholders’ meeting any matter other than a director nomination should consult our bylaws for additional procedures governing such requests. We may disregard any nomination or submission of any other matter that fails to comply with these bylaw procedures.

The Nominating Committee will consider candidates nominated by shareholders in accordance with our bylaws. Upon receipt of any such nominations, the Nominating Committee will review the submission for compliance with our bylaws, including determining if the proposed nominee meets the bylaw qualifications for service as a director. These provisions disqualify any person who (i) fails to respond satisfactorily to any inquiry for information to enable us to make certifications required by the Federal Communications Commission under the Anti-Drug Abuse Act of 1988, (ii) has been arrested or convicted of certain specified drug offenses or engaged in actions that could lead to such an arrest or conviction or (iii) fails to furnish any materials or agreements required to be provided by director nominees under our bylaws, or makes false statements or materially misleading statements or omissions in connection therewith.

In the past, the Nominating Committee has considered director candidates suggested by Committee members, other directors, senior management and shareholders. In connection with our July 1, 2009 merger with Embarq, we added to our Board seven directors who previously served as directors of Embarq, four of whom continue to serve. Similarly, in connection with our April 1, 2011 merger with Qwest, we added to our Board four directors who previously served as directors of Qwest, one of whom continues to serve. During the several years preceding the Embarq merger, the Nominating Committee retained, on an as-needed basis, national search firms to help identify potential director candidates, including three directors added to the Board between 2003 and 2005. The Nominating Committee may retain search firms from time to time in the future to help identify additional director candidates. With respect to this year’s meeting, all of the nominees are incumbent directors with several years of prior service on our Board or the boards of Embarq or Qwest.

Under our corporate governance guidelines, the Nominating Committee assesses director candidates based on their independence, diversity, character, skills and experience in the context of the needs of the Board. Although the guidelines permit the Nominating Committee to adopt additional selection guidelines or criteria, it has chosen not to do so. Instead, the Nominating Committee annually assesses skills and characteristics then required by the Board based on its membership and needs at the time of the assessment. In evaluating the needs of the Board, the Nominating Committee considers the qualifications of incumbent directors and consults with other members of the Board and senior management. In addition, the Nominating Committee seeks candidates committed to representing the interests of all shareholders and not any particular constituency. The Nominating Committee believes this flexible approach enables it to respond to changes caused by director retirements and industry developments.

In connection with assessing the needs of the Board, the Nominating Committee has sought individuals who possess skill and experience in a diverse range of fields. The Nominating Committee also has sought a mix of individuals from inside and outside of the communications industry. The table above listing biographical data about our directors includes a listing of the key qualifications, experiences and skills that the Nominating

 

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Committee and Board reviewed in connection with nominating or re-nominating them for service on the Board. In light of our current business and operations, we believe the following skills and experience are particularly important:

 

   

senior leadership experience

 

   

industry or technical expertise

 

   

financial, accounting or capital markets expertise

 

   

public company board experience

 

   

business combination or investment banking experience

 

   

brand marketing expertise

 

   

government, labor or human resources expertise

 

   

international business experience

 

   

legal expertise.

In connection with determining the current composition of the Board, the Nominating Committee assessed the diverse range of skills and experience of our directors outlined above, coupled with the judgment that each has exhibited and the knowledge of our operations that each has acquired in connection with their service on the Board. Although it does not have a formal diversity policy, the Nominating Committee believes that our directors possess a diverse range of backgrounds, perspectives, skills and experiences.

Although we do not have a history of receiving director nominations from shareholders, the Nominating Committee envisions that it would evaluate any such candidate on the same terms as other proposed nominees, but would place a substantial premium on retaining incumbent directors who are familiar with our management, operations, business, industry, strategies and competitive position, and who have previously demonstrated a proven ability to provide valuable contributions to the Board and CenturyLink.

Please see “Proposal to Ratify a New Proxy Access Bylaw” for a discussion of a proposal that, if ratified at the meeting, could have a substantial impact on our procedures outlined above.

Compensation Setting Process

The Compensation Committee hires consulting firms to assist it in setting executive and director compensation. In late 2010, the Committee retained Hay Group, following a nationwide search to replace PricewaterhouseCoopers LLC, which advised the Committee for the previous six years. For additional information on the processes used by the Committee to set executive compensation, see “Compensation Discussion and Analysis.”

Risk Oversight

Our Board oversees our Company’s risk management function, which is a coordinated effort among our business units, our senior leadership, our risk management personnel and our internal audit department. Our directors typically discharge their risk oversight responsibilities by having management provide periodic briefing and information sessions. In some cases, including major new acquisitions, capital expenditures or strategic investments, the full Board participates in risk oversight. In most cases involving recurring systemic risk, a Board committee is primarily responsible for risk oversight. For many years, our Board has maintained a Risk Evaluation Committee, which is responsible for assisting management to identify, monitor, and manage recurring risks to our business, properties and employees. The Risk Evaluation Committee regularly monitors our litigation, cybersecurity initiatives, insurance coverages and the status of our labor relations, and is also responsible for overseeing our ethics

 

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and compliance program. The Board’s other committees are responsible for overseeing specific risks, particularly the Audit Committee with respect to financial, tax and accounting risks and the Compensation Committee with respect to compensation risks. For a discussion of the Compensation Committee’s risk analysis, see “Compensation Discussion and Analysis — Our Compensation Decision-Making Process — Risk Assessment.” The Board regularly receives reports from each of these committees, and periodically receives enterprise risk management reports from management.

Top Leadership Positions and Structure

Admiral William A. Owens serves as our non-executive Chairman and lead outside director. As explained further on our website, you may contact Adm. Owens by writing a letter to the Chairman and Lead Outside Director, c/o Post Office Box 5061, Monroe, Louisiana 71211, or by sending an email to boardinquiries@centurylink.com. As indicated above, the non-management directors meet in executive session at least quarterly.

Adm. Owens was appointed as our Chairman and lead outside director on July 1, 2009, in connection with our acquisition of Embarq. Prior to July 1, 2009, Adm. Owens served as chairman of Embarq, and, prior to that, as the chief executive of a communications equipment provider and a satellite company. We believe Adm. Owens’ service as our Chairman has facilitated the post-merger integration of the management and operations of CenturyLink and Embarq.

The Board believes that the separation of the Chairman and CEO positions has functioned effectively over the past several years. Separating these positions allows our CEO to have primary responsibility for the operational leadership and strategic direction of our business, while allowing our Chairman to lead the Board in its fundamental role of providing guidance to and independent oversight of management. While our bylaws and corporate governance guidelines do not require our Chairman and CEO positions to be separate, the Board believes that delegating responsibilities between Adm. Owens, as Chairman, and Mr. Post, as CEO, is the appropriate leadership structure for our Company at this time. Our Board, however, periodically reviews its leadership structure and may make such changes in the future as it deems appropriate. The Board believes that its programs for overseeing risk would be effective under a variety of top leadership structures, and, accordingly, this factor has not materially affected its current choice of structure.

Waivers of Governance Requirements

Members of our Board are subject to our corporate governance guidelines, which, among other things, prohibit a director from serving on more than two additional unaffiliated public company boards. In addition to serving on our Board, Richard A. Gephardt and William A. Owens serve on the board of directors of more than two unaffiliated public companies. In connection with appointing both of them to the Board, the Board waived compliance by each of them with the above-described service limitation, subject to the understanding that this waiver permits such individuals to serve only on the boards of the unaffiliated companies on which they were then serving, unless and until the individual is permitted to accept a new directorship under our corporate governance guidelines then in effect due to any future reductions in the number of the individual’s directorships, any future changes in such guidelines, or any future additional waivers granted by the Board.

Access to Information

The following documents are posted on our website at www.centurylink.com:

 

   

Amended and restated articles of incorporation

 

   

Bylaws

 

   

Corporate governance guidelines

 

   

Charters of our Board committees

 

   

Corporate ethics and compliance program documents, including the CenturyLink Code of Conduct.

 

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RATIFICATION OF THE SELECTION OF THE INDEPENDENT AUDITOR

(Item 2 on Proxy or Voting Instruction Card)

The Audit Committee of the Board has appointed KPMG LLP as our independent auditor for the fiscal year ending December 31, 2014, and we are submitting that appointment to our shareholders for ratification on an advisory basis at the meeting. Although shareholder ratification of KPMG’s appointment is not legally required, we are submitting this matter to the shareholders, as in the past, as a matter of good corporate practice.

If the shareholders fail to vote on an advisory basis in favor of the appointment, the Audit Committee will reconsider whether to retain KPMG LLP, and may appoint that firm or another without re-submitting the matter to the shareholders. Even if the shareholders ratify the appointment, the Audit Committee may, in its discretion, select a different independent auditor at any time during the year if it determines that such a change would be in the Company’s best interests. In connection with selecting the independent auditor, the Audit Committee reviews the auditor’s qualifications, geographic reach, control procedures, cost, proposed staffing, prior performance and other relevant factors.

In connection with the audit of the 2014 financial statements, we entered into an engagement letter with KPMG LLP which sets forth the terms by which KPMG will provide audit services to us. Any future disputes between KPMG and us under that letter will be subject to certain specified alternative dispute resolution procedures.

The following table lists the aggregate fees and costs billed to us by KPMG and its affiliates for the 2012 and 2013 services identified below:

 

     Amount Billed  
     2012      2013  

Audit Fees(1)

   $ 8,756,591       $ 9,310,003   

Audit-Related Fees(2)

     114,903         340,434   

Tax Fees(3)

     499,865         2,483,641   

Other(4)

             309,047   
  

 

 

    

 

 

 

Total Fees

   $ 9,371,359       $ 12,443,125   
  

 

 

    

 

 

 

 

(1) Includes the cost of (i) services rendered in connection with auditing our annual consolidated financial statements, (ii) auditing our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, (iii) reviewing our quarterly financial statements, (iv) auditing the financial statements of several of our subsidiaries, (v) services rendered in connection with reviewing our registration statements and issuing related comfort letters, (vi) statutory audits for certain of our foreign subsidiaries, and (vii) consultations regarding accounting standards.
(2) Includes the cost of preparing “agreed upon procedures” reports and providing general accounting consulting services.
(3) Includes costs associated with (i) assistance in preparing income tax returns and related matters (which were approximately $24,000 in 2012 and $99,000 in 2013), (ii) assistance with various tax audits (which were approximately $16,000 in 2012 and $0 in 2013), and (iii) general tax planning, consultation and compliance (which were approximately $460,000 in 2012 and $2,385,000 in 2013).
(4) Reflects professional services provided in 2013 in connection with a system assessment project.

 

 

The Audit Committee maintains written procedures that require it to annually review and pre-approve the scope of all services to be performed by our independent auditor. This review includes an evaluation of whether the provision of non-audit services by our independent auditor is compatible with maintaining the auditor’s independence in providing audit and audit-related services. The Committee’s procedures prohibit the independent auditor from providing any non-audit services unless the service is permitted under applicable law and is pre-approved by the Audit Committee or its Chairman. The Chairman is authorized to pre-approve projects

 

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expected to cost no more than $100,000, provided the total cost of all projects pre-approved by the Chairman during any fiscal quarter does not exceed $150,000. The Audit Committee has pre-approved the Company’s independent auditor to provide up to $75,000 per quarter of miscellaneous permitted tax services that do not constitute discrete and separate projects. The Chairman and the Chief Financial Officer are required periodically to advise the full Committee of the scope and cost of services not pre-approved by the full Committee. Although applicable regulations waive these pre-approval requirements in certain limited circumstances, the Audit Committee did not use these waiver provisions in either 2012 or 2013.

KPMG has advised us that one or more of its partners will be present at the meeting. We understand that these representatives will be available to respond to appropriate questions and will have an opportunity to make a statement if they desire to do so.

Ratification of KPMG’s appointment as our independent auditor for 2014 will require the affirmative vote of the holders of at least a majority of the Voting Shares present or represented at the meeting.

The Board unanimously recommends a vote FOR this proposal.

AUDIT COMMITTEE REPORT

Management is responsible for our internal controls and financial reporting process. Our independent auditor is responsible for performing an independent audit of our consolidated financial statements and the effectiveness of our internal control over financial reporting, and to issue reports thereon. As more fully described in its charter, the Audit Committee is responsible for assisting the Board in its general oversight of these processes, and for appointing the independent auditor.

In this context, the Committee has met and held discussions with management and our internal auditors and independent auditor for 2013, KPMG LLP. Management represented to the Committee that our consolidated financial statements were prepared in accordance with generally accepted U.S. accounting principles. The Committee has reviewed and discussed with management and KPMG the consolidated financial statements, and management’s report and KPMG’s report and attestation on internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. The Committee also discussed with KPMG matters required to be discussed by Auditing Standard No. 16, Communications with Audit Committees. Among other matters, the Committee also:

 

   

reviewed the scope of and overall plans for the annual audit and the internal audit program;

 

   

reviewed and discussed each quarterly and annual earnings press release;

 

   

received periodic reports from the director of internal audit, and met with other members of the internal audit staff;

 

   

received periodic reports pursuant to our policy for the submission and confidential treatment of communications from employees and others about accounting, internal controls and auditing matters;

 

   

reviewed with management the scope and effectiveness of our disclosure controls and procedures; and

 

   

received an annual report with regard to any hiring of former employees of KPMG.

KPMG also provided to the Committee the written disclosures required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditor’s communications with audit committees concerning independence. The Committee discussed with KPMG that firm’s independence, and considered the effects that the provision of non-audit services may have on KPMG’s independence.

Based on and in reliance upon the reviews and discussions referred to above, and subject to the limitations on the role and responsibilities of the Committee referred to in its charter, the Committee recommended that the Board of Directors include the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2013.

 

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If you would like additional information on the responsibilities of the Audit Committee, please refer to its charter, which you can obtain in the manner described above under “Corporate Governance — Access to Information.”

Submitted by the Audit Committee of the Board of Directors.

 

W. Bruce Hanks (Chair)    Peter C. Brown

Michael J. Roberts

   Joseph R. Zimmel

PROPOSAL TO RATIFY A NEW PROXY ACCESS BYLAW

(Item 3 on Proxy or Voting Instruction Card)

For the reasons discussed below, in February 2014 the Board adopted a new bylaw permitting shareholders to include shareholder-nominated director candidates in our annual meeting proxy materials, along with Board-nominated candidates. We are asking our shareholders to ratify this new bylaw at the meeting.

Terms of Proxy Access Bylaw

A summary of the proxy access bylaw amendment (the “Proxy Access Bylaw”) is set forth below. This summary of the Proxy Access Bylaw is qualified in its entirety by reference to the text of the Proxy Access Bylaw, which constitutes Section 5.3 of Article IV of our Bylaws and is fully set forth in Appendix A attached to this Proxy Statement.

Shareholder Eligibility to Nominate up to 20% of Our Directors. If ratified by our shareholders, the Proxy Access Bylaw would permit any shareholder, or group of up to ten shareholders, owning 3% or more of our outstanding Common Shares continuously for at least the previous three years to include the number of director nominees specified below in our annual meeting proxy materials.

The maximum number of shareholder-nominated candidates allowed per annual meeting of shareholders would be equal to 20% of the number of directors serving on the Board at the time the below-described notice is required to be submitted to us. If the 20% calculation does not result in a whole number, the maximum number of shareholder-nominated candidates would be the closest whole number below 20%. Based on our current Board size of 13 directors, the maximum number of shareholder-nominated candidates that we would be required to include in our proxy materials for an annual meeting is two. The number of permitted candidates would include nominees submitted under the Proxy Access Bylaw that were either later withdrawn or that the Board subsequently decided to include in that year’s proxy materials as Board-nominated candidates. If the number of shareholder-nominated candidates exceeds 20%, each nominating shareholder would select one nominee for inclusion in our proxy materials until the maximum number is reached, selecting in order from the largest to the smallest of such shareholders based upon the number of Common Shares held by each nominating shareholder or group of shareholders.

Nominating Procedure. Under the Proxy Access Bylaw, requests to include director nominees in our proxy materials would need to be received within the time period applicable to notices of shareholder proposals made at annual meetings of shareholders pursuant to Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended.

Each shareholder or group of shareholders seeking to include a director nominee in our proxy materials would be required to provide certain information and make certain representations and undertakings at the time of nomination, including among others:

 

   

Proof that the nominating shareholder or group of shareholders has held the required number of Common Shares for the requisite period;

 

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A copy of shareholder’s notice on Schedule 14N required to be filed with the SEC;

 

   

The written consent of the shareholder nominee to being named in our proxy materials as a nominee and to serving as a director if elected;

 

   

The information required to be furnished by the advance notice provisions of our bylaws;

 

   

Representations regarding, among other things, the shareholder’s compliance with applicable laws, including compliance with proxy solicitation rules, and the lack of an intent to change or influence control of the Company; and

 

   

Undertakings to assume liability arising out of the information that the shareholder provides to us and to comply with all other rules and regulations applicable to any solicitation in connection with the annual meeting of shareholders.

Calculation of Ownership. To ensure that the interests of shareholders seeking to include director nominees in our proxy materials are aligned with those of other shareholders, such shareholder would be considered to own only the shares for which the shareholder possesses the full voting and investment rights and the full economic interest associated with the shares. Under the Proxy Access Bylaw, borrowed or hedged shares would not count as “owned” shares.

Supporting Statement. Shareholders would be permitted to include in our proxy statement a 500-word statement in support of their nominees; provided, however, that we may omit from our proxy materials any information or statement that we believe, in good faith, would be materially false or misleading, omits a material fact, or would violate any applicable law or regulation.

Re-Nomination of Shareholder Nominees. Shareholder nominees who are included in our proxy materials but subsequently withdraw from, or become ineligible or unavailable for, election at the annual meeting of shareholders, or who have not received at least 25% of the votes cast at the annual meeting of shareholders would be ineligible to be a nominee at our next two annual meetings of shareholders. In addition, we would not be required to include any shareholder-nominated candidates in our proxy materials for any annual meeting of shareholders for which any shareholder nominates one or more directors for election pursuant to the advance notice provisions of our bylaws (which are also included in Appendix A to this Proxy Statement).

Qualifications of Shareholder Nominees. We will not be required to include any nominee information in our proxy materials for any director nominee submitted by shareholders who (i) is not independent under the listing standards of the principal U.S. exchange upon which our Common Shares are listed, any applicable rules of the SEC, or any publicly-disclosed standards used by the Board in determining and disclosing the independence of our directors, (ii) provided any information to us or our shareholders that is not accurate, truthful and complete in all material respects, or that otherwise contravenes certain specified agreements or representations, (iii) has been an officer or director of a competitor, as defined in Section 8 of the Clayton Antitrust Act of 1914, within the past three years, (iv) is named a subject of a pending criminal proceeding (excluding traffic violations and other minor offenses) or has been convicted in a criminal proceeding within the past ten years, or (v) is subject to certain specified orders, including final orders of certain state and federal regulators, SEC disciplinary orders, SEC cease-and-desist orders and SEC stop orders.

Each director nominee would also be required to execute and deliver, among other things, a written questionnaire and an agreement designed to disclose various aspects of the nominee’s background, qualifications and certain specified arrangements with other persons, as well as to receive the nominee’s commitment to abide by certain specified agreements and undertakings.

Background of and Reasons for the Proposal

The proposal is a result of an ongoing review of corporate governance matters by the Board and its Nominating and Corporate Governance Committee. The Committee considered the advantages and disadvantages of providing proxy access rights to shareholders.

 

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The Committee considered the view of a substantial number of our shareholders who believe that proxy access rights would increase accountability of directors to shareholders and would give shareholders a more meaningful voice in electing directors. The Committee in its evaluation gave considerable weight to the approval at our 2013 annual meeting of a shareholder proposal urging the Board to take steps necessary to adopt a proxy access bylaw on terms substantially similar to those contained in the Proxy Access Bylaw recommended by our Committee and approved by our Board and set forth in Appendix A.

The Committee also considered the potential harm that proxy access rights could have on the Board’s effectiveness and ability to fulfill its oversight responsibility to you as shareholders. Opponents of proxy access believe that this amendment could, among other things, lead to an inexperienced, fragmented, and less effective Board with directors who may pursue narrow special interests.

Certain Effects of Approval or Disapproval of the Proposal

If approved by the shareholders at the meeting, the Proxy Access Bylaw would be effective immediately and available for use at our next annual shareholders’ meeting in 2015. If the Proxy Access Bylaw is not approved by our shareholders, it will not take effect. In that event, shareholders would continue to be permitted to submit director nominations under our existing advance notification bylaw, subject to complying with various notification and informational requirements summarized under “Corporate Governance — Director Nomination Process,” but would not have the right to require us to include information with respect to any such qualifying nominations in our proxy materials.

Vote Required

Since the Board has approved the Proxy Access Bylaw and is presenting it to shareholders for ratification, approval of the Proxy Access Bylaw will require the affirmative vote of holders of at least a majority of the Voting Shares present or represented at the meeting.

The Board of Directors recommends a vote FOR this proposal.

ADVISORY VOTE ON EXECUTIVE COMPENSATION

(Item 4 on Proxy or Voting Instruction Card)

This year we are once again providing you with the opportunity to vote on a non-binding, advisory resolution to approve the compensation of our named executive officers as disclosed in this proxy statement pursuant to the rules of the SEC.

Under our executive compensation programs, our named executive officers are rewarded for achieving specific annual and long-term goals, as well as increased shareholder value. We believe this structure aligns executive pay with our financial performance and the creation of sustainable shareholder value. The Compensation Committee of our Board continually reviews our executive compensation programs to ensure they achieve the goals of aligning our compensation with current market practices and your interests as shareholders. For additional information on our executive compensation, we urge you to read the “Compensation Discussion and Analysis” and “Executive Compensation” sections of this proxy statement.

At the meeting, we will ask you to vote, in an advisory manner, to approve the overall compensation of our executive officers, as described herein further below, including the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosures. This proposal, commonly known as a “say-on-pay” proposal, gives you the opportunity to express your views. This advisory vote is not intended to address any specific item of compensation, but rather the overall compensation policies and practices with

 

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respect to our named executive officers as described in this proxy statement. Accordingly, your vote will not directly affect or otherwise limit any existing compensation or award arrangement of any of our named executive officers. It is our current policy to provide you this advisory voting opportunity annually.

While this “say-on-pay” vote is advisory and will not be binding on our Company or the Board, it will provide valuable information to our Compensation Committee regarding shareholder sentiment about our executive compensation. Additionally, we invite shareholders who wish to communicate with our Board on executive compensation or any other matters to contact us as provided under “Corporate Governance — Top Leadership Positions and Structure.”

Approval of this proposal will require the affirmative vote of the holders of at least a majority of the Voting Shares present or represented at the meeting.

The Board recommends that you vote FOR the overall compensation of our named executive officers as described in this proxy statement.

SHAREHOLDER PROPOSAL

(Item 5 on Proxy or Voting Instruction Card)

We periodically receive suggestions from our shareholders, some as formal shareholder proposals. We give careful consideration to all suggestions, and assess whether they promote the best long-term interests of CenturyLink and its shareholders.

The Board of Trustees of the International Brotherhood of Electrical Workers Pension Fund, located at 900 Seventh Street, NW, Washington D.C., 20001, has informed us that it beneficially owns, and has beneficially owned for more than a year, at least $2,000 of our Common Shares and that it intends to present for consideration at the meeting the following proposal (and has furnished the following statement in support of the proposal). We take no responsibility for this proposal. Adoption of this proposal requires the affirmative vote of the holders of at least a majority of the Voting Shares present or represented at the meeting.

Shareholder Proposal: “RESOLVED: Shareholders of CenturyLink (the “Company”) urge the Compensation Committee of the Board of Directors (the “Committee”) to adopt a policy requiring that senior executives retain a significant percentage of shares acquired through equity compensation programs until reaching normal retirement age or terminating employment with the Company. For the purpose of this policy, normal retirement age shall be defined by the Company’s qualified retirement plan that has the largest number of plan participants. The shareholders recommend that the Committee adopt a share retention percentage requirement of at least 75 percent of net after-tax shares. The policy should prohibit hedging transactions for shares subject to this policy which are not sales but reduce the risk of loss to the executive. This policy shall supplement any other share ownership requirements that have been established for senior executives, and should be implemented so as not to violate the Company’s existing contractual obligations or the terms of any compensation or benefit plan currently in effect.

Supporting Statement: Equity-based compensation is an important component of senior executive compensation at our Company. While we encourage the use of equity-based compensation for senior executives, we are concerned that our Company’s senior executives are generally free to sell shares received from our Company’s equity compensation plans. In our opinion, the Company’s current share ownership guidelines for its senior executives do not go far enough to ensure that the Company’s equity compensation plans continue to build stock ownership by senior executives over the long-term.

For example, our Company’s share ownership guidelines require the Chief Executive Officer (the “CEO”) to hold an amount of shares equivalent to six times his base salary, or approximately 206,968 shares based on the

 

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current trading price. In comparison, the CEO currently owns more than a million shares. Whatsmore, in 2012, our Company granted the CEO 58,843 time-vested stock awards and 58,844 performance-based stock awards based on target. In other words, two year’s equity awards could surpass the Company’s long-term share ownership guidelines for the CEO.

Our proposal seeks to better link executive compensation with long-term performance by requiring a meaningful share retention ratio for shares received by senior executives from the Company’s equity compensation plans. Requiring senior executives to hold a significant percentage of shares obtained through equity compensation plans until they reach retirement age will better align the interests of executives with the interests of shareholders and the Company. A 2009 report by the Conference Board Task Force on Executive Compensation observed that such hold-through-retirement requirements give executives ‘an ever growing incentive to focus on long-term stock price performance as the equity subject to the policy increases’ (available at http://www.conference-board.org/pdf_free/ExecCompensation2009.pdf).

We believe that requiring senior executives to only hold shares equal to a set target loses effectiveness over time. After satisfying these target holding requirements, senior executives are free to sell all the additional shares they receive in equity compensation.”

The Board recommends that you vote AGAINST this proposal for the following reasons:

For the second consecutive year (and for the third time in five years), you are being asked to vote on this same topic. Holders of less than 25% and 27%, respectively, of the voted shares supported nearly identical proposals at our 2010 and 2013 annual shareholders’ meetings. For the reasons discussed below, we continue to believe that our existing compensation policies adequately address the concerns addressed in this proposal.

The Board agrees with the proponent that equity ownership by executive officers serves to align the long-term interests of our senior executives and shareholders. We believe, however, that sensible stock ownership and compensation programs balance the importance of aligning the long-term interests of executives and shareholders with the need to permit executives and shareholders to prudently manage their personal financial affairs. As described further below, the Board believes that our stock ownership guidelines, in conjunction with our performance-based compensation plans and policies, successfully strike this balance effectively, making the adoption of the current proposal unnecessary. By contrast, the rigid anti-diversification mandate inherent in this proposal could be harmful in several respects, and put us at a competitive disadvantage for attracting and retaining executive officers.

Our executives are already subject to share ownership requirements. Our stock ownership guidelines (which are discussed further in “Corporate Governance — Governance Guidelines” and “Compensation Discussion and Analysis — Stock Ownership Guidelines”) mandate significant stock ownership for all of our executives. As noted in the proponent’s supporting statement, these guidelines require our CEO to beneficially own CenturyLink stock with a value of at least six times his annual base salary, and further require all other executive officers to beneficially own CenturyLink stock with a value of at least three times their annual base salary. All of our top executives own CenturyLink stock at levels well in excess of these requirements. For instance, our CEO currently holds stock valued at over 35 times his current salary. We believe that our stock ownership guidelines accomplish the proponent’s intended purpose of aligning executive and shareholder interests through at-risk equity ownership.

Our compensation plans and policies further align the long-term interests of our executives and shareholders. Our executive compensation plans and policies are carefully designed to provide additional alignment of the long-term interests of our senior executives and shareholders. Typically, a substantial majority of our annual executive compensation consists of awards of time-vested and performance-based restricted stock. Our time-vested restricted stock typically vests over a three-year period so that our executives realize full value from the grants only after serving us for at least three years, while our performance-based restricted stock vests

 

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only if we achieve our three-year threshold level of targeted performance. As such, the value realized upon vesting of our restricted stock is directly tied to our long-term performance and the appreciation of our stock price over the vesting period, which benefits all shareholders. In addition, we have implemented both anti-hedging and anti-pledging policies to ensure that our executives bear the full economic risk and reward of their stock ownership, and that their economic interests remain fully aligned with the economic interests of our other shareholders. We also have implemented recoupment policies designed to further assure a linkage between our executive compensation and our long-term performance. We believe our compensation plans and policies, coupled with our above-described stock ownership guidelines, achieve the central objective of this shareholder proposal.

Adoption of the proponent’s proposal could be harmful in several respects. While it is essential that our executive officers have a meaningful equity stake in our Company, the Board also believes that it is important that we do not place undue hardships on our executive officers and do not disable them from being able to responsibly manage their personal financial affairs. The adoption of this policy would limit our executive officers’ abilities to engage in customary and prudent estate planning, portfolio diversification or charitable giving. Worse yet, these onerous restrictions could create a strong incentive for senior executives to resign in order to realize the value of their prior service. We believe that the type of retention policy described in this proposal is not common among our peers and that the adoption of this proposal would put us at a competitive disadvantage relative to our peers who do not have such restrictions.

Our guidelines, plans and policies are better balanced than the proponent’s proposal. We believe our Compensation Committee of independent directors is best suited to formulate executive compensation principles and practices that discourage excessive risk-taking and promote long-term, sustainable value creation, and that it should have the flexibility to structure effective and competitive compensation policies and programs. We believe that our current mix of ownership guidelines, compensation practices and policies provide for an appropriate balance between aligning the long-term interests of management and the shareholders, while also permitting our executives to prudently manage their own affairs.

For all these reasons, our Board believes this proposal is unnecessary and undesirable, and contrary to your best interests.

 

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OWNERSHIP OF OUR SECURITIES

Principal Shareholders

The following table sets forth information regarding ownership of our Common Shares by the persons known to us to have beneficially owned more than 5% of the outstanding Common Shares on December 31, 2013, unless otherwise noted.

 

Name and Address

   Amount and
Nature of
Beneficial
Ownership of
Common  Shares(1)
    Percent of
Outstanding
Common  Shares(1)
 

Capital Research Global Investors

333 South Hope Street

Los Angeles, California 90071

     72,406,172 (2)      12.4

Blackrock, Inc.

40 East 52nd Street

New York, New York 10022

     35,059,498 (3)      6.0

State Street Corporation

State Street Financial Center

One Lincoln Street

Boston, Massachusetts 02111

     34,401,538 (4)      5.9

Capital Income Builder

333 South Hope Street

Los Angeles, California 90071

     32,819,235 (5)      5.6

 

(1) The figures and percentages in the table above have been determined in accordance with Rule 13d-3 of the SEC based upon information furnished by the investors listed, except that we have calculated the percentages in the table based on the actual number of Common Shares outstanding on December 31, 2013, as opposed to the estimated percentages set forth in the reports of the investors referred to below in notes 2 through 5. In addition to Common Shares, we have outstanding Preferred Shares that vote together with the Common Shares as a single class on all matters. One or more persons beneficially own more than 5% of the Preferred Shares; however, the percentage of total voting power held by such persons is immaterial. For additional information regarding the Preferred Shares, see “Questions and Answers About the Meeting — How many votes may I cast?”
(2) Based on information contained in a Schedule 13G/A Report dated as of February 13, 2014 that this investor filed with the SEC. In this report, the investor indicated that, as of December 31, 2013, it held sole voting and dispositive power with respect to all of these shares in its capacity as an investment adviser to various investment companies, including Capital Income Builder, which has separately reported its beneficial ownership interest in what we believe to be a portion of these shares pursuant to the Schedule 13G Report described in note 5 below.
(3) Based on information contained in a Schedule 13G/A Report dated as of February 10, 2014 that this investor filed with the SEC. In this report, the investor indicated that, as of December 31, 2013, it held sole voting power with respect to 29,818,614 of the shares and sole dispositive power with respect to all of these shares.
(4) Based on information contained in a Schedule 13G Report dated as of February 3, 2014 that this investor filed with the SEC. In this report, the investor indicated that, as of December 31, 2013, it shared voting and dispositive power with respect to all of these shares with various of its subsidiaries specified in such report.
(5) Based on information contained in a Schedule 13G Report dated as of February 14, 2014 that this investor filed with the SEC. In this report, the investor indicated that, as of December 31, 2013, it held sole voting power with respect to all of these shares and sole dispositive power with respect to none of these shares in its capacity as an investment company advised by Capital Research Global Investors, whose interest in what we believe to be a portion of these shares is described in note 1 above.

 

 

 

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Executive Officers and Directors

The following table sets forth information, as of the record date, regarding the beneficial ownership of Common Shares by our executive officers and directors. Except as otherwise noted, all beneficially owned shares are held with sole voting and investment power and are not pledged to third parties.

 

     Components of Total Shares Owned     

Name

   Unrestricted
Shares

Beneficially
Owned(1)
   Unvested
Restricted
Stock(2)
   Options or
Rights

Exercisable
Within 60
Days(3)
   Total
Shares
Beneficially
Owned(4)

Executive Officers

           

Glen F. Post, III

           

Karen A. Puckett(5)

           

R. Stewart Ewing, Jr.

           

Stacey W. Goff

           

William E. Cheek

           

David D. Cole(6)

           

Maxine L. Moreau

           

Jeffrey H. Von Deylen

           

Scott A. Trezise

           

Outside Directors:

           

Virginia Boulet(7)

           

Peter C. Brown

           

Richard A. Gephardt

           

W. Bruce Hanks

           

Gregory J. McCray

           

C.G. Melville, Jr.

           

Fred R. Nichols

           

William A. Owens

           

Harvey P. Perry(8)

           

Michael J. Roberts

           

Laurie A. Siegel

           

Joseph R. Zimmel(9)

           

All directors and executive officers as a group (21 persons)(10)

           

 

(1) This column includes the following number of shares allocated to the individual’s account under one of our qualified 401(k) plans: [] — Mr. Post; [] — Ms. Puckett; [] — Mr. Ewing; [] — Mr. Goff; [] — Mr. Cheek; [] — Mr. Cole; [] — Ms. Moreau; [] — Mr. Von Deylen; and [] — Mr. Trezise. Participants in these plans are entitled to direct the voting of their plan shares, as described in greater detail elsewhere herein.
(2) Reflects (i) for all shares listed, unvested shares of restricted stock over which the person holds sole voting power but no investment power, and (ii) with respect to our performance-based restricted stock granted to our executive officers in 2012, 2013 and 2014, the number of shares that will vest if we attain target levels of performance.
(3) Reflects shares that the person has the right to acquire within 60 days of the record date pursuant to options granted under our incentive compensation plans; does not include (i) shares that might be issued under restricted stock units if our performance exceeds target levels, (ii) options held by former spouses, or (iii) “phantom units” held by Mr. Roberts that are payable in cash upon the termination of his service as a director, as described further under “Director Compensation — Other Benefits.”
(4)

None of the persons named in the table beneficially owns more than 1% of the outstanding Common Shares. The shares beneficially owned by all directors and executive officers as a group constituted []% of the

 

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  outstanding Common Shares as of the record date (calculated in accordance with rules of the SEC assuming that all options listed in the table have been exercised for Common Shares retained by the recipient).
(5) Includes [202] shares held by Ms. Puckett as custodian for the benefit of her children.
(6) Includes [6,898] plan shares beneficially held by Mr. Cole’s wife, one of our former employees, in her accounts under our qualified 401(k) plan, as to which Mr. Cole disclaims beneficial ownership.
(7) Includes [955] shares held by Ms. Boulet as custodian for the benefit of her children.
(8) Includes [709] shares beneficially held by Mr. Perry’s spouse, as to which Mr. Perry disclaims beneficial ownership, and [] shares held by Mr. Perry through our dividend reinvestment plan (as of the most recent date practicable).
(9) Includes [] shares held by Mr. Zimmel through our dividend reinvestment plan (as of the most recent date practicable).
(10) Includes (i) [7,607] shares held beneficially by the spouses of these individuals, as to which beneficial ownership is disclaimed, (ii) [1,157] shares held as custodian for the benefit of children of such individuals and (iii) [] shares held through our dividend reinvestment plan (as of the most recent date practicable), all as described further in the notes above.

 

 

COMPENSATION DISCUSSION AND ANALYSIS

In this CD&A, we first summarize our 2013 business and executive compensation highlights, our commitment to aligning executive pay with performance and value creation, our general compensation philosophy, and our compensation programs and benchmarking practices for our named executive officers in 2013. We then describe the various elements of our compensation programs in detail. Finally, we discuss our compensation decision-making process and various other compensation-related matters. Our named executive officers for 2013 were:

 

•   Glen F. Post, III

   Chief Executive Officer and President

•   Karen A. Puckett

   Executive Vice President and Chief Operating Officer

•   R. Stewart Ewing, Jr.

   Executive Vice President, Chief Financial Officer and Assistant Secretary

•   Stacey W. Goff

   Executive Vice President, General Counsel and Secretary

•   David D. Cole

   Executive Vice President — Controller and Operations Support

Executive Summary

As described further below, the central goals of our executive pay programs are to incentivize our executives to attain objectives that we believe will create shareholder value, to reward performance that contributes to the execution of our business strategies, and to attract and retain the right executives for our business.

2013 Business Highlights. During 2013, we achieved several significant accomplishments, including the following:

 

   

Improved our core revenue (which is the sum of the strategic revenues and legacy revenues line items from our Consolidated Statements of Operations) trend by 100 basis points, to a 1.3% decline in 2013 from 2.3% in 2012, representing continued solid progress toward revenue stability and anticipated growth over time.

 

   

Generated strategic revenue growth of nearly $400 million, a 4.7% increase from 2012, and realized 99.3% of our 2013 target goal.

 

   

Added approximately 140,000 high-speed Internet (broadband) customers during the year, representing 2.4% year over year growth.

 

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Expanded availability of our facilities-based video services, marketed as PrismTM TV, to approximately 800,000 additional households during 2013; achieved a record 64% increase in annual PrismTM TV customer growth, adding nearly 69,000 subscribers during the year.

 

   

Launched Managed Office, featuring user-friendly, fully managed IT services and communication solutions bundles for businesses of all sizes that deliver a level of customer service typically available only to larger business customers.

 

   

Successfully completed over $2.5 billion of debt refinancing transactions, which, coupled with other related financing transactions, (i) simplified our capital and public reporting structure and (ii) extended the average maturity of our outstanding debt.

 

   

Completed our acquisitions of AppFog, Inc. and Tier 3, Inc., further strengthening and enhancing our managed hosting and cloud solutions infrastructure and capabilities.

 

   

Repurchased 46 million Common Shares for $1.57 billion during 2013, representing 7.3% of shares outstanding as of December 31, 2012.

2013 Executive Compensation Highlights. During 2013, the Compensation Committee of our Board took various steps to (i) continue its prior efforts to reduce the gap between the compensation of our named executive officers and their peers at other companies caused by the rapid acquisition-driven growth in the size, territorial reach and complexity of the Company and (ii) strengthen the linkage between executive pay and our performance and strategic goals. Our recent key executive compensation decisions and highlights are summarized below.

 

   

In May 2013, we received the favorable vote of over 94% of our shareholders with regards to our annual “say on pay” vote.

 

   

Our 2013 operating performance resulted in annual incentive bonus performance payouts of 102% for each of our named executive officers, other than our chief operating officer, whose 2013 performance merited a 107.1% payout.

 

   

After increasing the base salaries of our named executive officers in August 2012, the Compensation Committee increased short- and long-term incentive opportunities for our named executive officers in May 2013 to address pay gaps and move compensation levels closer to the 50th percentile of market levels, as described further in “Summary of 2013 Compensation for our Named Executives — Shortfall in Compensation Levels.”

 

   

The Compensation Committee also modified the design of our short- and long-term incentive programs, further aligning executive pay with business performance and strategies. See further discussion of these changes below under “Pay for Performance.”

Pay for Performance

We believe that a significant portion of our executives’ compensation should be payable only when merited by our performance. Currently, all of the annual bonus compensation of each of our senior officers and half of their long-term equity incentive compensation is payable only if we attain certain specified goals, thereby placing a substantial portion of their compensation at risk. The remaining portion of our senior officers’ long-term equity incentive compensation is currently paid in time-vested restricted stock, the value of which is dependent on our performance over an extended vesting period. This pay element is designed to create additional incentives for our executives to focus on sustainable, long-term growth. We took the following steps in 2013 to further strengthen the linkage between our executive pay and our performance:

 

   

The above-described modifications of compensation programs increased the portion of target total direct compensation that is performance-based from 52% to 53% for our CEO and on average from 47% to 51% for our other named executives.

 

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The Compensation Committee increased, from 30% to 50%, the portion of the annual bonus dependent upon attainment of strategic revenue and strategic goals and increased the number and specificity of the strategic goals.

 

   

The Compensation Committee awarded half of the performance-based restricted shares based upon a new revenue target over a three year performance period and the other half upon our relative total shareholder return versus a new custom peer group over a three year performance period.

For further information on the performance goals established by our Compensation Committee, see below “— Annual Incentive Bonuses” and “— Long-Term Equity Incentive Compensation.” For more information on our recent financial performance, see Appendix B to this proxy statement.

Realized Vesting of Performance-Based Restricted Stock. Our past issuances of performance-based restricted shares provide further evidence of our “pay for performance” philosophy. In 2010 and 2011, the Committee granted half of the value of the executives’ long-term awards in the form of performance-based restricted stock measured against our total shareholder return relative to the S&P 500 index, with the other half being in the form of time-vested restricted stock.

 

   

The 2010 performance-based restricted shares had a performance period of January 1, 2010 through December 31, 2012 and our total shareholder return was 35.29%, which ranked 254 out of 471 (representing the number of S&P 500 index companies remaining) or the 46th percentile, which resulted in a 92% payout rate. Ultimately, 92% of the target number of performance-based restricted shares granted for each of our officers vested in March 2013, with all remaining shares being forfeited.

 

   

The 2011 performance-based restricted shares had a performance period of January 1, 2011 through December 31, 2013 and our total shareholder return was (14.42)%, which ranked 431 out of 472 (representing the number of S&P 500 index companies remaining) or the ninth percentile, which was below threshold and resulted in a 0% payout. In February 2014, the Compensation Committee confirmed that none of the target performance-based restricted shares granted in 2011 will vest, and all shares were forfeited.

Assessment of “Say on Pay” Voting Results. In May 2012 and 2013, over 96% and 94%, respectively, of the votes cast by our shareholders with respect to our “say on pay” proposal were favorable. In connection with making executive compensation decisions since May 2013, the Committee has taken note of this vote, and concluded that shareholders are generally satisfied with the scope and structure of our compensation programs. Nonetheless, the Committee has continued to change and refine these programs in an effort to further promote the goals of our executive compensation philosophy described below.

Our Compensation Philosophy

We compensate our senior management through a mix of programs designed to be market-competitive and fiscally responsible. More specifically, our executive compensation programs are designed to:

 

   

provide performance-based reward opportunities that support growth and innovation without encouraging excessive risk taking,

 

   

reinforce our business strategies and our creation of long-term shareholder value by making substantial amounts of our executives’ compensation dependent upon attaining these goals,

 

   

align the interests of executives and shareholders by providing a majority of our executive compensation in the form of long-term equity grants,

 

   

attract, retain and motivate key executives by targeting compensation at the 50th percentile of market levels with an appropriate mix of fixed and variable compensation, short-term and long-term incentives, and cash and equity-based pay,

 

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recognize and support outstanding contributions and results, both on an individual basis and a company or divisional basis,

 

   

manage cost and share dilution, and

 

   

promote internal equity by offering comparable remunerative opportunities to executives whom we expect to make roughly equivalent contributions, while differentiating executives’ compensation arrangements when appropriate.

Our Compensation Practices

To assist us in achieving our broad compensation goals outlined above, we apply the following practices (many of which are described further elsewhere in this CD&A):

What We Do

 

 

   

Adhere to various other executive compensation “best practices,” including (i) a commitment to performance-based compensation weighted heavily towards long-term equity awards, (ii) requiring our executives to own a significant amount of our stock, (iii) reviewing annually our compensation programs to avoid encouraging excessively risky behavior, (iv) conducting annual “say-on-pay” votes and (v) maintaining a compensation “clawback” policy

 

   

Annually review the continued appropriateness of our peer group

 

   

Benchmark base salary and annual and long-term incentive opportunities against 50th percentile peer compensation levels

 

   

Incorporate into our executive compensation decisions the results of intensive annual full-day performance reviews of our senior officers led by independent directors serving on our Nominating and Corporate Governance Committee and our Compensation Committee

 

   

Limit the number of performance-based restricted shares that will vest if our total shareholder return over the applicable performance period is negative (regardless of how strong our relative performance is)

 

   

Require shareholders to approve any future severance agreements valued at more than 2.99 times the executive’s target cash compensation

 

   

Require our executives to agree to compensation forfeiture covenants broader than those mandated by law.

What We Don’t Do

 

 

   

Enter into employment agreements with our incumbent executives

 

   

Maintain a supplemental executive retirement plan

 

   

Permit our directors or employees to hedge our stock, or our directors or senior officers to pledge our stock

 

   

Pay dividends on our executives’ unvested restricted stock

 

   

Permit the Compensation Committee’s current consultant to provide services to CenturyLink

 

   

Pay, provide or permit (i) excessive perquisites, (ii) excise tax “gross-up” payments, (iii) single-trigger change of control equity acceleration benefits or (iv) other comparable disfavored compensation practices.

 

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Use of “Benchmarking” Data

With assistance from its compensation consultant, the Compensation Committee assembles “peer groups” of other companies comparable to CenturyLink in order to compare:

 

   

the compensation of our executives against individuals who work in similarly-situated positions at peer companies (“compensation benchmarking”), and

 

   

our relative company-wide performance against the performance of other peer companies (“performance benchmarking”).

We generally endeavor to perform this analysis in the fourth quarter of a year in order to determine compensation levels and pay actions, if any, for the upcoming year. See the further discussion below in “— Our Compensation Decision-Making Process — Review Process.”

Compensation Benchmarking. Assuming targeted levels of performance are achieved, we strive to provide to each executive who has demonstrated strong performance total compensation within a range of the median of compensation levels paid by a designated group of peer companies selected by our Compensation Committee. We believe that this practice allows us to attract and retain talented executives, while also enabling us to maintain a competitive cost base with respect to compensation expense.

Over the past year, the Compensation Committee used the following data, based on input from its compensation consultant, to benchmark compensation levels for our executives against individuals who work in similarly-situated positions at comparable companies:

 

   

general survey data compiled by the compensation consultant containing compensation information about a broad range of public companies generally similar in size to us, and

 

   

compensation data publicly disclosed by companies included within the compensation peer group described below.

Since our 2011 acquisitions of Qwest and Savvis, we have made several refinements to our compensation benchmarking peer group to match the increased size, complexity and diversity of our expanded operations. In August 2012, the Committee adopted the following 13-company peer group for compensation benchmarking in support of pay decisions for 2013:

 

Cablevision Systems Corporation

   Motorola Solutions, Inc.

Charter Communications, Inc.

   NII Holdings, Inc.

Comcast Corporation

   QUALCOMM Incorporated

DIRECTV

   Sprint Nextel Corporation

DISH Network Corporation

   Time Warner Cable Inc.

Frontier Communications Corporation

   Viacom Inc.

Liberty Global, Inc.

  

In selecting these 13 peer companies, the Committee focused principally on cable and other communications companies that are generally comparable to us in terms of size, markets and operations. The Committee elected to include two other telecommunication companies (Sprint and Frontier), but elected not to include Verizon or AT&T, both of which are substantially larger than us, or any other telecommunication companies, all of which are substantially smaller than us.

The Committee reviews its compensation benchmarking peer group annually to ensure that it remains well-suited for its intended purposes. In October 2013, in support of pay decisions for 2014, the Committee made changes to this peer group by removing Liberty Global, Inc. due to its merger and removing Frontier Communications Corporation due to a decline in revenue size.

 

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For additional information about how we set pay levels, see “— Our Compensation Decision-Making Process.”

Performance Benchmarking. In 2013, the Committee constructed an additional peer group in connection with its grant of performance-based restricted stock to our senior officers on May 23, 2013. As explained in greater detail under the heading “— Long-Term Equity Incentive Compensation,” the Committee elected to base the vesting of half of the 2013 grants of performance-based restricted shares on our relative total shareholder return between January 1, 2013 and December 31, 2015 compared to that of the 30-company industry peer group described below. In prior years, the Committee compared our total shareholder return to that of the S&P 500 index for these purposes. In 2013, the Committee determined that it could construct a broad industry peer group with historical total shareholder returns that correlate more closely with our historical total shareholder returns, when compared to correlations of our returns with the S&P 500 index and other readily-available indexes. With the aid of its compensation consultant, the Committee selected the following companies to comprise its 30-member peer group for performance benchmarking:

 

Finisar Corporation

   Windstream Corporation

General Communication, Inc.

   Consolidated Communications Holdings, Inc.

IDT Corporation

   DISH Network Corporation*

Cogent Communications Group, Inc.

   USA Mobility, Inc.

JDS Uniphase Corporation

   Virgin Media Inc.

Time Warner Cable Inc.*

   Sirius XM Radio Inc.

Motorola Solutions, Inc.*

   Ciena Corporation

TW Telecom Inc.

   NII Holdings, Inc.*

United States Cellular Corp

   Cablevision Systems Corporation*

AT&T Inc.

   Viacom Inc.*

Sprint Nextel Corporation*

   LodgeNet Interactive Corporation

Level 3 Communications, Inc.

   Liberty Global, Inc.*

Verizon Communications Inc.

   Cincinnati Bell Inc.

Comcast Corporation*

   Telephone and Data Systems, Inc.

Multiband Corporation

   Crown Castle International Corp.

 

* Also included in the Committee’s above-listed 13-company peer group used for 2013 compensation benchmarking.

Overview of Elements and Amounts of Compensation

We believe the following elements of our compensation program help us to realize our compensation philosophy and objectives:

 

   

Base Salary. Base salary provides a competitive and stable component of income to our executives, as a majority of their total compensation is variable and contingent on performance from year to year.

 

   

Annual Incentive Bonuses. This element provides competitively based short-term incentive opportunities for our executives to earn annual cash bonuses for achieving financial or strategic goals that are established by the Compensation Committee each fiscal year. See “— Annual Incentive Bonuses” for a description of how the Committee sets goals and determines annual incentive bonuses.

 

   

Long-Term Incentive Compensation. Long-term incentive compensation ensures that our executives’ interests are aligned with those of our shareholders. During 2013, the Company further strengthened the “pay-for-performance” component of our long-term incentive compensation program by (i) adding a new three-year revenue goal in addition to relative total shareholder return measured over a three-year performance period and (ii) constructing a new custom peer group. For further discussion, see “— Long-Term Equity Incentive Compensation” below.

 

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Other Benefits. We believe our other benefit programs, which comprise a minimal portion of our executive officers’ total annual compensation, are in line with standard market practices. For further discussion, see “— Other Benefits” below.

 

   

Change of Control and Severance Benefits. We do not have individual employment agreements, but rather have adopted change of control agreements and an executive severance program offering customary severance benefits in order to retain executives and enhance their productivity by alleviating concerns about the economic impact of involuntary terminations of employment and, in the case of a change of control, providing continuity of management. We do not offer tax “gross-up” provisions and have “double-trigger” change of control provisions. For further discussion, see “— Other Benefits” below.

Summary of 2013 Compensation for our Named Executive Officers

General. Two of the core principles of our compensation philosophy are to offer competitive compensation to our named executive officers at the 50th percentile of market levels with an appropriate mix of fixed and variable compensation. Our 2013 annual incentive bonus target percentages and the total fair value of our 2013 equity grants for our executive officers were based on these principles.

 

   

Annual Incentive Bonus Target Percentage. In determining the bonus target percentage for each senior officer, the Committee discussed each officer’s responsibilities, capabilities, performance and contributions both against individual goals and objectives as well as in comparison to internal peers. The Committee also reviewed market data regarding annual incentive compensation paid to comparable executives at peer companies reflected in the benchmarking data compiled by the compensation consultant.

 

   

Long-Term Incentive Compensation. In determining the size of each senior officer’s 2013 grant, the Committee (i) discussed each officer’s responsibilities, capabilities, performance and contributions, (ii) reviewed market data regarding long-term incentive compensation paid to comparable executives at peer companies reflected in the benchmarking data compiled by the compensation consultant, and (iii) reviewed current equity ownership levels to ensure they are sufficient to adequately incentivize our officers to create sustainable long-term shareholder value and to mitigate the risk associated with competitor offer packages.

As discussed further below under “— Shortfall in Compensation Levels,” the Committee’s compensation consultant advised us in 2013 that our annual incentive bonus targets and long-term incentive compensation were both well below market-competitive compensation levels of peer companies. After assessing all of these factors, in 2013 the Committee granted the increased awards illustrated in the charts in the next section below.

 

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Shortfall in Compensation Levels. Over the past few years, our rapid growth through acquisitions has caused our total target compensation levels to fall well below market-competitive compensation levels. The Committee took a two-step approach to address these pay gaps and move compensation levels closer to the 50th percentile of market levels. The Committee increased named executives’ salaries in August 2012, as reported in our 2013 proxy statement, and increased the named executives’ short- and long-term incentive opportunities in May 2013. These changes to compensation are illustrated in the charts below.

 

LOGO

Note: All market data reflected in the charts above represents target total direct compensation as of August 2012, which was the most recent information available when the Committee took action in May 2013.

Prior to our August 2012 base salary increases, Mr. Post’s target total direct compensation was below the 25th percentile of market compensation levels and 51% of market median compensation levels. As a result of Mr. Post’s strong performance and his below market-competitive level, in May 2013 the Committee took the following actions, (i) increased his bonus target percentage from 125% to 150% and (ii) increased his targeted aggregate grant date fair value from $4,400,000 to $6,600,000, which puts all 2013 compensation increases at risk or subject to the performance of our stock. Following these compensation increases, Mr. Post’s target total direct compensation was slightly above the 25th percentile of market compensation levels and 71% of market median compensation levels.

Prior to our August 2012 base salary increases, Ms. Puckett’s target total direct compensation was between the 25th and 50th percentile of market compensation levels and 70% of market median compensation levels. In May 2013, the Committee increased her bonus target percentage from 85% to 110% and increased her targeted aggregate grant date fair value from $1,920,000 to $2,283,750, which puts all 2013 compensation increases at risk or subject to the performance of our stock. Following these compensation increases, Ms. Puckett’s target total direct compensation was between the 25th and 50th percentile of market compensation levels and 85% of market median compensation levels.

Prior to our August 2012 base salary increases, Mr. Ewing’s target total direct compensation was below the 25th percentile of market compensation levels and 84% of market median compensation levels. In May 2013, the Committee increased his bonus target percentage from 85% to 110% and increased his targeted aggregate grant date fair value from $1,488,000 to $1,560,000, which puts all 2013 compensation increases at risk or subject to the performance of our stock. Following these compensation increases, Mr. Ewing’s total direct compensation was slightly below the 50th percentile of market compensation levels and 95% of market median compensation levels.

Prior to our August 2012 base salary increases, Mr. Goff’s target total direct compensation was between the 25th and 50th percentile of market compensation levels and 73% of market median compensation levels. In May 2013, the Committee increased his bonus target percentage from 65% to 110% and increased his targeted aggregate grant date fair value from $1,104,000 to $1,200,000, which puts all 2013 compensation increases at

 

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risk or subject to the performance of our stock. Following these compensation increases, Mr. Goff’s target total direct compensation was below the 50th percentile of market compensation levels and 90% of market median compensation levels.

Prior to our August 2012 base salary increases, Mr. Cole’s target total direct compensation was between the 25th and 50th percentile of market compensation levels and 81% of market median compensation levels. In May 2013, the Committee increased his bonus target percentage from 65% to 90% and increased his targeted aggregate grant date fair value from $1,104,000 to $1,140,000, which puts all 2013 compensation increases at risk or subject to the performance of our stock. Following these compensation increases, Mr. Cole’s target total direct compensation was below the 50th percentile of market compensation levels and 91% of market median compensation levels.

Each element of our 2013 compensation is discussed further below under the headings “— Salary,” “— Annual Incentive Bonuses” and “— Long-Term Equity Incentive Compensation.” In each case, more information on how we determined specific pay levels is located under the heading “— Our Compensation Decision-Making Process.”

Salary

General. In the first half of 2013, the Committee determined that the named executives’ then-prevailing salaries were generally in alignment with their targeted 50th percentile salary levels based on data compiled by its compensation consultant. Although several of the named executives’ salaries were below mean levels, the Committee elected to make no changes to the named executives’ salaries during 2013 in light of the Committee’s desire to emphasize incentive compensation opportunities more than salary.

Recent Actions. In February 2014, the Committee increased Mr.  Goff’s salary by 5% to $525,000. There were no other changes to our remaining executive officers’ salaries.

Annual Incentive Bonuses

General. We design our annual cash bonus programs based on performance objectives that, if attained, can reasonably be expected to (i) promote our business and strategic objectives and (ii) correspond to those paid to similarly-situated and comparably skilled executives at peer companies. We currently offer annual incentive bonuses to 100% of our non-union and non-sales employees.

The 2013 bonuses paid to our named executives were calculated under a two-step process. In step one, the Committee determined that we had attained during 2013 a 14.1% operating cash flow return on average assets, which exceeded the target level established by the Committee in March 2013 under a program designed to qualify our 2013 annual bonuses as performance-based compensation for purposes of Section 162(m) of the Internal Revenue Code. By exceeding this target, each of our named executives qualified for potential annual bonuses up to a fixed maximum amount defined as a percentage of the executive’s 2013 salary.

 

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In step two, the Committee authorized actual bonuses substantially lower than these maximum potential bonuses. The 2013 bonuses actually paid to our named executives were determined by measuring the executives’ performance against the specific objectives and targets established by the Committee in 2013 and described below under the heading “— Performance Objectives and Targets.” The actual amounts of the named officers’ 2013 bonuses were calculated as follows:

 

Named Officer

   2013
Salary
     x    Bonus
Target %
    x    Earned
Performance  %(1)
    =    Bonus(2)          Actual
Award
as % of
Salary
 

Glen F. Post, III

    Chief Executive Officer and President

   $ 1,100,000            150        102.0      $ 1,683,000             153

Karen A. Puckett

    Executive Vice President and Chief Operating Officer

     725,000            110        107.1        854,123             118

R. Stewart Ewing, Jr.

    Executive Vice President, Chief Financial Officer and Assistant Secretary

     650,000            110        102.0        729,300             112

Stacey W. Goff

    Executive Vice President, General Counsel and Secretary

     500,000            110        102.0        561,000             112

David D. Cole

    Executive Vice President —Controller and Operations Support

     475,000            90        102.0        436,050             92

 

(1) Calculated as discussed below under “— 2013 Performance Results.”
(2) These bonus amounts are reflected in the Summary Compensation Table appearing below under the column “Non-Equity Incentive Plan Compensation.”

 

 

Performance Objectives and Targets. As noted above, in 2013 the Committee established:

 

   

A target level of operating cash flow return on average assets for purposes of fixing the maximum amount of potential annual bonuses for 2013 payable to our senior officers in accordance with Section 162(m) of the Internal Revenue Code, and

 

   

“minimum,” “target” and “maximum” threshold levels of operating cash flow and strategic revenues, as well as certain strategic initiative goals, for purposes of determining in early 2014 the actual amount of 2013 annual bonuses to be paid to our senior officers.

 

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For purposes of calculating the aggregate 2013 bonus payment to each of our named executive officers, the following goals were weighted as follows:

 

    Financial Performance Objectives              

Named Officer

  Consolidated
Operating
Cash Flow
    Consolidated
Strategic
Revenue
    Business
Unit
Strategic
Revenue
    Strategic
Initiatives(1)
    Total  

Glen F. Post, III

    Chief Executive Officer and President

    50     30            20     100%   

Karen A. Puckett

    Executive Vice President and Chief Operating Officer

    50     10     20     20     100%   

R. Stewart Ewing, Jr.

    Executive Vice President, Chief Financial Officer and Assistant Secretary

    50     30            20     100%   

Stacey W. Goff

    Executive Vice President, General Counsel and Secretary

    50     30            20     100%   

David D. Cole

    Executive Vice President — Controller and Operations Support

    50     30            20     100%   

 

(1) Each named executive’s potential payout with respect to these strategic initiatives is dependent upon his or her respective business unit and area of responsibility. See further discussion below under the heading “ — 2013 Performance Results.”

 

 

The 2013 operating cash flow and strategic revenue targets set by our Committee with respect to our named officers were as follows:

 

     Performance Levels (in millions)  

Financial Performance Objectives

   Minimum      Target(1)     Maximum  

Consolidated Operating Cash Flow(2)

   $ 6,977.75       $ 7,345.00 (3)    $ 7,712.25   

Consolidated Strategic Revenue(4)

     8,482.35         8,790.00        9,097.65   

Business Unit Strategic Revenue(5)

     5,075.90         5,260.00        5,444.10   

 

(1) Based upon the same forecasts used in connection with our publicly-disclosed guidance.
(2) Represents operating income plus depreciation and amortization expenses.
(3) Represents the midpoint of a target that ranges from $7,308.275 million to $7,381.725 million.
(4) Represents revenue from providing the following services: high speed internet, internet protocol television (IPTV), data hosting, cloud computing, private line/special access, Ethernet/multiprotocol label switching (MPLS), satellite video and voice over internet protocol (VoIP), all as reported in our publicly-filed financial statements.
(5) Represents revenue derived from our business and consumer segments, all as reported in our publicly-filed financial statements; these targets were applicable to Ms. Puckett for 2013, with different targets being applicable to other officers with responsibilities regarding other operating segments.

 

 

Bonuses payable with respect to attainment of “strategic initiatives” were based on the Compensation Committee’s assessment of each senior officer’s specific contributions regarding some or all of the following five strategic initiatives selected by the Committee in consultation with management:

 

   

attainment of growth goals for our facilities-based internet protocol television service (IPTV), marketed as PrismTM TV

 

   

increases in the number of customers in our markets purchasing our data services, which we refer to as our data penetration rate

 

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the number of completed installations of fiber optic cables linking our network to nearby wireless towers

 

   

simplification of our network designed to reduce costs and improve our operations

 

   

attainment of hosting growth goals.

Each of these five strategic initiatives was weighed equally for Messrs. Post, Ewing, Goff and Cole (meaning that 4% of their total bonus was based on their attainment of each of these five strategic initiatives). Ms. Puckett’s strategic bonus was based principally on IPTV growth and increased data penetration, and secondarily on network simplification. Depending on their responsibilities, our other senior officers’ strategic bonuses were based on their contributions towards different combinations of these five goals.

Linkage of Performance Objectives with our Compensation Philosophy. The Committee selected the above-described 2013 metrics because they correlate strongly with our compensation philosophy and financial and strategic objectives for the following reasons:

 

   

Strong operating cash flow is critical to our success because it enables us to, among other things, (i) fund strategic capital investments designed to expand our business opportunities, (ii) return cash to our shareholders through dividends or share repurchases, and (iii) meet our debt and pension obligations.

 

   

Strategic revenue growth promotes our critical strategic objective of identifying new or growing revenue sources designed to offset anticipated decreases in our legacy revenues and to diversify our earnings streams.

 

   

Attaining success with respect to each of the five above-listed strategic initiatives will help us expand and diversify our customer base, reduce costs or otherwise improve our operations.

The Compensation Committee set the target levels of performance described above based on assessments of the difficulty of achieving such levels and the potential impact of such achievement on enhancing shareholder value. Based upon our earned performance levels for the past three years, our chief executive officer received bonus payments equal to 96%, 135% and 102% of target levels for 2011, 2012 and 2013, respectively.

2013 Performance Results. In February 2014, the Compensation Committee reviewed management’s assessment of the Company’s performance as compared to the targets established for 2013 with respect to each of our senior officers. The Committee determined that the aggregate earned performance for these performance objectives and targets was 102.0% for Messrs. Post, Ewing, Goff and Cole and 107.1% for Ms. Puckett, as described further below.

During 2013, we achieved the financial results described below which, based on the financial objective payout scale described below, resulted in the following earned performance level for each financial objective:

 

   

consolidated operating cash flow of $7.432 billion, which exceeded its target of $7.345 billion, thereby resulting in earned performance of 115.2% of the target level for each named executive

 

   

consolidated strategic revenue of $8.729 billion, which was slightly under its target of $8.790 billion, thereby resulting in earned performance of 90.1% of the target level for each named executive

 

   

Business and Consumer segment revenue of $5.253 billion, which was slightly under its target of $5.260 billion, thereby resulting in earned performance of 98.1% of the target level for Ms. Puckett

 

Financial Objective Payout Scale

 
          

Performance Level

   Consolidated
Operating
Cash Flow
    Consolidated
Strategic
Revenue
    Business
Unit
Strategic
Revenue
         Percentage
of Earned
Performance
 

Maximum

     ³105.0     ³103.5     ³103.5%            200

Target

     100.0     100.0     100.0%            100

Threshold

     95.0     96.5     96.5%            50

Below Threshold

     < 95.0     < 96.5     < 96.5%            0

 

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With respect to the 20% of 2013 annual bonuses attributable to “strategic initiatives,” the Committee reviewed with management in early 2014 the degree to which certain specific quantitative goals or benchmarks were met, as well as qualitative assessments of each senior officer’s performance. Based on these assessments, the Committee determined that earned performance for these strategic objectives was 87.0% for Messrs. Post, Ewing, Goff and Cole and 104.4% for Ms. Puckett, based on the following results:

 

   

we achieved growth goals for IPTV by initiating service in several new markets and met almost all of our target goals for new subscribers

 

   

we increased our data penetration rate, increased data revenues and gained efficiencies by integrating some internal operations, but did not meet all of our target goals for new customers

 

   

we exceeded our target goal of installations of fiber optic cables

 

   

we rolled out four multi-year projects to simplify our network to reduce costs and improve our operations, of which two are ahead of schedule and two are slightly behind schedule with mitigation plans put into place

 

   

although we made progress towards increasing the collaboration between our hosting and business segments, we fell short of achieving our goals regarding increasing revenues and improving our managed hosting and cloud platform.

Committee Discretion. As noted above, we exceeded our target for our 162(m) objectives which set the maximum 2013 bonuses payable to each of our senior officers. Although the Committee had the discretion, subject to certain limits, to either increase or decrease the bonus amounts determined on the basis of actual performance earned for financial and strategic initiative targets and goals, the Committee elected to do neither for our 2013 annual incentive bonus payments to any our named executive officers.

Recent Actions. The Committee has not made any changes to the bonus target percentages for our executive officers since May 2013; however, the increase to Mr. Goff’s base salary in February 2014 yielded an increase to his bonus target dollar amount.

Non-Executive Bonuses. Compared to our senior officers, the remainder of our employees have more diverse and individualized performance goals. When an officer or manager has responsibility for a particular business unit, division or region, the performance goals are typically heavily weighted toward the operational performance of those units or areas. Other individuals may receive individual performance goals. Depending on the level of seniority, these individuals may also receive a portion of their bonus based on overall corporate performance. As discussed below under the heading “— Our Compensation Decision-Making Process,” the CEO approves the performance goals of substantially all of the non-senior officers under the general supervision of the Compensation Committee.

Long-Term Equity Incentive Compensation

General. Our shareholder-approved long-term incentive compensation programs authorize the Compensation Committee to grant stock options, restricted stock, restricted stock units and various other stock-based incentives to key personnel. We believe stock incentive awards (i) encourage key personnel to focus on sustainable long-term performance, (ii) strengthen the relationship between compensation and growth in the market price of the Common Shares and thereby align management’s financial interests with those of the shareholders and (iii) help attract and retain talented personnel. In March 2014, we granted long-term equity incentive compensation awards to approximately 2%, of our employees.

2013 Executive Grants. During 2013, the Committee granted to our named officers the following number of (i) restricted shares that will vest over a three-year period principally in exchange for continued service (“time-vested restricted shares”), (ii) performance-based restricted shares that will vest in 2016 principally based on our

 

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relative total shareholder return (the “TSR performance-based restricted shares”) and (iii) performance-based restricted shares that will vest in 2016 principally based on our attainment of absolute revenue targets over the three year performance period (the “absolute revenue performance-based restricted shares”):

 

          Performance-Based Restricted Shares        

Named Officer

  Time-Vested Restricted
Shares
    No. of TSR
Performance-
Based
Restricted
Shares(2)
    No. of
Absolute
Revenue
Performance-
Based
Restricted
Shares(2)
    Fair Value(1)     Total Fair
Value(1)
 
  No. of
Shares
    Fair Value(1)          

Glen F. Post, III

Chief Executive Officer and President

    88,145      $ 3,300,000        44,073        44,073      $ 3,300,000      $ 6,600,000   

Karen A. Puckett

Executive Vice President and Chief Operating Officer

    30,500        1,141,875        15,251        15,250        1,141,875        2,283,750   

R. Stewart Ewing, Jr.

Executive Vice President, Chief Financial Officer and Assistant Secretary

    20,834        780,000        10,418        10,417        780,000        1,560,000   

Stacey W. Goff

Executive Vice President, General Counsel and Secretary

    16,026        600,000        8,014        8,013        600,000        1,200,000   

David D. Cole

Executive Vice President — Controller and Operations Support

    15,225        570,000        7,613        7,612        570,000        1,140,000   

 

(1) For purposes of this table, we determine both time-vested and performance-based restricted shares by dividing the total fair value granted to the executive by the volume-weighted average closing price of our Common Shares over a 15-trading day period ending five trading days prior to the grant date. In the Summary Compensation Table, however, our 2013 grants of time-vested restricted stock are valued based on the closing stock price of our Common Shares on the day of grant, and our 2013 grants of performance-based restricted shares are valued as of the grant date based on probable outcomes, in each case in accordance with SEC disclosure rules. See note 1 to the Summary Compensation Table for more information.
(2) Based on the number of restricted shares granted in 2013. As discussed further below, the actual number of shares that vests in the future may be lower or higher.

 

 

Linkage of Performance Objectives with our Compensation Philosophy. We believe basing a portion of our executives’ long-term compensation on our stock performance against our industry peers is a powerful tool to incentivize our executives’ performance. We further believe that meeting our annual revenue targets is critical to our long-term company strategy and, if achieved consistently and at superior levels, should maintain or increase shareholder value. Therefore in 2013, we redesigned our performance-based restricted shares to further strengthen the linkage between our performance objectives with our most important long-term goals by implementing the following design changes:

 

   

Relative Total Shareholder Return. In 2013, the Committee, after discussions with its compensation consultant and management, changed the peer group benchmark used to measure our total shareholder return performance from the S&P 500 index to a self-selected 30-company industry peer group. See further discussion under “— Use of ‘Benchmarking’ Data — Performance Benchmarking.”

 

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An overview of our TSR performance-based restricted shares granted in 2013 is outlined below.

 

   

Performance Benchmark: Our percentile rank versus the above-described 30-company industry peer group

 

   

Performance Period: January 1, 2013 through December 31, 2015

 

   

Performance Vesting: The ultimate number of TSR performance-based restricted shares that vest will be based on our total shareholder return during the above-described performance period relative to the total shareholder return of the 30-company peer group over the same period, as illustrated in the table below; provided, however, that none of our TSR performance-based restricted shares will vest unless we attain a 6% operating cash flow annual return on average assets during the performance period (the “Cash Flow Target”):

 

Relative Total Shareholder Return

Performance Level

   Company’s Percentile Rank      Payout as % of
Target
Award(1)

Maximum

     ³ 75th Percentile       200%

Target

     50th Percentile       100%

Threshold

     25th Percentile       50%

Below Threshold

     < 25th Percentile       0%

 

(1) Linear interpolation is used when our relative TSR performance is between the threshold, target and maximum amounts to determine the corresponding percentage of target award earned.

 

   

Absolute Revenue Target. In 2013, the Committee introduced a new metric based principally upon the attainment of absolute revenue targets over a three-year performance period. “Absolute revenue” is defined as the sum of our consolidated legacy and strategic revenue, in each case defined in the same manner we reported such amounts in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC.

An overview of our absolute revenue performance-based restricted shares granted in 2013 is outlined below.

 

   

Performance Benchmark: The sum of an absolute revenue target separately established by the Subcommittee during the first quarter of the years 2013, 2014, and 2015

 

   

Performance Period: January 1, 2013 through December 31, 2015

 

   

Performance Vesting: The ultimate number of our absolute revenue performance-based restricted shares that vest will be based on our achievement of the aggregate three-year absolute revenue target, as illustrated in the table below; provided, however, none of our absolute revenue performance-based restricted shares will vest unless we attain the Cash Flow Target.

 

Absolute Revenue

Performance Level

   Company’s  Performance(1)     Payout as % of
Target
Award(2)

Maximum

   ³  103.5   200%

Target

     100.0   100%

Threshold

     96.5   50%

Below Threshold

     < 96.5   0%

 

(1) Sum of absolute revenue actually attained for the years 2013, 2014 and 2015 divided by the sum of absolute revenue target separately established for each of the years 2013, 2014, and 2015
(2) Linear interpolation is used when our absolute revenue performance is between the threshold, target and maximum amounts to determine the corresponding percentage of target award earned.

 

 

 

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For additional information on the above-described grants, see “Executive Compensation — Incentive Compensation and Other Awards.”

Types of Awards. We strive to pay equity compensation in forms that create appropriate incentives to optimize performance at reasonable cost, that minimize enterprise risk, that align the interests of our officers and shareholders, that foster our long-term financial and strategic objectives and that are competitive with incentives offered by other companies. Since 2008, the Committee has elected to issue all of our long-term equity compensation grants in the form of restricted stock for a variety of reasons, including:

 

   

the Committee’s recognition of the prevalent use of restricted stock by our peers,

 

   

the Committee’s desire to minimize the dilution associated with our rewards, and

 

   

the retentive value of restricted stock under varying market conditions.

In an effort to increase the link between our performance and executive compensation, since 2010 the Committee has issued at least half of the value of our senior officers’ long-term awards in the form of performance-based restricted stock, with the other half being in the form of time-vested restricted stock. As described further above, the number of performance-based restricted shares that ultimately vest is dependent solely upon our relative total shareholder returns for the awards made between 2010 and 2012, and is dependent upon both our relative total shareholder returns and our attainment of certain absolute performance targets for awards made in 2013.

For additional information on the vesting and other terms of our equity awards (including certain voluntary limits on the number of performance-based restricted shares that vest if our total shareholder return over the performance period is negative and our intent to comply with Section 162(m) of the Internal Revenue Code) with respect to certain aspects our executive compensation, see “Executive Compensation — Incentive Compensation and Other Awards.”

Dividends. Since 2011, all dividends paid with respect to restricted stock awards have been payable to the recipient only upon the vesting of the award.

Recent Actions. At its February 2014 meeting, the Committee granted equity awards to our senior officers on terms and in amounts substantially similar to the awards granted to them in 2013. The Committee did, however, (i) increase the targeted aggregate grant date fair value of Mr. Post’s and Mr. Goff’s awards from $6,600,000 to $7,500,000 and from $1,200,000 to $1,260,000, respectively, and (ii) increased the portion of each senior officer’s equity awards subject to performance conditions from 50% in 2013 to 60% in 2014.

Qwest Retention Grants

As contemplated under our merger agreement with Qwest, we implemented in mid-2010 a retention program designed to ensure that over 200 of our top officers and managers had adequate incentives to remain employed with us through completion of the Qwest acquisition and the critical period of integration thereafter. All of the grant date value of the CEO’s awards under this plan and three-quarters of the grant date value of all other executives’ awards thereunder have been previously reported as 2010 compensation in our prior proxy statements. The remaining one-quarter of the grant date value of these awards payable to the other executives (in the form of deferred cash awards) is reported in equal installments for 2011 and 2012 in the Summary Compensation Table appearing below.

Other Benefits

As a final component of executive compensation, we provide a broad array of benefits designed to be competitive, in the aggregate, with similar benefits provided by our peers. We summarize these additional benefits below.

Retirement Plans. We maintain one or more traditional qualified defined benefit retirement plans for most of our employees who meet certain eligibility requirements, plus one or more traditional qualified defined

 

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contribution 401(k) plans for a similar group of our employees. With respect to these qualified plans, we maintain nonqualified plans that permit our officers to receive or defer supplemental amounts in excess of federally-imposed caps that limit the amount of benefits highly-compensated employees are entitled to receive under qualified plans. Additional information regarding our retirement plans is provided in the tables and accompanying discussion included below under the heading “Executive Compensation.”

Change of Control Arrangements. We have agreed to provide cash and other severance benefits to each of our executive officers who is terminated under certain specified circumstances following a change of control of CenturyLink. If triggered, benefits under these change of control agreements include payment of (i) a lump sum cash severance payment equal to a multiple of the officer’s annual cash compensation, (ii) the officer’s annual bonus, based on actual performance and the portion of the year served, (iii) certain continued welfare benefits for a limited period, and (iv) the value or benefit of any long-term equity incentive compensation, if and to the extent that the exercisability, vesting or payment thereof is accelerated or otherwise enhanced upon a change of control pursuant to the terms of any applicable long-term equity incentive compensation plan or agreement.

Under these agreements, change of control benefits are payable to our executive officers if within a certain specified period following a change in control (referred to as the “protected period”) the officer is terminated without cause or resigns with “good reason,” which is defined to include a diminution of responsibilities, an assignment of inappropriate duties, and a transfer of the officer exceeding 50 miles. We have filed with the SEC copies of our change of control agreements.

The table below shows (i) the length of the “protected period” afforded to officers following a change of control and (ii) the multiple of salary and bonus payment and years of welfare benefits to which officers will be entitled if change of control benefits become payable under our agreements and related policies:

 

      Protected
Period
     Multiple of
Annual Cash
Compensation
     Years of
Welfare
Benefits
 

CEO

     2 years         3 times         3 years   

Other Executives

     1.5 years         2 times         2 years   

Other Officers

     1 year         1 time         1 year   

 

 

Effective January 1, 2011, we restructured these change of control agreements to reduce the benefits payable thereunder, to eliminate tax “gross-up” provisions, to eliminate “modified single trigger” provisions, and to narrow the rights of executives to make claims for severance benefits.

For more information on change of control arrangements applicable to our executives, including our rationale for providing these benefits, see “Executive Compensation — Potential Termination Payments — Payments Made Upon a Change of Control.” For information on change of control severance benefits payable to our junior officers and managers, see “— Severance Benefits” immediately below.

Severance Benefits. In August 2012, the Compensation Committee adopted an executive severance plan that provides severance benefits to our senior officers and other specified key employees. The plan provides cash severance payments equal to two years of total targeted cash compensation (defined as salary plus the targeted amount of annual incentive bonus) for our CEO or one year of total targeted cash compensation for any other senior officer, payable solely if the senior officer is involuntarily terminated by us without cause in the absence of a change of control. Payments to senior officers terminated in connection with a change of control are separately governed by the change of control arrangements discussed immediately above under the heading “— Change of Control Arrangements.”

Under our executive severance plan, subject to certain conditions and exclusions, more junior officers or managers receive certain specified cash payments and other benefits if they are either (i) involuntarily terminated

 

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without cause in the absence of a change of control or (ii) involuntarily terminated without cause or resign with good reason in connection with a change of control. Our full-time non-union employees not covered by our executive severance plan may, subject to certain conditions, be entitled to certain specified cash severance in connection with certain qualifying terminations.

In 2012, we adopted a policy requiring us to seek shareholder approval of any future senior executive severance agreements providing for cash payments, perquisites and accelerated health or welfare benefits with a value greater than 2.99 times the sum of the executive’s base salary plus target bonus.

Perquisites. Officers are entitled to be reimbursed for the cost of an annual physical examination, plus related travel expenses.

Our aircraft usage policy permits the CEO to use our aircraft for personal travel without reimbursing us, and permits each other executive officer to use our aircraft for up to $10,000 per year in personal travel without reimbursing us. In all such cases, personal travel is permitted only if aircraft is available and not needed for superseding business purposes. For purposes of valuing and reporting the use of our aircraft, we determine the incremental cost of aircraft usage on an hourly basis, calculated in accordance with applicable guidelines of the SEC. The incremental cost of this usage, which may be substantially different than the cost as determined under alternative calculation methodologies, is reported in the Summary Compensation Table appearing below. Each year the Compensation Committee receives a report on the personal use of aircraft by senior management, and determines whether or not to alter our aircraft usage policy. In connection with its recent election to retain this policy, the Committee determined that the policy was (i) providing valuable and cost-effective benefits to our executives residing in a small city with limited commercial airline service, (ii) enabling our executives to travel in a manner that we believe is more expeditious than commercial airline service, and (iii) being implemented responsibly by the executives.

On behalf of our executive officers, we pay premiums on their respective supplemental life insurance policies in amounts sufficient to provide the same death benefits available under predecessor agreements, and permit each executive officer to purchase additional post-retirement coverage at their cost.

Most years, we organize one of our regular board meetings and related committee meetings as a “board retreat” scheduled over a long weekend. These retreats are typically held in an area where we conduct operations, and include site visits that enable our directors and senior officers to meet with local personnel. The spouses of our directors and executive officers are invited to attend these retreats, and we typically schedule recreational activities for those who are able and willing to participate.

For more information on the items under this heading, see the Summary Compensation Table appearing below.

Other Employee Benefits. We maintain a stock purchase plan that enables our officers and most of our other employees to purchase Common Shares on attractive terms. We also maintain certain broad-based employee welfare benefit plans in which the executive officers are generally permitted to participate on terms that are either substantially similar to those provided to all other participants or which provide our executives with enhanced benefits upon their death or disability. We also maintain a supplemental disability plan designed to ensure disability payments to our officers in the event payments are unavailable from our disability insurer.

Our Compensation Decision-Making Process

Role of Compensation Committee. The Compensation Committee of our Board establishes, evaluates and monitors our executive compensation programs, subject to the Board’s oversight. Specifically, the Committee (or a subcommittee thereof) approves the compensation payable to each executive officer, as well as any other senior officer.

 

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As described further below, the Compensation Committee’s compensation decision-making process requires a careful balancing of a wide range of factors, including:

 

   

the group and individual performance and responsibilities of our executives,

 

   

the competitive compensation practices of peer companies,

 

   

the performance of our Company in relation to our peers and our internal goals,

 

   

the financial impact and risk characteristics of our compensation programs, and

 

   

our strategic and financial imperatives.

The Compensation Committee also establishes, implements, administers and monitors our director cash and equity compensation programs. For more information, see “Director Compensation.”

Role of Compensation Consultants. The Committee engages the services of a compensation consultant to assist in the design and review of executive compensation programs, to determine whether the Committee’s philosophy and practices are reasonable and compatible with prevailing practices, and to provide guidance on specific compensation levels based on industry trends and practices.

The Committee has used Hay Group as its compensation consultant since September 2010. Throughout 2013, representatives of Hay Group actively participated in the design and development of our executive compensation programs, and attended all of the Committee’s meetings. Hay Group provides no other services to the Company, and, to our knowledge, has no prior relationship with any of our named executive officers. As required by SEC rules and New York Stock Exchange listing standards, the Committee has assessed the independence of Hay Group and concluded that its work has not raised any conflicts of interest.

Review Process. Each year, the Committee and its compensation consultant use benchmarking data to determine median levels of salary, annual bonuses and equity compensation paid to executives comparable to ours. In determining how much to compensate each officer, the Committee also extensively reviews a wide range of other factors, typically including:

 

   

the officer’s individual performance in terms of both results and behaviors, industry experience and particular set of skills,

 

   

the anticipated degree of difficulty of replacing the officer with someone of comparable experience and skill,

 

   

the role the officer plays in maintaining a cohesive management team and improving the performance of others,

 

   

the role the officer may have played in any recent extraordinary corporate achievements,

 

   

the officer’s pay and performance relative to other officers and employees,

 

   

the officer’s prior compensation in recent years and, to a limited degree, his or her accumulated wealth under our programs, and

 

   

the recent and long-term performance of CenturyLink.

In assessing our performance, we typically review how various measures of our financial performance relate to amounts previously projected by us or market participants, as well as the results of peer telecommunications companies. We also assess operational benchmarks, such as our access line losses or customer growth in relation to our competitors.

Each year, we compile lists of compensation data relating to each of our executives. These “tally sheets” include the executive’s salary, annual cash incentive award, equity-based compensation, perquisites, pension

 

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benefit accruals and other compensation. These tally sheets also contain performance highlights for each of our executives. The Compensation Committee uses these tally sheets to (i) review the total annual compensation of the executive officers, (ii) assess the executive officers’ performance and (iii) assure that the Committee has a comprehensive understanding of all elements of our compensation programs.

Annual Bonus Procedures. With the assistance of management and its compensation consultant, the Compensation Committee sets bonus targets annually, and, under special circumstances, more frequently than annually. For several years, the Committee has administered our annual bonus program substantially in the manner outlined above under “ — Annual Incentive Bonuses,” although 2013 was the first year that we used the two-step assessment process described in such section. The Committee is responsible for approving for each year (i) the performance objectives, (ii) the “minimum,” “target” and “maximum” threshold levels of performance, (iii) the weighting of the performance objectives, (iv) the amount of bonus payable if the target level of performance is attained and (v) the finally determined amount of the bonus payments.

Upon completion of the fiscal year, if necessary, our actual operating results are adjusted in accordance with the Committee’s long-standing guidelines that are designed to eliminate the effects of extraordinary or non-recurring transactions that were not known, anticipated or quantifiable on the date the performance goals were established. The Committee intends to use these same guidelines to adjust as necessary, our actual revenues with respect to the absolute revenue performance-based restricted shares awarded in 2013. Then the specific bonus payments are calculated for that fiscal year using the formulas and other criteria approved the prior year by the Committee. After our Internal Audit Department has reviewed these determinations and calculations, they are provided in writing to the Committee for its review and approval.

Under our annual bonus programs, the Committee may pay the annual bonuses in cash or stock. Since 2000, the Committee has paid these bonuses entirely in cash, principally to diversify our compensation mix and prevent us from over-utilizing equity grants.

Annual Equity Grant Procedures. As explained further above, annual grants of stock awards to executives are typically made during the first quarter after we publicly release our earnings, although in some years, such as 2013, the Committee may defer grants for a variety of reasons, including to request additional information or conduct further reviews of management’s performance. Grants of stock awards to newly-hired executive officers who are eligible to receive them are made at the next regularly scheduled Committee meeting following their hire date. We award our executives with a greater proportion of their total compensation in the form of equity grants compared to more junior officers.

Role of CEO and Management in Compensation Decisions. Although the Compensation Committee is responsible for all executive compensation decisions, each year it receives the CEO’s recommendations, particularly with respect to senior officers’ salaries. The Committee, in particular, values the CEO’s input and judgment regarding:

 

   

the relative strengths and weaknesses of the other senior officers and their recent performance in terms of both results and behaviors,

 

   

the role these senior officers play in achieving our operational and strategic goals,

 

   

the potential of these senior officers to assume different, additional or greater responsibilities in the future,

 

   

internal equity issues that could impact cohesion, teamwork or the overall viability of the executive group, and

 

   

the relative criticality of retaining each senior officer, as well as such senior officer’s vulnerability to job solicitations from competitors.

The Committee considers the CEO’s recommendations as one of the many factors it uses to establish compensation levels for each executive.

 

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The CEO and the executive management team, in consultation with the Compensation Committee’s compensation consultant, recommend to the Compensation Committee business goals to be used in establishing incentive compensation performance targets for our senior officers. In addition, our Executive Vice President, Human Resources, works closely with the Committee and its compensation consultant to ensure that the Committee is provided with appropriate information to discharge its responsibilities.

The CEO, in consultation with the executive management team, is responsible for approval of annual incentive targets and business goals for our non-senior officers. Annual incentive thresholds, targets, and maximum performance targets for our non-senior officers are the same as the Committee approves for our senior officers and the goals closely mirror those approved by the Committee but may have variations for weightings, inclusion or exclusion of certain goals, which may or may not be applicable to a particular business unit, group or individual. The CEO is also responsible for approving any annual salary increases, typically referred to as merit increases, earned annual bonus payout percentages, and total bonus payments for our non-senior officers, as well as individual compensation levels for all of our vice presidents. The CEO also approves all equity compensation awards to the non-senior officers, acting under authority delegated by the Compensation Committee in accordance with our shareholder approved long-term incentive plans. The Committee oversees these processes and receives an annual report from the CEO.

Risk Assessment. As part of its duties, the Compensation Committee assesses risks arising out of our employee compensation policies and practices. Based on its most recent assessment, the Committee does not believe that the risks arising from our compensation policies and practices are reasonably likely to materially adversely affect us. In reaching this determination, we have taken into account the risk exposures of our operations and the following design elements of our compensation programs and policies:

 

   

our balance of annual and long-term compensation elements at the executive and management levels,

 

   

our use of a diverse mix of performance metrics that create incentives for management to attain goals well aligned with the shareholders’ interests,

 

   

the multi-year vesting of equity awards, which promotes focus on our long-term performance and mitigates the risk of undue focus on our short-term results,

 

   

“clawback” policies and award caps that provide safeguards against inappropriate behavior, and

 

   

bonus arrangements that generally permit either the Committee (for compensation payable to senior officers) or senior management (for compensation payable to other key employees) to exercise “negative discretion” to reduce the amount of certain incentive awards.

We believe these features, as well as the stock ownership requirements for our executive officers, result in a compensation program that aligns our executives’ interests with those of our shareholders and does not promote excessive risk-taking on the part of our executives or other employees.

Forfeiture of Prior Compensation

For over 10 years, all recipients of our equity compensation grants have been required to contractually agree to forfeit certain of their awards (and to return to us any cash, securities or other assets received by them upon the sale of Common Shares they acquired through certain prior equity awards) if at any time during their employment with us or within 18 months after termination of employment they engage in activity contrary or harmful to our interests. The Compensation Committee is authorized to waive these forfeiture provisions if it determines in its sole discretion that such action is in our best interests. We have filed with the SEC copies of our form of equity incentive agreements containing these forfeiture provisions. Our 2010 Executive Officers Short-Term Incentive Plan contains substantially similar forfeiture provisions.

Our corporate governance guidelines authorize the Board to recover, or “clawback,” compensation from an executive officer if the Board determines that any bonus, incentive payment, equity award or other compensation received by the executive was based on any financial or operating result that was impacted by the executive’s

 

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knowing or intentional fraudulent or illegal conduct. Certain provisions of the Sarbanes-Oxley Act of 2002 would require our CEO and CFO to reimburse us for incentive compensation paid or trading profits earned following the release of financial statements that are subsequently restated due to material noncompliance with SEC reporting requirements caused by misconduct. In addition, provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which are expected to become effective upon the completion of related rulemaking, will require all of our current or former executive officers to make similar reimbursement payments in connection with certain financial statement restatements, irrespective of whether such executives were involved with the mistake that caused the restatement.

Stock Ownership Guidelines

Under our current stock ownership guidelines, the CEO is required to beneficially own CenturyLink stock equal in market value to at least six times his annual base salary, and all other executive officers are required to beneficially own CenturyLink stock valued at least three times their annual base salary. Each executive officer has three years to attain these targets.

Under our director stock ownership guidelines, each outside director must beneficially own CenturyLink stock equal in market value to five times the annual cash retainer payable to outside directors. Each outside director has five years to attain this target.

For any year during which an executive or outside director does not meet his or her ownership target, the executive or director is expected to hold 65% of the CenturyLink stock that he or she acquires through our equity compensation programs, excluding shares sold to pay related taxes.

All of our officers and directors are currently in compliance with our stock ownership guidelines. For additional information on our stock ownership guidelines, see “Governance Guidelines.”

Use of Employment Agreements

We have a long-standing practice of not providing employment agreements to our officers, and none of our long-standing executives has been granted an employment agreement. In connection with our recent mergers, however, we have assumed several employment agreements formerly granted by Embarq, Qwest or Savvis to its officers, and in a couple of instances have extended or renewed these arrangements to retain officers critical to our future plans.

Tax Gross-ups

We eliminated the use of tax “gross-up” benefits in our executives’ change of control agreements and split-dollar insurance policies in 2010, and in our outside directors’ executive physical program in early 2012. Consequently, we continue to provide these tax benefits only to a limited number of our officers under legacy employment agreements that are expected to lapse over the next couple of years. We do not intend to provide tax gross-up benefits in any new compensation programs.

Anti-Hedging and Anti-Pledging Policies

Under our insider trading policy, our employees and directors may not:

 

   

purchase or sell short-term options with respect to CenturyLink shares,

 

   

engage in “short sales” of CenturyLink shares, or

 

   

engage in hedging transactions involving CenturyLink shares which allow employees to fix the value of their CenturyLink shareholdings without all the risks of ownership or cause them to no longer have the same interests or objectives as our other shareholders.

 

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In addition, under our insider trading policy, our senior officers and directors are prohibited from holding our securities in a margin account or otherwise pledging our securities as collateral.

We believe that all of our senior officers and directors are currently in compliance with our anti-hedging and anti-pledging policies.

Deductibility of Executive Compensation

Section 162(m) of the Internal Revenue Code (the “Code”) limits the amount of compensation paid to our CEO and our other three most highly compensated executive officers, other than our CFO, that may be deducted by us for federal income tax purposes in any fiscal year to $1,000,000. “Performance-based” compensation that has been approved by our shareholders and otherwise satisfies the performance-based requirements under Section 162(m) of the Code is not subject to the Code’s $1,000,000 deduction limit. While the Compensation Committee believes that it is important for compensation paid to such covered employees to be tax deductible under the Code, the Compensation Committee also recognizes the need to retain flexibility to make compensation decisions that may not meet the standards of Section 162(m) when necessary to enable us to continue to attract, retain, reward and motivate highly-qualified executives. Section 162(m) is highly technical and complex, so that even when we seek favorable tax treatment thereunder, we cannot assure you that our tax position will prevail.

Impact of FASB ASC Topic 718

The accounting standards applicable to the various forms of long-term incentive plans under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718 (formerly FASB Statement 123R) constitute one factor that we consider in the design of long-term equity incentive programs. We monitor FASB ASC Topic 718 expense to ensure that it is reasonable, but expense will not be the most important factor in making decisions about our long-term incentive plans.

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed with management the report included above under the heading “Compensation Discussion and Analysis.” Based on this review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis report be included in this proxy statement and incorporated into our Annual Report on Form 10-K for the year ended December 31, 2013.

Submitted by the Compensation Committee of the Board of Directors.

 

Laurie A. Siegel (Chair)

   Virginia Boulet

Fred R. Nichols

   William A. Owens

Harvey P. Perry

  

EXECUTIVE COMPENSATION

Overview

The following table sets forth certain information regarding the compensation of (i) our principal executive and financial officers and (ii) each of our three most highly compensated executive officers other than our principal executive and financial officers. Following this table is additional information regarding incentive compensation, pension benefits, deferred compensation and potential termination payments pertaining to the named officers. For additional information on the compensation summarized below and other benefits, see “Compensation Discussion and Analysis.”

 

 

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Summary Compensation Table

 

Name and Principal

Position

  Year     Salary     Restricted
Stock
Awards(1)
    Non-Equity
Incentive Plan
Compensation(2)
    Change in
Pension
Value(3)
    All Other
Compensation(4)
    Total  

Glen F. Post, III

Chief Executive Officer

and President

    2013      $ 1,100,000      $ 6,086,446      $ 1,683,000      $      $ 123,801      $ 8,993,247   
    2012        1,047,606        5,157,049        1,767,836        649,156        103,392        8,725,040   
    2011        1,020,800        4,706,735        1,224,960        383,282        317,667        7,653,445   

Karen A. Puckett

    2013        725,000        2,106,061        854,123               53,845        3,739,029   

Executive Vice President

and Chief Operating

Officer

    2012        684,562        2,250,332        1,015,837        411,822        42,838        4,405,391   
    2011        663,872        2,053,858        772,022        210,954        126,342        3,827,048   
             

R. Stewart Ewing, Jr.

    2013        650,000        1,438,623        729,300               55,769        2,873,692   

Executive Vice President,

Chief Financial Officer and

Assistant Secretary

    2012        616,105        1,744,036        914,696        415,853        38,595        3,729,286   
    2011        598,764        1,591,731        696,306        259,685        178,779        3,325,265   
             

Stacey W. Goff

Executive Vice President,

General Counsel and

Secretary

   

 

2013

2012

  

  

   

 

500,000

450,096

  

  

   

 

1,106,631

1,293,966

  

  

   

 

561,000

526,336

  

  

   

 


220,263

  

  

   

 

37,527

15,965

  

  

   

 

2,205,158

2,506,626

  

  

David D. Cole

    2013        475,000        1,051,288        436,050               31,048        1,993,386   

Executive Vice President —

Controller and Operations

Support

    2012        448,790        1,293,966        528,525        359,479        38,012        2,668,771   
    2011        435,380        1,180,951        406,389        202,594        86,806        2,312,120   
             

 

(1) The amounts shown in this column reflect the fair value of awards of restricted stock made in early 2013, 2012, and 2011 in connection with our program of making annual long-term incentive compensation grants. The fair value of the awards presented in the table above has been determined in accordance with FASB ASC Topic 718. For purposes of this table, in accordance with SEC disclosure rules we determined the fair value of shares of:

 

   

time-vested restricted stock using the closing trading price of our Common Shares on the day of grant (or, in 2012, the business day immediately preceding the date of grant, which was a holiday), except that in 2011 we determined the value of time-vested restricted shares using a 15-trading day volume-weighted average closing price of our Common Shares;

 

   

relative performance-based restricted stock (as defined below) granted during each year indicated as of the grant date based on probable outcomes using Monte Carlo simulations; and

 

   

absolute performance-based restricted stock (as defined below) granted during 2013 based on probable outcomes (subject to future adjustments based upon changes in the closing trading price of our Common Shares at the end of each reporting period).

The aggregate value of the restricted stock awards granted to these named executives in 2013, based on the grant date closing trading price of our Common Shares and assuming maximum payout of his or her performance-based restricted shares, would be as follows: Mr. Post, $9,897,877, Ms. Puckett, $3,424,920, Mr. Ewing, $2,339,525, Mr. Goff, $1,799,634, and Mr. Cole, $1,709,615. See Note 9 titled “Share-based Compensation” of the notes to our audited financial statements included in Appendix B for an explanation of material assumptions that we used to calculate the fair value of these stock awards.

(2) The amounts shown in this column reflect (i) cash payments made under our annual incentive bonus plans for actual performance in the respective years (which are described further under “— Incentive Compensation and Other Awards — 2013 Awards”) and (ii) the portion of Ms. Puckett’s, Mr. Ewing’s, Mr. Goff’s and Mr. Cole’s August 2010 deferred cash award that was paid in two equal installments during 2011 and 2012 (which are described further under “Compensation Discussion and Analysis — Qwest Retention Grants”).
(3)

Reflects the net change during each of the years reflected in the present value of the named executives’ accumulated benefits under the defined benefit plans discussed under “— Pension Benefits.” Each of our named executives experienced negative changes in the value of their pensions in 2013 (primarily due to increases in the discount rates used to value pension liabilities). The present value of the accumulated

 

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  benefits under these pension plans decreased during 2013 by $125,605 for Mr. Post, $195,547 for Ms. Puckett, $91,118 for Mr. Ewing, $118,903 for Mr. Goff and $158,184 for Mr. Cole. SEC rules dictate that such decreases be treated as a $0 Change in Pension Value for purposes of calculating total compensation.
(4) The amounts shown in this column are comprised of (i) reimbursements for the cost of an annual physical examination, (ii) personal use of our aircraft, (iii) contributions or other allocations to our defined contribution plans and (iv) the payment of premiums on life insurance policies, in each case for and on behalf of the named executives as follows:

 

Name

   Year      Physical
Exam
     Aircraft
Use
     Contributions
to Plans
     Life
Insurance

Premiums
Paid
     Total  

Mr. Post

     2013       $ 4,026       $ 17,920       $ 101,855       $       $ 123,801   
     2012         2,620         15,341         85,430                 103,392   
     2011         3,201         20,846         102,021         191,599         317,667   

Ms. Puckett

     2013                         53,845                 53,845   
     2012                         42,838                 42,838   
     2011         3,469                 51,572         71,301         126,342   

Mr. Ewing

     2013                 7,400         48,369                 55,769   
     2012                         38,595                 38,595   
     2011                         47,436         131,343         178,779   

Mr. Goff

     2013                 9,510         28,017                 37,527   
     2012                 1,194         14,771                 15,965   

Mr. Cole

     2013                         31,048                 31,048   
     2012         6,577         6,272         25,163                 38,012   
     2011                         29,981         56,825         86,806   

 

In accordance with applicable SEC and accounting rules, we have not reflected the accrual or payment of dividends relating to unvested restricted stock as compensation in the Summary Compensation Table. In addition, the amounts shown in the Summary Compensation Table do not reflect any benefits associated with participating in recreational activities scheduled during board retreats. For additional information, see “Compensation Discussion and Analysis — Other Benefits — Perquisites.”

 

 

Incentive Compensation and Other Awards

2013 Awards. The table and discussion below summarize:

 

   

the range of potential cash payouts under short-term incentive bonus awards that were granted to each named officer on March 14, 2013 with respect to performance during 2013, and

 

   

grants of long-term compensation awarded to each named officer on May 23, 2013, consisting of (i) the number of shares of time-vested restricted stock awarded, (ii) the range of potential share payouts under relative performance-based restricted stock awards and (iii) the range of potential share payouts under absolute performance-based restricted stock awards, which for purposes of the table below are referred to as the time-vested awards, the relative performance awards and the absolute performance awards, respectively.

 

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Grants of Plan-Based Awards

 

Name

 

Type of Award

and Grant Date(1)

  Range of Payouts Under 2013 Non-
Equity Incentive Plan Awards(2)
    Estimated Future Share Payouts Under
Equity Incentive Plan Awards(3)
    All other
Stock
Awards:
Unvested
Shares
(#)(4)
    Grant Date
Fair Value
of Stock
Awards ($)(5)
 
    Threshold
($)
    Target
($)
    Maximum
($)
    Threshold
(#)
    Target
(#)
    Maximum
(#)
     

Glen F. Post, III

  Annual Bonus   $ 825,000      $ 1,650,000      $ 3,300,000                                  $   
  Time-Vested Award                                               88,145        3,098,297   
  Relative Performance Award                          22,037        44,073        88,146               1,584,424   
  Absolute Performance Award                          22,037        44,073        88,146               1,403,725   

Karen A. Puckett

  Annual Bonus     398,750        797,500        1,595,500                                      
  Time-Vested Award                                               30,500        1,072,075   
  Relative Performance Award                          7,625        15,251        30,502               548,273   
  Absolute Performance Award                          7,625        15,250        30,500               485,713   

R. Stewart Ewing, Jr.

  Annual Bonus     357,500        715,000        1,430,000                                      
  Time-Vested Award                                               20,834        732,315   
  Relative Performance Award                          5,209        10,418        20,836               374,527   
  Absolute Performance Award                          5,209        10,417        20,834               331,781   

Stacey W. Goff

  Annual Bonus     275,000        550,000        1,100,000                                      
  Time-Vested Award                                               16,026        563,314   
  Relative Performance Award                          4,007        8,014        16,028               288,103   
  Absolute Performance Award                          4,007        8,013        16,026               255,214   

David D. Cole

  Annual Bonus     213,750        427,500        855,000                                      
  Time-Vested Award                                               15,225        535,159   
  Relative Performance Award                          3,807        7,613        15,226               273,687   
  Absolute Performance Award                          3,806        7,612        15,224               242,442   

 

(1) The time-vested awards, the relative performance awards and the absolute performance awards were all granted on May 23, 2013.
(2) These columns provide information on the potential bonus payouts approved with respect to 2013 performance. For information on the actual amounts paid based on 2013 performance criteria, see the column of the Summary Compensation Table labeled “Non-Equity Incentive Plan Compensation.” As described further below, the failure to meet the “threshold” level of performance would result in no annual bonus payment.
(3) Represents the relative performance awards and absolute performance awards granted on May 23, 2013 to each named executive, as described in greater detail below.
(4) Represents the time-vested awards granted on May 23, 2013 to each named executive, as described in greater detail below.
(5) Calculated in accordance with FASB ASC Topic 718 in the manner described in note 1 to the Summary Compensation Table above.

 

 

Terms of 2013 Restricted Stock Awards. The restricted stock issued to our executive officers on May 23, 2013 consisted of awards of:

 

   

time-vested restricted stock

 

   

performance-based restricted stock, the ultimate payout of which will be based on our total shareholder return relative to the peer group referred to below (“relative performance-based restricted stock”)

 

   

performance-based restricted stock, the ultimate payout of which will be based on our attainment of the absolute financial goals described below (“absolute performance-based restricted stock” and, collectively with the relative performance-based restricted stock, the “performance-based restricted stock”).

Vesting. For each named officer, the shares of time-vested restricted stock awarded in 2013 will vest in three equal installments on May 23 of 2014, 2015 and 2016, subject to the named officer’s continued employment with us.

 

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For each named officer, the 2013 performance-based restricted shares will, subject to the named officer’s continued employment, vest on May 23, 2016, but only if we attain at least a 6% operating cash flow annual return on average assets (the “Cash Flow Target”) between January 1, 2013 and December 31, 2015 (the “performance period”). Assuming we attain this target, the actual number of shares of relative performance-based restricted stock and absolute performance-based restricted stock that will vest will depend, respectively, on whether and to what degree we attain during the performance period the targeted levels of total shareholder return and revenues specified below.

In addition to the vesting described above, all of these time-vested restricted shares and performance-based restricted shares awarded in 2013 also vest upon the death or disability of the named officer, and some or all of these shares may under certain circumstances vest or remain subject to future vesting upon the retirement of the named officer at his or her early or normal retirement age. In addition, upon certain terminations of employment following a change of control of the Company, the 2013 time-vested restricted shares will vest and the performance-based restricted shares will remain subject to future vesting, all as described in greater detail below under “— Potential Termination Payments.” Except as otherwise noted below under “— Outstanding Awards”, the vesting terms for our outstanding restricted stock granted in earlier years is the same as noted above.

Shares Issuable Under Performance-Based Restricted Stock. In the preceding “Grants of Plan-Based Awards” table, the number of performance-based restricted shares listed under the “target” column for each named executive officer represents the number of shares actually granted to that officer and that will vest if we perform at the targeted performance level. Assuming we attain the Cash Flow Target specified above, the actual number of shares of performance-based restricted stock that will vest will depend upon whether our relative and absolute performance over the performance period is less than, equal to or more than the relative and absolute targets established by the Subcommittee in connection with granting these awards.

Assuming the Cash Flow Target is met, all of the relative performance-based restricted stock will vest if we perform at the “target” performance level, which is attaining total shareholder return over the three-year performance period equal to the 50th percentile of the total shareholder return of the companies in a 30-company industry peer group for the same three-year period. Each named executive officer will receive a greater or lesser number of shares of relative performance-based restricted stock depending on our actual total shareholder return in relation to that of the 30 peer companies, as illustrated further below:

 

Relative Total Shareholder Return

 

Performance Level

  

Company’s Percentile Rank

   Payout as % of
Target Award
 

Maximum

   ³ 75th percentile              200

Target

   50th percentile              100

Threshold

   25th percentile              50

Below Threshold

   < 25th percentile              0

If our rank is between (i) the threshold and the target amounts or (ii) the target and the maximum amounts, we will prorate the number of shares using linear interpolation. In no event, however, will more than 100% of the relative performance-based restricted shares vest if our total shareholder return for the three-year period is negative.

Assuming the Cash Flow Target is met, all of the absolute performance-based restricted stock will vest if we attain the “target” amount of our consolidated legacy and strategic revenue (as defined in our Annual Report on Form 10-K for the year ended December 31, 2012) over the three-year performance period. This target amount of such revenue over this three-year period will equal the sum of (i) the amounts of targeted legacy and strategic revenue for 2013 and 2014 as determined by the Subcommittee in early 2013 and 2014, respectively, and (ii) the amount of targeted legacy and strategic revenue for 2015 to be determined by the Subcommittee in early 2015. Each

 

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named executive officer will receive a greater or lesser number of shares of absolute performance-based restricted stock depending on our actual absolute revenues over the performance period, as illustrated further below:

 

Absolute Revenue

 

Performance Level

   Company’s
Performance
     Payout as % of
Target Award
 

Maximum

     ³ 103.5% of Absolute Target                 200

Target

     100.0% of Absolute Target                 100

Threshold

     96.5% of Absolute Target                 50

Below Threshold

     < 96.5% of Absolute Target                 0

If our absolute revenues are between (i) the threshold and the target amounts or (ii) the target and the maximum amounts, we will prorate the number of shares using linear interpolation.

Any contingent right of a named executive officer to receive more than the number of shares actually granted are treated by us as restricted stock units under the terms of the CenturyLink 2011 Equity Incentive Plan.

Other Terms. All dividends related to the above-described time-vested and performance-based restricted shares will be paid to the holder only upon the vesting of such shares. Unless and until forfeited, these shares may be voted by the named executive officers.

All of these above-described restricted shares are subject to forfeiture if the officer competes with us or engages in certain other activities harmful to us, all as specified further in the forms of incentive agreements that we have filed with the SEC. See “— Potential Termination Payments.”

For additional information about our grants of time-vested restricted stock, relative performance-based restricted stock (including the 30-company peer group referred to above) and absolute performance-based restricted stock, see “Compensation Discussion and Analysis — Long-Term Equity Incentive Compensation.”

 

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Outstanding Awards. The table below summarizes information on stock options and unvested restricted stock outstanding at December 31, 2013.

Outstanding Equity Awards at December 31, 2013(1)

 

    Option Awards     Stock Awards  
          Equity Incentive Plan Awards(3)     All Other Stock Awards  

Name

  Number of
Securities
Underlying
Unexercised
Options(2)
    Option
Exercise
Price
    Option
Expiration
Date
    Grant
Date
    Unvested
Shares
    Market
Value of
Unvested
Shares
    Unvested
Shares(4)
    Market
Value of
Shares that
Have Not
Vested
 

Glen F. Post, III

    200,000      $ 45.90        2/26/2017        8/23/2010             $        42,439      $ 1,351,682   
          5/31/2011        52,707        1,678,718        17,569        559,573   
          2/20/2012        58,844        1,874,181        39,229        1,249,444   
          5/23/2013        88,146        2,807,450        88,145        2,807,418   

Karen A. Puckett

    75,000        45.90        2/26/2017        8/23/2010                      12,766        406,597   
          5/31/2011        23,000        732,550        7,667        244,194   
          2/20/2012        25,677        817,812        17,118        545,208   
          5/23/2013        30,501        971,457        30,500        971,425   

R. Stewart Ewing, Jr.

    20,600        33.40        2/17/2015        8/23/2010                      11,514        366,721   
    62,500        35.41        2/20/2016        5/31/2011        17,825        567,726        5,942        189,253   
    62,500        45.90        2/26/2017        2/20/2012        19,900        633,815        13,267        422,554   
          5/23/2013        20,835        663,595        20,834        663,563   

Stacey W. Goff

    40,500        45.90        2/26/2017        8/23/2010                      7,282        231,932   
          5/31/2011        13,225        421,216        4,408        140,395   
          2/20/2012        14,765        470,265        9,843        313,500   
          5/23/2013        16,027        510,460        16,026        510,428   

David D. Cole

    40,500        45.90        2/26/2017        8/23/2010                      7,467        237,824   
          5/31/2011        13,225        421,216        4,408        140,395   
          2/20/2012        14,765        470,265        9,843        313,500   
          5/23/2013        15,225        484,916        15,225        484,916   

 

(1) All information on exercisability, vesting and market value is solely as of December 31, 2013. This table does not reflect (i) exercises of options, vesting of restricted stock or other changes in the equity awards since such date or (ii) any additional equity grants since such date.
(2) We have not granted options to executives since 2007; all of the options summarized under this column were exercisable as of December 31, 2013.
(3) Represents performance-based restricted shares granted on May 31, 2011, February 20, 2012 and May 23, 2013. The table above assumes that we will perform at “target” levels such that all performance-based shares granted to each named executive will vest fully. For additional information on the vesting and other terms of our most recent grant of performance-based restricted shares, see “— 2013 Awards” and “— Terms of 2013 Restricted Stock Awards.”
(4) All shares listed under this column are shares of time-vested restricted stock that generally vest at a rate of one-third per year during the first three years after that grant date. For additional information on the vesting and other terms of our most recent grant of time-vested restricted shares, see “— Terms of 2013 Restricted Stock Awards.”

 

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2013 Exercises and Vesting. The following table provides information on Common Shares acquired by the named officers during 2013 in connection with the exercise of options and the vesting of restricted stock.

Option Exercises and Stock Vested

 

     Option Awards      Stock Awards  

Name

   Number of
Shares
Acquired
on Exercise
     Value Realized
On Exercise
     Number of
Shares
Acquired
on Vesting(1)
     Value Realized
on Vesting(2)
 

Glen F. Post, III

     —         $ —           155,239       $ 5,341,316   

Karen A. Puckett

     —           —           60,425         2,076,654   

R. Stewart Ewing, Jr.

     —           —           49,007         1,684,991   

Stacey W. Goff

     —           —           34,351         1,180,561   

David D. Cole

     —           —           34,537         1,187,045   

 

(1) Represents the vesting of (i) time-vested restricted shares granted in 2010 and (ii) performance-based restricted shares granted in 2010, the vesting of which is described in “Compensation Discussion and Analysis — Pay for Performance.”
(2) Based on the closing trading price of the Common Shares on the applicable vesting date.

 

 

Pension Benefits

Amount of Benefits. The following table and discussion summarize pension benefits payable to the named officers under (i) our legacy retirement plan qualified under Internal Revenue Code Section 401(a), which permits eligible participants (including officers) who have completed at least five years of service to receive a pension benefit upon attaining early or normal retirement age, and (ii) our nonqualified supplemental plan, which is designed to pay supplemental retirement benefits to certain officers in amounts equal to the benefits such officers would otherwise forego due to federal limitations on compensation and benefits under qualified plans. We refer to these particular defined benefit plans below as our “Qualified Plan” and our “Supplemental Plan,” respectively, and as our “Pension Plans,” collectively.

 

Name

  

Plan Name

   Number of
Years of  Credited
Service
     Present
Value of
Accumulated
Benefit(1)
     Payments During
Last Fiscal Year
 

Glen F. Post, III

   Qualified Plan      15       $ 1,603,030         —     
  

Supplemental Plan

     15         1,840,631         —     

Karen A. Puckett

   Qualified Plan      14         911,651         —     
  

Supplemental Plan

     14         675,817         —     

R. Stewart Ewing, Jr.

   Qualified Plan      15         1,691,486         —     
  

Supplemental Plan

     15         757,010         —     

Stacey W. Goff

   Qualified Plan      15         486,806         —     
  

Supplemental Plan

     15         273,492         —     

David D. Cole

   Qualified Plan      15         1,261,452         —     
  

Supplemental Plan

     15         344,281         —     

 

(1) These figures represent accumulated benefits as of December 31, 2013 based on several assumptions, including the assumption that the executive remains employed by us and begins receiving retirement benefits at the normal retirement age of 65, with such accumulated benefits being discounted from the normal retirement age to December 31, 2013 using discount rates ranging between 3.50% to 4.20%. No adjustments have been made to reflect reductions required under any qualified domestic relations orders. See Note 8 titled “Employee Benefits” of the notes to our audited financial statements included in Appendix B for additional information.

 

 

 

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CenturyLink Pension Plans. With limited exceptions specified in the Pension Plans, we “froze” our Qualified Plan and Supplemental Plan as of December 31, 2010, which means that no additional monthly pension benefits have accrued under such plans since that date (although service after that date continues to count towards vesting and benefit eligibility and a limited transitional benefit for eligible participants continues to accrue through 2015).

Prior to this freezing of benefit accruals, the aggregate amount of a participant’s total monthly pension benefit under the Qualified Plan and Supplemental Plan was equal to the participant’s years of service since 1999 (up to a maximum of 30 years) multiplied by the sum of (i) 0.5% of his final average pay plus (ii) 0.5% of his final average pay in excess of his compensation subject to Social Security taxes, where “final average pay” was defined as the participant’s average monthly compensation during the 60 consecutive month period within his last ten years of employment in which he received his highest compensation. Effective December 31, 2010, the Qualified Plan and Supplemental Plan were amended to cease all future benefit accruals under the above formula (except where a collective bargaining agreement provides otherwise). In lieu of additional accruals under the above-described formula, each affected participant’s accrued benefit as of December 31, 2010 increases 4% per year, compounded annually through the earlier of December 31, 2015 or the termination of the participant’s employment.

Under both of these CenturyLink retirement plans, “average monthly compensation” is determined based on the participant’s salary plus annual cash incentive bonus. Although the retirement benefits described above are provided through separate plans, we have in the past transferred benefits from the Supplemental Plan to the Qualified Plan, and reserve the right to make further similar transfers to the extent allowed under applicable law. The value of benefits transferred to the Qualified Plan, which directly offset the value of benefits in the Supplemental Plan, will be payable to the recipients in the form of enhanced annuities or supplemental benefits. The enhanced annuities are not part of the normal retirement benefit and were not impacted by the plan freeze.

The normal form of benefit payment under both of the Pension Plans is (i) in the case of unmarried participants, a monthly annuity payable for the life of the participant, and (ii) in the case of married participants, an actuarially equivalent monthly annuity payable for the lifetime of the participant and a survivor annuity payable for the lifetime of the spouse upon the participant’s death. Participants may elect optional forms of annuity benefits under each plan and, in the case of the Qualified Plan, an annuity that guarantees ten years of benefits, all of which are actuarially equivalent in value to the normal form of benefit. The enhanced annuities described in the prior paragraph may be paid in the form of a lump sum, at the participant’s election.

The normal retirement age is 65 under both of the Pension Plans. Participants may receive benefits under both of these plans upon “early retirement,” which is defined as attaining age 55 with five years of service. Under both of these plans, the benefit payable upon early termination is calculated under formulas that pay between 60% to 100% of the base plan benefit and 48% to 92% of the excess plan benefit, in each case with the lowest percentage applying to early retirement at age 55 and proportionately higher percentages applying to early retirement after age 55. For additional information on early retirement benefits, please see the applicable early retirement provisions of the Pension Plans, copies of which are filed with the SEC.

Glen F. Post, III, R. Stewart Ewing, Jr. and David D. Cole are currently eligible for early retirement under the Qualified Plan and Supplemental Plan.

 

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Deferred Compensation

The following table and discussion provides information on our Supplemental Dollars & Sense Plan, which is designed to permit officers to defer a portion of their salary in excess of the amounts that may be deferred under federal law governing qualified 401(k) plans.

Non-Qualified Deferred Compensation

 

Name

   Aggregate
Balance at
December 31,
2012
     Executive
Contributions
in 2013(1)
     CenturyLink
Contributions
in 2013(2)
     Aggregate
Earnings
in  2013(3)
     Aggregate
Withdrawals/
Distributions
     Aggregate
Balance at
December 31,
2013
 

Glen F. Post, III

   $ 2,342,210       $ 250,668       $ 93,874       $ 120,486         —         $ 2,807,238   

Karen A. Puckett

     939,108         87,286         50,917         194,150         —           1,271,461   

R. Stewart Ewing, Jr.

     765,796         66,669         35,244         122,794         —           990,503   

Stacey W. Goff

     802,820         86,828         25,325         190,415         —           1,105,387   

David D. Cole

     616,194         48,879         21,312         72,214         —           758,599   

 

(1) All of these amounts in this column reflect contributions by the officer of salary paid in 2013 and reported as 2013 salary compensation in the Summary Compensation Table.
(2) This column includes our match of the officer’s contribution under the terms of the plan. We have reflected all of these amounts as 2013 compensation in the column of the Summary Compensation Table labeled “All Other Compensation.”
(3) Aggregate earnings in 2013 include interest, dividends and distributions earned with respect to deferred compensation invested by the officers in the manner described in the text below.

 

 

Under our Supplemental Dollars & Sense Plan, certain of our senior officers may defer up to 25% of their salary in excess of the federal limit on annual contributions to a qualified 401(k) plan. For every dollar that participants contribute to this plan up to 6% of their excess salary, we add an amount equal to the total matching percentage then in effect for matching contributions made by us under our qualified 401(k) plan (which for 2013 equaled the sum of all of the initial 1% contributed and half of the next 5% contributed). All amounts contributed under this supplemental plan by the participants or us may be invested by the participants in the same broad array of money market and mutual funds offered under our qualified 401(k) plan. Participants may change their investments in these funds at any time. We reserve the right to transfer benefits from the Supplemental Dollars & Sense Plan to our qualified 401(k) or retirement plans to the extent allowed under Treasury regulations and other guidance. The value of benefits transferred to our qualified plans directly offsets the value of benefits in the Supplemental Dollars & Sense Plan. Participants in the Supplemental Dollars & Sense Plan normally receive payment of their account balances in a lump sum once they cease working full-time for us.

Potential Termination Payments

The materials below discuss payments and benefits that our officers are eligible to receive if they (i) resign or retire, (ii) are terminated by us, with or without cause, (iii) die or become disabled or (iv) become entitled to termination benefits following a change of control of CenturyLink.

Notwithstanding the information appearing below, you should be aware that our officers have agreed to forfeit their equity compensation awards (and profits derived therefrom) if they compete with us or engage in other activity harmful to our interests while employed with us or within 18 months after termination. Certain other compensation might also be recoverable by us under certain circumstances after termination of employment. See “Compensation Discussion and Analysis — Forfeiture of Prior Compensation” for more information.

 

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Payments Made Upon All Terminations. Regardless of the manner in which our employees’ employment terminates prior to a change of control, they are entitled to receive amounts earned during their term of employment (subject to the potential forfeitures discussed above). With respect to each such terminated employee, such amounts include his or her:

 

   

salary and earned but unused vacation pay through the date of termination, payable immediately following termination in cash

 

   

annual incentive bonus, but only if such employee served for the entire bonus period or through the date such bonus is payable (unless this service requirement is waived)

 

   

restricted stock that has vested

 

   

benefits accrued and vested under our qualified and supplemental defined benefit pension plans, with payouts generally occurring at early or normal retirement age

 

   

vested account balance held in our qualified and supplemental defined contribution plans, which the employee is generally free to receive at the time of termination

 

   

rights to continued health care benefits to the extent required by law.

Payments Made Upon Voluntary or Involuntary Terminations. In addition to benefits described under the heading immediately above, employees involuntarily terminated by us without cause prior to a change of control are also entitled, subject to certain conditions, to:

 

   

exercise all vested options within 190 days of the termination date

 

   

accelerated vesting of all, or a portion of, unvested time-vested restricted stock if approved by our Compensation Committee

 

   

a cash severance payment in the amount described under “Compensation Discussion and Analysis — Other Benefits — Severance Benefits,” plus the receipt of any short-term incentive bonus payable under their applicable bonus plan and outplacement assistance benefits.

None of the benefits listed immediately above are payable if the employee resigns or is terminated for cause, except that resigning employees are entitled to exercise their vested options within 190 days and employees terminated for cause could request the Compensation Committee to accelerate their unvested time-vested restricted stock (which is unlikely to be granted).

Payments Made Upon Retirement. Employees who retire in conformity with our retirement plans and policies are entitled, subject to certain conditions, to:

 

   

exercise all of their options, all of which accelerate upon retirement, within three years of their retirement date

 

   

accelerated vesting of all, or a portion of, unvested time-vested restricted stock if approved by our Compensation Committee

 

   

payment of their annual incentive bonus or a pro rata portion thereof, depending on their retirement date

 

   

post-retirement life, health and welfare benefits

 

   

all of the benefits described under the heading “— Payments Made Upon All Terminations.”

In addition, an employee who retires from the Company will continue to vest in his or her unvested performance-based restricted stock for the remainder of the applicable performance period. If the employee takes early retirement, this continued vesting opportunity only applies to a reduced pro rata number of unvested shares, based on the number of days he or she was employed during the performance period.

 

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Payments Made Upon Death or Disability. Upon death or disability, officers (or their estates) are generally entitled to (without duplication of benefits):

 

   

payments under our disability or life insurance plans, as applicable

 

   

exercise all of their options, all of which accelerate upon death or disability, within two years

 

   

keep all of their time-vested restricted stock, whether vested or unvested

 

   

payment of their annual incentive bonus or a pro rata portion thereof, depending on their date of death or disability

 

   

continued rights to receive (i) life, health and welfare benefits at early or normal retirement age, in the event of disabilities of employees with ten years of prior service, or (ii) health and welfare benefits payable to surviving eligible dependents, in the event of death of employees meeting certain age and service requirements

 

   

all of the benefits described under the heading “— Payments Made Upon All Terminations,” except that (i) upon death benefits under our retirement plans are generally available only to surviving spouses and (ii) benefits payable to mentally disabled employees under our nonqualified defined benefit retirement plans may be paid prior to retirement age.

Payments Made Upon a Change of Control. We have entered into agreements that entitle each of our executive officers who are terminated without cause or resign under certain specified circumstances within certain specified periods following any change in control of CenturyLink to (i) receive a lump sum cash severance payment equal to a multiple of such officer’s annual cash compensation (defined as salary plus the average annual incentive bonus over the past three years), (ii) receive such officer’s currently pending bonus or pro rata portion thereof, depending on the date of termination, and (iii) continue to receive, subject to certain exceptions, certain welfare benefits for certain specified periods. See “Compensation Discussion and Analysis — Other Benefits — Change of Control Arrangements” for a description of the benefits under our change of control agreements.

Under CenturyLink’s above-referenced agreements, a “change in control” of CenturyLink would be deemed to occur upon (i) any person (as defined in the Securities Exchange Act of 1934) becoming the beneficial owner of 30% or more of the outstanding Common Shares, (ii) a majority of our directors being replaced, (iii) consummation of certain mergers, substantial asset sales or similar business combinations, or (iv) approval by the shareholders of a liquidation or dissolution of CenturyLink.

The above-referenced agreements provide the benefits described above if we terminate the officer’s employment without cause or the officer resigns with “good reason,” which we describe further under the heading “Compensation Discussion and Analysis — Other Benefits — Change of Control Arrangements.” We have filed copies or forms of these agreements with the SEC.

Participants in our supplemental defined benefit plan whose service is terminated within two years of the change in control of CenturyLink will receive a cash payment equal to the present value of their plan benefits (after providing age and service credits of up to three years if the participant is terminated by us without cause or resigns with “good reason”), determined in accordance with actuarial assumptions specified in the plan. Certain account balances under our qualified retirement plans will also fully vest upon a change of control of CenturyLink.

Under the terms of our 2011 Equity Incentive Plan, incentives granted thereunder will not vest, accelerate, become exercisable or be deemed fully paid unless otherwise provided in a separate agreement, plan or instrument. None of our equity award agreements since 2011 have provided for any such accelerated recognition of benefits solely upon a change of control. Instead, our current award agreements provide that any holder of incentives who is terminated by us or our successor without cause or resigns with good reason following a

 

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change of control will be entitled to receive full vesting of his or her time-vested restricted shares and continued rights under his or her performance-based restricted shares (on the same terms as if he or she had not been terminated).

We believe the above-described change of control benefits enhance shareholder value because:

 

   

prior to a takeover, these protections help us to recruit and retain talented officers and to help maintain the productivity of our workforce by alleviating concerns over economic security, and

 

   

during or after a takeover, these protections (i) help our personnel, when evaluating a possible business combination, to focus on the best interests of CenturyLink and its shareholders, and (ii) reduce the risk that personnel will accept job offers from competitors during takeover discussions.

Estimated Potential Termination Payments. The table below provides estimates of the value of payments and benefits that would become payable if our current named executives were terminated in the manner described below, in each case based on various assumptions, the most significant of which are described in the table’s notes.

Potential Termination Payments

 

        Type of Termination of Employment(1)  

Name

 

Type of

Termination
Payment(2)

  Involuntary
Termination
Without
Cause(3)
    Retirement(4)     Disability     Death     Termination
Upon a
Change of
Control(5)
 

Glen F. Post, III

  Annual Bonus   $ 1,683,000      $ 1,683,000      $ 1,683,000      $ 1,683,000      $ 1,683,000   
  Equity Awards(6)     —          9,078,334        12,328,456        12,328,456        12,328,456   
  Pension and Welfare(7)     36,600        —          —          —          240,057   
  Cash Severance(8)     5,500,000        —          —          —          8,250,000   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 7,219,600      $ 10,761,334      $ 14,011,456      $ 14,011,456      $ 22,501,513   

Karen A. Puckett

  Annual Bonus   $ 854,123      $ —        $ 854,123      $ 854,123      $ 854,123   
  Equity Awards(6)     —          —          4,689,244        4,689,244        4,689,244   
  Pension and Welfare(7)     28,000        —          —          —          46,200   
  Cash Severance(8)     1,575,000        —          —          —          3,150,000   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 2,457,123      $ —        $ 5,543,367      $ 5,543,367      $ 8,739,567   

R. Stewart Ewing, Jr.

  Annual Bonus   $ 729,300      $ 729,300      $ 729,300      $ 729,300      $ 729,300   
  Equity Awards(6)     —          2,598,637        3,507,216        3,507,216        3,507,216   
  Pension and Welfare(7)     23,100        —          —          —          70,479   
  Cash Severance(8)     1,365,000        —          —          —          2,730,000   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 2,117,400      $ 3,327,937      $ 4,236,516      $ 4,236,516      $ 7,036,995   

Stacey W. Goff

  Annual Bonus   $ 561,000      $ —        $ 561,000      $ 561,000      $ 561,000   
  Equity Awards(6)     —          —          2,598,185        2,598,185        2,598,185   
  Pension and Welfare(7)     30,300        —          —          —          50,600   
  Cash Severance(8)     1,050,000        —          —          —          2,100,000   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 1,641,300      $ —        $ 3,159,185      $ 3,159,185      $ 5,309,785   

David D. Cole

  Annual Bonus   $ 436,050      $ 436,050      $ 436,050      $ 436,050      $ 436,050   
  Equity Awards(6)     —          1,883,858        2,553,022        2,553,022        2,553,022   
  Pension and Welfare(7)     30,300        —          —          —          115,756   
  Cash Severance(8)     902,500        —          —          —          1,805,000   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 1,368,850      $ 2,319,908      $ 2,989,072      $ 2,989,072      $ 4,909,828   

 

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(1) All data in the table reflects estimates of the value of payments and benefits assuming the named officer was terminated on December 31, 2013. The closing price of the Common Shares on such date was $31.85. The table reflects only estimates of amounts earned or payable through or at such date based on various assumptions. Actual amounts can be determined only at the time of termination. If a named officer voluntarily resigns or is terminated with cause, he or she will not be entitled to any special or accelerated benefits, but will be entitled to receive various payments or benefits that vested before the termination date. The table reflects potential payments based upon a physical disability; additional benefits may be payable in the event of a mental disability.
(2) As further described above, upon termination of employment, the named officers may become entitled to receive certain special, accelerated or enhanced benefits, including, subject to certain exceptions, the right to receive payment of their annual cash incentive bonus, an acceleration under certain circumstances of the vesting of their outstanding equity awards, current or enhanced pension and welfare benefits, or cash severance payments. The table excludes (i) payments or benefits made under broad-based plans or arrangements generally available to all salaried full-time employees and (ii) benefits, awards or amounts that the officer was entitled to receive prior to termination of employment.
(3) The amounts listed in this column reflect payments to which the named officer would be entitled to under our executive severance plan if involuntarily terminated by us without cause prior to a change of control. The amounts listed in this column would not be payable if the officer voluntarily resigns or is terminated for cause.
(4) Of the named officers, only Messrs. Post, Ewing and Cole are eligible to retire early under CenturyLink’s defined benefit pension plans described above under the heading “Executive Compensation — Pension Benefits.” The amounts reflected under the “Retirement” column do not reflect the amount of lifetime annuity payments payable upon early retirement. Assuming early retirement as of December 31, 2013, Messrs. Post, Ewing and Cole would have been entitled to monthly annuity payments of approximately $24,039, $16,557 and $9,666, respectively, over their lifetimes, some of which, in the case of Mr. Ewing, may be payable to his ex-wife under a qualified domestic relations order. For further information, see the other notes below.
(5) The information in this column assumes each named officer became entitled at December 31, 2013 to the benefits under CenturyLink’s agreements in existence on such date described above under “— Payments Made Upon a Change of Control” upon an involuntary termination without cause or resignation with good reason. All amounts are based on several assumptions.
(6) The information in this row (i) reflects the benefit to the named officer arising out of the accelerated vesting of some or all of his or her restricted stock caused by the termination of employment based upon the intrinsic method of valuation, (ii) assumes that the Compensation Committee would not approve the acceleration of the named officer’s restricted stock in the event of an involuntary termination, and (iii) assumes that the Compensation Committee would approve the acceleration of such restricted stock in the event of the early retirement of Messrs. Post, Ewing or Cole.
(7) The information in this row reflects only the incremental benefits that accrue upon an event of termination, and excludes benefits that were vested on December 31, 2013. For information on the present value of the named officers’ accumulated benefits under our defined benefit pension plans, see “— Pension Benefits,” and for information on the aggregate balances of the named officers’ non-qualified deferred compensation, see “— Deferred Compensation.” As indicated above, the named officer would also be entitled to receive a distribution of his or her 401(k) benefits and various other broad-based benefits.
(8) The information in this row excludes, in the case of disability or death, payments made by insurance companies.

 

 

 

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DIRECTOR COMPENSATION

Overview

The Board believes that each director who is not employed by us (whom we refer to as outside directors or non-management directors) should be compensated through a mix of cash and equity-based compensation, which most recently has been granted in the form of restricted stock. The Compensation Committee, consisting entirely of independent directors, has primary responsibility for periodically reviewing and considering any revisions to director compensation. The Board reviews the Compensation Committee’s recommendations and determines the amount of director compensation. Since being retained by the Compensation Committee in 2010, Hay Group has assisted the Committee in reviewing director compensation.

The table and the discussion below summarize how we compensated our outside directors in 2013.

2013 Compensation of Outside Directors

 

Name

   Fees Earned or
Paid in Cash
     Stock
Awards(1),(2)
     All Other
Compensation(3)
     Total  

Virginia Boulet

   $ 128,000       $ 109,056       $       $ 237,056   

Peter C. Brown

     117,000         109,056                 226,056   

Richard A. Gephardt

     89,000         109,056         86,780         284,836   

W. Bruce Hanks

     142,000         109,056         5,208         256,264   

Gregory J. McCray

     107,000         109,056                 216,056   

C. G. Melville, Jr.

     119,500         109,056                 228,556   

Fred R. Nichols

     113,000         109,056                 222,056   

William A. Owens

     111,000         298,697                 409,697   

Harvey P. Perry

     203,000         109,056         3,563         315,619   

Michael J. Roberts

     101,000         109,056                 210,056   

Laurie A. Siegel

     119,750         109,056                 228,806   

Joseph R. Zimmel

     109,000         109,056                 218,056   

 

(1) For purposes of determining the number of restricted shares to grant to each outside director, the Compensation Committee valued each of these stock awards to equal $115,000 (or $315,000 in the case of Adm. Owens), based upon the volume-weighted average closing price of our Common Shares over a 15-day trading period ending prior to the grant date. For purposes of reporting the fair value of these awards in the table above, however, we valued each grant based upon the closing stock price of our Common Shares on the grant date in accordance with FASB ASC Topic 718. These grants vest on May 23, 2014 (subject to accelerated vesting in certain limited circumstances). See “— Cash and Stock Payments.”
(2) As of December 31, 2013, William A. Owens held 9,213 unvested shares of restricted stock and each of our other outside directors held 3,871 unvested shares of restricted stock, which constituted the only unvested equity-based awards held by our outside directors as of such date (excluding equity awards granted to Michael J. Roberts prior to his commencement of service on our board following the Qwest merger). For further information on our directors’ stock ownership, see “Ownership of Our Securities — Executive Officers and Directors,” and for information on certain deferred fee arrangements pertaining to Mr. Roberts, see “— Other Benefits.”
(3) Represents (i) reimbursements for the cost of annual physical examinations and related travel or (ii) in the case of Richard A. Gephardt, payment of consulting fees in connection with the consulting services described under “Corporate Governance — Independence.” Except as otherwise noted in the prior sentence, the table above does not reflect (i) reimbursements for travel expenses or (ii) any benefits associated with participating in recreational activities scheduled during board retreats (as described further under the heading “Compensation Discussion and Analysis — Other Benefits — Perquisites”).

 

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Cash and Stock Payments

Each outside director is paid an annual fee of $65,000 plus $2,000 for attending each regular board meeting, special board meeting (including each day of the Board’s annual planning session), committee meeting and separate director education program.

Currently, William A. Owens, in his capacity as the non-executive Chairman of the Board, receives supplemental board fees at the rate of $200,000 per year payable in shares of restricted stock (valued using the 15-trading day average closing price specified in note 1 of the table appearing above under “— Overview”). The restricted stock issued to the Chairman during 2013 vests on May 23, 2014 (subject to accelerated vesting in certain limited circumstances). The Board anticipates making a similar grant to the Chairman in May 2014. The Chairman’s duties are set forth in our corporate governance guidelines. See “Corporate Governance.”

Currently, Harvey P. Perry, in his capacity as non-executive Vice Chairman of the Board, receives supplemental board fees at the rate of $100,000 cash per year. The Board anticipates making a similar payment to Mr. Perry in May 2014. The Vice Chairman’s current duties include, among others, (i) assisting the Chairman by facilitating communications among the directors and monitoring the activities of the Board’s committees, (ii) serving at the Chairman’s request on the board of any company in which we have an investment, (iii) monitoring our strategies and (iv) performing certain executive succession functions.

We also pay annual supplemental board fees to the chairs of each of our committees as follows: (i) the chair of the Audit Committee receives $25,000, (ii) the chair of the Compensation Committee receives $18,750, (iii) the chair of the Nominating Committee receives $15,000 and (iv) the chair of the Risk Evaluation Committee receives $12,500.

During 2013, the Compensation Committee authorized each outside director to receive shares of time-vested restricted stock valued at $115,000 (valued using the 15-trading day average closing price specified in note 1 of the table appearing above under “— Overview”) that vest on May 23, 2014 (subject to accelerated vesting in certain limited circumstances). The Compensation Committee currently expects to authorize comparable equity grants in May 2014 to each outside director serving on the day after our 2014 annual meeting.

Other Benefits

Each outside director is entitled to be reimbursed (i) for expenses incurred in attending board and committee meetings, (ii) for expenses incurred in attending director education programs and (iii) up to $5,000 per year for the cost of an annual physical examination, plus related travel expenses.

In connection with our 2011 merger with Qwest, we assumed the Qwest Deferred Compensation Plan for Non-Employee Directors. Under this plan, Qwest outside directors could elect to defer all or a portion of their cash directors’ fees, which were then converted to a number of “phantom units” based the value of a share of Qwest stock, with credit for dividends paid to stockholders “reinvested” in additional phantom units. Certain plan balances were distributed to participants at the close of the merger, but plan balances attributable to amounts deferred on or after January 1, 2005 by Qwest directors who joined our Board following the merger were converted, based on the merger exchange ratio, to phantom units based on the value of a share of CenturyLink common stock. Other than the crediting and “reinvestment” of dividends for outstanding phantom units, CenturyLink does not make any contributions to, and no additional elective deferrals are permitted under, this plan. Subject to the terms of the plan, each participant’s account will be distributed as a lump sum in cash as soon as practicable following the end of his or her service as a director. As of December 31, 2013, Michael J. Roberts was the only remaining participant in this plan, with a balance of 4,513.24 phantom units with an aggregate value of $143,747 as of such date.

We supply company-owned tablets to most of our outside directors for use in reviewing materials posted to a dedicated portal that permits management to communicate with the Board.

 

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Our bylaws require us to indemnify our directors and officers so that they will be free from undue concern about personal liability in connection with their service to CenturyLink. We have signed agreements with each of those individuals contractually obligating us to provide these indemnification rights. We also provide our directors with customary directors and officers liability insurance.

Directors may use our aircraft in connection with company-related business. However, under our aircraft usage policy, neither directors nor their families may use our aircraft for personal trips (except on terms generally available to all of our employees in connection with a medical emergency). We have arranged a charter service that our outside directors can use at their cost for their personal air travel needs. None of our directors have used this charter service since 2007.

Director Stock Ownership Guidelines

For information on our stock ownership guidelines for outside directors, see “Corporate Governance — Governance Guidelines — Stock Ownership Guidelines.”

 

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PERFORMANCE GRAPH

The graph below compares the cumulative total shareholder return on the Common Shares with the cumulative total return of the S&P 500 Index and the S&P Integrated Telecommunications Index for the period from December 31, 2008 to December 31, 2013, in each case assuming (i) the investment of $100 on January 1, 2009 at closing prices on December 31, 2008, and (ii) reinvestment of dividends.

 

LOGO

 

 

     December 31,  
     2008      2009      2010      2011      2012      2013  

CenturyLink

   $ 100.00       $ 144.57       $ 198.80       $ 172.86       $ 195.53       $ 169.96   

S&P 500 Index

     100.00         126.45         145.52         148.55         172.29         228.04   

S&P Telecom Index(1)

     100.00         108.94         129.63         137.82         162.98         181.45   

 

(1) 

The S&P Integrated Telecommunication Services Index consists of AT&T Inc., CenturyLink, Frontier Communications Corporation, Verizon Communications and Windstream Corporation. The index is publicly available.

 

 

 

 

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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the last fiscal year, Laurie A. Siegel, Virginia Boulet, Fred R. Nichols, William A. Owens and Harvey P. Perry served on our Compensation Committee. Other than Mr. Perry, who served as one of our officers until his retirement in 2003, no member of the Compensation Committee has served as an officer or employee of the company or any of our subsidiaries prior to or while serving on the Compensation Committee. Mr. Perry’s son, H. Parnell Perry, Jr., serves as an employee of ours, as further described immediately below under “Transactions With Related Parties — Recent Transactions.”

TRANSACTIONS WITH RELATED PARTIES

Recent Transactions

During 2013, we paid H. Parnell Perry, Jr., who serves as Manager — Technology Management, total gross compensation of approximately $126,950, consisting of approximately $108,514 in salary and $18,436 in annual incentive bonuses (excluding the value of broad-based benefits provided under our welfare and other benefit plans). Mr. Perry is the son of Harvey P. Perry, one of our directors, and has been an employee of ours since 1987.

We are one of the largest employers in Monroe, Louisiana and in several of our other markets, and, as such, employ personnel related by birth or marriage throughout our organization. Several of our executive officers or directors have family members employed by us, although, none of them (other than H. Parnell Perry, Jr.) earned 2013 compensation in excess of the $120,000 threshold that would require detailed disclosures under the federal proxy rules.

Review Procedures

Early each year, our director of internal audit distributes to the Audit Committee a written report listing our payments to vendors, including a list of transactions with our directors, officers or employees. This annual report permits the independent directors to assess and discuss our related party transactions. Although we have no formal written pre-approval procedure governing related party transactions, our CEO typically seeks approval of the board before engaging in any new related party transaction involving significant sums or risks.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

The Securities Exchange Act of 1934 requires our executive officers and directors, among others, to file certain beneficial ownership reports with the SEC. During 2013, (i) Maxine L. Moreau filed late a Form 4 report in connection with vesting of restricted shares in May 2012, (ii) Fred R. Nichols filed late a Form 5 for 2012 and (iii) Harvey P. Perry filed a Form 5, which was timely filed for 2012 but included a 2011 transaction.

ADDITIONAL INFORMATION ABOUT THE MEETING

Quorum

Our bylaws provide that the presence at the meeting, in person or by proxy, of a majority of the outstanding Voting Shares constitutes a quorum to organize the meeting.

Vote Required to Elect Directors

Our bylaws provide that each of the 13 director nominees will be elected if the number of votes cast in favor of the director exceeds the number of votes withheld with respect to the director. You may vote “for” all director nominees or withhold your vote for any one or more of the director nominees. If any of the 13 directors fails to receive a majority of the votes cast at the meeting, our bylaws will require such director to tender his or her resignation to the Board for its consideration.

 

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Vote Required to Adopt Other Proposals at the Meeting

With respect to all other items submitted to a vote at the meeting, the affirmative vote of the holders of at least a majority of the Voting Shares present in person or represented by proxy and entitled to vote at the meeting is required to approve each such item.

Effect of Abstentions

Shares as to which the proxy holders have been instructed to abstain from voting with respect to any particular matter will be treated under the Company’s bylaws as not being cast, present or represented for purposes of such vote. Because all matters must be approved by the holders of a specified percentage of the votes cast or Voting Shares present or represented at the meeting, abstentions will not affect the outcome of any such vote. Shareholders abstaining from voting will be counted as present for purposes of constituting a quorum to organize the meeting.

Effect of Non-Voting

If you properly execute and return a proxy or voting instruction card, your shares will be voted as you specify. If you are a shareholder of record and make no specifications on your validly submitted proxy card, your shares will be voted against the shareholder proposal and in favor of all other items. If you are a beneficial owner of shares and do not give voting instructions to your broker, bank or nominee, they will be entitled to vote your shares only to the extent specified below.

Under the rules of the New York Stock Exchange, brokers who hold shares in street name for customers may vote in their discretion on matters considered to be “routine” when they have not received voting instructions from beneficial owners. Under these rules, brokers who do not receive such instructions will be entitled to vote in their discretion at the meeting with respect to the ratification of the appointment of the independent auditor, but will not be entitled to vote in their discretion with respect to any of the other matters submitted to a vote. If brokers who do not receive voting instructions do not, or cannot, exercise discretionary voting power (a “broker non-vote”) with respect to any matter to be considered at the meeting, shares that are not voted will be treated as present for purposes of constituting a quorum to organize the meeting but not present or cast with respect to considering such matter. Because all matters to be considered at the meeting must be approved by the holders of a specified percentage of the votes cast or Voting Shares present or represented at the meeting, broker non-votes will not affect the outcome of any such vote.

Revocations

Shareholders of record may revoke their proxy or change their votes at any time before their proxy is voted at the meeting by giving a written revocation notice to our secretary, by timely delivering a proxy bearing a later date or by voting in person at the meeting. Beneficial shareholders may revoke or change their voting instructions by contacting the broker, bank or nominee that holds their shares.

Voting by Participants in Our Benefit Plans

If you beneficially own any of our Common Shares by virtue of participating in any retirement plan of CenturyLink, then you will receive a separate voting instruction card that will enable you to direct the voting of these shares. This voting instruction card entitles you, on a confidential basis, to instruct the trustees how to vote the shares allocated to your plan account. The plans require you to act as a “named fiduciary,” which requires you to exercise your voting rights prudently and in the interests of all plan participants. Plan participants who wish to vote should complete and return the voting instruction card in accordance with its instructions. If you elect not to vote the shares allocated to your accounts, your shares will be voted in the same proportion as voted shares regarding each of the items submitted to a vote at the meeting. Plan participants that wish to revoke their voting instructions must contact the trustee and follow its procedures.

 

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Cost of Proxy Solicitation

We will pay all expenses of soliciting proxies for the meeting. Proxies may be solicited personally, by mail, by telephone or by facsimile by our directors, officers and employees, who will not be additionally compensated therefor. We will also request persons holding Voting Shares in their names for others, such as brokers, banks and other nominees, to forward materials to their principals and request authority for the execution of proxies, and we will reimburse them for their expenses incurred in connection therewith. We have retained Innisfree M&A Incorporated, New York, New York, to assist in the solicitation of proxies, for which we will pay Innisfree fees anticipated to be $15,000 and will reimburse Innisfree for certain of its out-of-pocket expenses.

Other Matters Considered at the Meeting

Management has not timely received any notice that a shareholder desires to present any matter for action at the meeting in accordance with our bylaws (which are described below in “Other Matters — Shareholder Nominations and Proposals for the 2014 Annual Meeting — Other Proposals and Nominations”) other than the shareholder proposal described in this proxy statement, and is otherwise unaware of any matter to be considered by shareholders at the meeting other than those matters specified in the accompanying notice of the meeting. Our proxy and voting instruction cards, however, will confer discretionary voting authority with respect to any other matter that may properly come before the meeting. It is the intention of the persons named therein to vote in accordance with their best judgment on any such matter.

Conduct of the Meeting

The Chairman has broad responsibility and legal authority to conduct the meeting in an orderly and timely manner. This authority includes establishing rules for shareholders who wish to address the meeting. Copies of these rules will be available at the meeting. The Chairman may also exercise broad discretion in recognizing shareholders who wish to speak and in determining the extent of discussion on each item of business. In light of the need to conduct all necessary business and to conclude the meeting within a reasonable period of time, we cannot assure that every shareholder who wishes to speak on an item of business will be able to do so.

You will not be permitted to bring audio visual equipment, ampliphones or posters into the meeting. We reserve the right, to be exercised in our discretion, to admit guests, such as local politicians or the press, into the meeting.

Postponement or Adjournment of the Meeting

The Chairman may postpone or adjourn the meeting. Your proxy will still be valid and may be voted at the postponed or adjourned meeting. You will still be able to change or revoke your proxy until it is voted.

OTHER MATTERS

Shareholder Nominations and Proposals for the 2015 Annual Meeting

Proxy Statement Proposals. In order to be eligible for inclusion in our 2015 proxy materials pursuant to the federal proxy rules, any shareholder proposal to take action at such meeting must be received by our Secretary by December [], 2014, and must comply with applicable federal proxy rules.

In the event that our shareholders ratify our new Proxy Access Bylaw at the meeting, certain qualifying shareholders or shareholder groups may be permitted to include shareholder-nominated director candidates in our 2015 proxy materials. Please see “Proposal to Ratify a New Proxy Access Bylaw” and Appendix A for more information.

 

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Other Proposals and Nominations. In addition, our bylaws require shareholders to furnish timely written notice of their intent to nominate a director or bring any other matter before a shareholders’ meeting, whether or not they wish to include their candidate or proposal in our proxy materials. In general, notice must be received by our Secretary between November 29, 2014 and February 27, 2015 and must contain specified information concerning, among other things, the matters to be brought before such meeting and concerning the shareholder proposing such matters. (If the date of the 2015 annual meeting is more than 30 days earlier or later than May 28, 2015, notice must be received by our Secretary within 15 days of the earlier of the date on which notice of such meeting is first mailed to shareholders or public disclosure of the meeting date is made.) For additional information on these procedures, see “Corporate Governance — Director Nomination Process.”

These advance notice bylaw provisions, which are attached as Appendix A hereto, are in addition to, and separate from, the requirements that a shareholder must meet in order to have a candidate or proposal included in our proxy materials.

Proxies granted by a shareholder will give discretionary authority to the proxy holders to vote on any matters introduced pursuant to the above-described advance notice bylaw provisions, subject to applicable rules of the SEC.

You may obtain a full copy of our bylaws by reviewing our reports filed with the SEC, by accessing our website at www.centurylink.com, or by contacting our Secretary in the manner specified below.

Proxy Materials

Most shareholders will receive only a written notice of how to access our proxy materials, and will not receive printed copies of the proxy materials unless requested. If you would like to receive a paper copy of our proxy materials, you should follow the instructions for requesting the materials in the notice.

The full set of our materials include:

 

   

the notice and proxy statement for the meeting,

 

   

a proxy or voting instruction card, and

 

   

our 2013 annual report furnished in the following two parts: (1) our 2013 Financial Report, which constitutes Appendix B to this proxy statement, and (2) our separately distributed 2013 Review and CEO’s Message.

Our 2013 annual report is not a part of our proxy soliciting materials.

Annual Financial Report

Appendix B includes our Annual Financial Report, which is excerpted from portions of our Annual Report on Form 10-K for the year ended December 31, 2013 that we filed with the SEC on February 27, 2014. In addition, we have provided you with a copy of or access to our 2013 Review and CEO’s Message. Neither of these documents is a part of our proxy soliciting materials.

You may obtain a copy of our Form 10-K report without charge by writing to Stacey W. Goff, Secretary, CenturyLink, Inc., 100 CenturyLink Drive, Monroe, Louisiana 71203, or by visiting our website at www.centurylink.com.

You may view online this proxy statement and related materials at www.envisionreports. com/ctl.

By Order of the Board of Directors

 

Stacey W. Goff

Secretary

Dated: April [], 2014

 

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Appendix A

to Proxy Statement

Proposed Amendments to Bylaws

If the proposed amendments described under “Proposal to Ratify a New Proxy Access Bylaw” are ratified at the meeting, Section 5 of Article IV of our Bylaws would be amended and restated as follows:1

ARTICLE IV

SHAREHOLDERS’ MEETINGS

* * * *

 

Section 5. Notice of Shareholder Nominations and Shareholder Business.

 

  5.1 Annual Meetings of Shareholders.

(a) Nominations of persons for election to the Board of Directors and the proposal of other business to be considered by the shareholders may be made at an annual meeting of shareholders only if properly brought before such meeting (i) pursuant to the Corporation’s notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise by or at the direction of the Board of Directors or, (iii) by any shareholder of the Corporation who (A) was a shareholder of record at the time of giving of notice provided for in this Section 5.1 and at the time of the annual meeting, (B) is entitled to vote at the meeting and (C) complies with the notice procedures set forth in this Section 5.1 as to such business or nomination, or (iv) by any shareholder (or group of shareholders) who meets the requirements of and complies with all of the procedures set forth in Section 5.3 of this Bylaw.

(b) Without qualification or limitation, subject to Section 5.4(c) of this Bylaw, for any nominations or any other business to be properly brought before an annual meeting by a shareholder pursuant to Section 5.1(a)(iii) of this Bylaw, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must constitute a proper matter for shareholder action. To be timely, a shareholder’s notice shall be delivered to the Secretary of the Corporation at the principal executive office of the Corporation not earlier than the close of business on the 180th day and not later than the close of business on the 90th day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the shareholder to be timely must be so delivered not earlier than the close of business on the 180th day prior to the date of such annual meeting and not later than the close of business on the later of the 90th day prior to the date of such annual meeting or, if the first public announcement of the date of such annual meeting is less than 100 days prior to the date of such annual meeting, the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation.

(c) To be in proper form and effective for purposes hereof, a shareholder’s notice (whether given pursuant to this Section 5.1(c) or Section 5.2(c) of this Bylaw) furnished to the Secretary of the Corporation must: (i) set forth, as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (A) the name and address of such shareholder, as it appears on the Corporation’s books, of such beneficial owner, if any, of any of their respective affiliates and associates and of any others acting in concert with any of the foregoing (with any such affiliates, associates or others being hereinafter referred to as “associated persons”), (B)(1) the class or series and number of shares of the Corporation which are, directly or indirectly, owned beneficially and of record by such shareholder, any such beneficial owner, and any of their associated parties, (2) any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or

 

1  New language is shown in bold face type; removed language is shown as being stricken.

 

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mechanism at a price related to any class or series of shares of the Corporation or with a value derived in whole or in part from the value of any class or series of shares of the Corporation, or any derivative or synthetic arrangement having the characteristics of a long position in any class or series of shares of the Corporation, or any contract, derivative, swap or other transaction or series of transactions designed to produce economic benefits and risks that correspond substantially to the ownership of any class or series of shares of the Corporation, including due to the fact that the value of such contract, derivative, swap or other transaction or series of transactions is determined by reference to the price, value or volatility of any class or series of shares of the Corporation, whether or not such instrument, contract or right shall be subject to settlement in the underlying class or series of shares of the Corporation, through the delivery of cash or other property, or otherwise, and without regard of whether such shareholder of record, the beneficial owner, if any, or any of their associated parties may have entered into transactions that hedge or mitigate the economic effect of such instrument, contract or right or any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of the Corporation (any of the foregoing, a “Derivative Instrument”) directly or indirectly owned beneficially by such shareholder, the beneficial owner, if any, or any of their associated parties, (3) any proxy, contract, arrangement, understanding, or relationship pursuant to which such shareholder, any such beneficial owner or any of their associated parties has a right to vote any shares of any security of the Corporation, (4) any agreement, arrangement, understanding, relationship or otherwise, including any repurchase or similar so-called “stock borrowing” agreement or arrangement, engaged in, directly or indirectly, by such shareholder, the beneficial owner, if any, or any of their associated parties, the purpose or effect of which is to mitigate loss to, reduce the economic risk (of ownership or otherwise) of any class or series of the shares of the Corporation by, manage the risk of share price changes for, or increase or decrease the voting power of, such shareholder, the beneficial owner, if any, or any of their associated parties with respect to any class or series of the shares of the Corporation, or which provides, directly or indirectly, the opportunity to profit or share in any profit derived from any decrease in the price or value of any class or series of the shares of the Corporation (any of the foregoing, “Short Interests”), (5) any rights to dividends on the shares of the Corporation owned beneficially by such shareholder, any such beneficial owner or any of their associated parties that are separated or separable from the underlying shares of the Corporation, (6) any proportionate interest in shares of the Corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such shareholder, any such beneficial owner or any of their associated parties is a general partner or, directly or indirectly, beneficially owns an interest in a general partner of such general or limited partnership, (7) any performance-related fees (other than an asset-based fee) that such shareholder, any such beneficial owner or any of their associated parties is entitled to based on any increase or decrease in the value of shares of the Corporation or Derivative Instruments, if any, including without limitation any such interests held by immediate family members of such shareholder, any such beneficial owner or any of their associated parties sharing the same household, (8) any significant equity interests or any Derivative Instruments or Short Interests in any principal competitor of the Corporation held by such shareholder, the beneficial owner, if any, or any of their associated parties, (9) any direct or indirect interest of such shareholder, the beneficial owner, if any, or any of their associated parties in any contract with the Corporation, any affiliate of the Corporation or any principal competitor of the Corporation (including, in any such case, any employment agreement, collective bargaining agreement or consulting agreement), and (10) any other agreement, arrangement or understanding, whether or not such instrument or the rights conferred thereby are subject to settlement in underlying shares of capital stock of the Corporation, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such shareholder, any such beneficial owner or any of their associated parties, with respect to securities of the Corporation, (C) any other information relating to such shareholder and beneficial owner, if any, that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal or for the election of directors in a contested election pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder, (D) a description of all agreements, arrangements and understandings with respect to the nomination or proposal between or among such shareholder, such beneficial owner, if any, or any of their associated parties, including, in the

 

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case of a nomination, any nominee, his or her respective affiliates and associates, and any others acting in concert with any of the foregoing, and (E) a representation whether the shareholder, the beneficial owner, if any, or any of their associated parties intends or is part of a group which intends (1) to deliver at its own cost a proxy statement or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to approve or adopt the proposal or elect any one or more of the nominees or (2) otherwise to solicit proxies or votes from shareholders in support of such proposal or nominees; (ii) if the notice relates to any business other than a nomination of a director or directors that the shareholder proposes to bring before the meeting, set forth (A) a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest of such shareholder, any such beneficial owner or any of their associated parties in such business, and (B) the text of any resolutions proposed for consideration and, if applicable, the text of any proposed additions, amendments or other changes to any document governing the internal affairs of the Corporation; (iii) set forth, as to each person, if any, whom the shareholder proposes to nominate for election or reelection to the Board of Directors (A) all information relating to such person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a Director if elected) and (B) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such shareholder and beneficial owner, if any, or any of their associated parties, on the one hand, and each proposed nominee, his or her respective affiliates and associates, or any others acting in concert with any of the foregoing, on the other hand, including without limitation all information that would be required to be disclosed pursuant to Item 404 of Regulation S-K promulgated under the federal securities laws if the shareholder making the nomination and any beneficial owner on whose behalf the nomination is made, if any, any affiliate or associate thereof or any other person acting in concert with any of the foregoing were the “registrant” for purposes of such item and the nominee were a director or executive officer of such registrant; (iv) with respect to each nominee for election or reelection to the Board of Directors, include both a completed and duly executed questionnaire and a duly executed agreement, each as required by Section 5.4(d) of this Bylaw; and (v) be corrected, updated, supplemented or recertified if and to the extent required under Section 5.4(f) of this Bylaw.

 

  5.2 Special Meetings of Shareholders.

(a) At any special meeting of the shareholders duly convened in accordance with these Bylaws, only such business shall be conducted or considered as shall have been properly brought before the meeting pursuant to the Corporation’s notice of meeting. To be properly brought before a special meeting, proposals must be (i) specified in the Corporation’s notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors or given by the Secretary of the Corporation under La. R.S. 12:73B (or any successor provision) and Article VI(B) of the Articles of Incorporation or (ii) otherwise properly brought before the special meeting by or at the direction of the Board of Directors.

(b) Nominations of persons for election to the Board of Directors may be made at a special meeting of shareholders at which directors are to be elected pursuant to the Corporation’s notice of meeting (i) by or at the direction of the Board of Directors or (ii) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any shareholder of the Corporation who (A) is a shareholder of record at the time of giving of notice provided for in this Bylaw and at the time of the special meeting, (B) is entitled to vote at the meeting, and (C) complies with the notice procedures set forth in Section 5.2(c) of this Bylaw as to such nomination.

(c) Subject to Section 5.4(c) of this Bylaw, in the event the Corporation calls a special meeting of shareholders for the purpose of electing one or more directors to the Board of Directors, any such shareholder entitled to vote in such election of directors may nominate a person or persons (as the case may be) for election to such position(s) as specified in the Corporation’s notice of meeting, if the shareholder’s notice required by Section 5.1(b) of this Bylaw with respect to any nomination (including the completed and

 

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signed questionnaire, representation and agreement required by Section 5.4(d) of this Bylaw) shall be delivered to the Secretary of the Corporation at the principal executive office of the Corporation not earlier than the close of business on the 120th day prior to the date of such special meeting and not later than the close of business on the later of the 90th day prior to the date of such special meeting or, if the first public announcement of the date of such special meeting is less than 100 days prior to the date of such special meeting, the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting.

 

  5.3 [RESERVED]

 

  5.3 Proxy Access Rights.

(a) Whenever the Corporation solicits proxies with respect to an election of directors at an annual meeting, the Corporation shall, subject to the terms and conditions of this Section 5.3, (i) include in its proxy statement for the annual meeting the name, together with the Required Information (as defined below), of any person nominated for election (each such person being hereinafter referred to as a “Shareholder Nominee”) to the Board of Directors by a shareholder that satisfies, or by a group of no more than ten shareholders that satisfy, the requirements of this Section 5.3 (such individual or group, including as the context requires each member thereof, being hereinafter referred to as the “Eligible Shareholder”) and all applicable laws, and who expressly elects at the time of providing the notice required by Section 5.3(g) of this Bylaw to have its nominee or nominees included in the Corporation’s proxy materials pursuant to this Section 5.3 and (ii) permit the Corporation’s shareholders to vote upon each such Shareholder Nominee, in addition to individuals nominated by the Board of Directors, in connection with such meeting. Such notice shall consist of a copy of Schedule 14N duly filed with the U.S. Securities and Exchange Commission in accordance with Rule 14a-18 promulgated under the Exchange Act and the information required to be delivered to the Corporation by this Section 5.3 (all such information collectively being hereinafter referred to as the “Section 5.3 Notice”), and such notice shall be delivered to the Corporation in accordance with the procedures and during the time period set forth in Section 5.3(g) of this Bylaw.

(b) For purposes of Section 5.3(a) of this Bylaw, the “Required Information” that the Corporation will include in its proxy statement is (i) the information concerning the Shareholder Nominee and the Eligible Shareholder that is required to be disclosed in the Corporation’s proxy statement by the regulations promulgated under the Exchange Act, by these Bylaws, by the Articles of Incorporation or by the Listing Standards (as defined below); and (ii) if the Eligible Shareholder so elects, a Statement (as defined below).

(c) The number of Shareholder Nominees (including Shareholder Nominees that were submitted by an Eligible Shareholder for inclusion in the Corporation’s proxy materials pursuant to this Section 5.3 but either are subsequently withdrawn or that the Board of Directors decides to nominate as Board of Director nominees) appearing in the Corporation’s proxy materials with respect to an annual meeting shall not exceed 20% of the number of directors in office as of the last day on which a Section 5.3 Notice of a nomination may be timely delivered pursuant to Section 5.3(g) of this Bylaw, or if such amount is not a whole number, the closest whole number below 20%. If for any reason one or more vacancies occur on the Board of Directors after the date referred to in the prior sentence but before the date of the annual meeting and the Board of Directors elects to reduce the size of the Board of Directors in connection therewith, the maximum number of Shareholder Nominees eligible for inclusion in the Corporation’s proxy materials pursuant to this Section 5.3 shall be calculated based on the number of directors in office as so reduced. In the event that the number of Shareholder Nominees submitted by Eligible Shareholders pursuant to this Section 5.3 exceeds this maximum number, each Eligible Shareholder will select one Shareholder Nominee for inclusion in the Corporation’s proxy materials until the maximum number is reached, selecting in order from the largest to the smallest of such shareholders based upon the number of shares of common stock of the

 

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Corporation each Eligible Shareholder disclosed as owned in the Section 5.3 Notice submitted to the Corporation hereunder. If the maximum number is not reached after each Eligible Shareholder has selected one Shareholder Nominee, this selection process will continue as many times as necessary, following the same order each time, until the maximum number is reached.

(d) In order to make a nomination pursuant to this Section 5.3, an Eligible Shareholder must have owned (as defined below) 3% or more of the Corporation’s outstanding common stock continuously for at least three years (the “Required Shares”) as of both the date the Section 5.3 Notice of the nomination is furnished in accordance with Section 5.3(g) of this Bylaw and the record date for determining shareholders entitled to vote at the annual meeting, and must continue to own the Required Shares through the applicable meeting date. To be in proper form and effective for purposes of this Section 5.3, a Section 5.3 Notice furnished to the Secretary of the Corporation must: (i) set forth one or more written statements from the record holder of the shares (and from each intermediary through which the shares are or have been held during the requisite three-year holding period) verifying that, as of a date within seven calendar days prior to the date the Section 5.3 Notice is furnished, the Eligible Shareholder owns, and has owned continuously for the preceding three years, the Required Shares, and the Eligible Shareholder’s agreement to provide, within three business days after the record date for the annual meeting, written statements from the record holder and such intermediaries verifying the Eligible Shareholder’s continuous ownership of the Required Shares through the record date, along with a written statement that the Eligible Shareholder will continue to hold the Required Shares through the applicable meeting date and intends to continue to hold the Required Shares for at least one additional year thereafter; (ii) set forth the information required to be included in a shareholder’s notice of nomination pursuant to Section 5.1(c) of this Bylaw (excluding item (ii) thereof), together with the written consent of each Shareholder Nominee to be named in the Corporation’s proxy materials as a nominee and to serving as a Director if elected; (iii) include a representation (in the form provided by the Secretary of the Corporation upon written request) that the Eligible Shareholder (A) acquired the Required Shares in the ordinary course of business and not with the intent to change or influence control at the Corporation, and that neither the Eligible Shareholder nor the Shareholder Nominee or Shareholder Nominees being nominated thereby presently has such intent, (B) has not nominated and will not nominate for election to the Board of Directors at the annual meeting any person other than the Shareholder Nominee or Shareholder Nominees being nominated pursuant to this Section 5.3, (C) has not violated the proxy solicitation rules promulgated under the Exchange Act directly or indirectly in connection with furnishing, or preparing to furnish, the Section 5.3 Notice, (D) has not engaged and will not engage in, and has not and will not be a “participant” in another person’s “solicitation” within the meaning of Rule 14a-1(1) promulgated under the Exchange Act in support of the election of any individual as a Director at the annual meeting other than its Shareholder Nominee or Shareholder Nominees or a nominee of the Board of Directors, (E) will not distribute to any shareholder any form of proxy for the annual meeting other than the form distributed by the Corporation, and (F) has provided and will continue to provide information in connection with the nomination hereunder that is or will be true, correct and complete in all material respects, and does not and will not omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were or will be made, not misleading; (iv) include a written undertaking (in the form provided by the Secretary of the Corporation upon written request) that the Eligible Shareholder agrees to (A) assume all liability stemming from any legal or regulatory violation arising out of the communications with shareholders of the Corporation by the Eligible Shareholder, its affiliates and associates, or their respective agents or representatives, either before or after the furnishing of the Section 5.3 Notice, or out of the information that the Eligible Shareholder has provided or will provide to the Corporation or filed or to be filed with the U.S. Securities and Exchange Commission, including an agreement to indemnify the Corporation and its agents and representatives in respect of any such liabilities, (B) comply with all other laws and regulations applicable to any solicitation in connection with the annual meeting, including without limitation Rule 14a-9 promulgated under the Exchange Act, and

 

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(C) promptly provide to the Corporation such additional information as requested pursuant to this Section 5.3 or any other subsection of this Section 5 of these Bylaws; and (v) be corrected, updated, supplemented or recertified if and to the extent required under Section 5.4(f) of this Bylaw.

(e) Notwithstanding anything in these Bylaws to the contrary, the Corporation shall not be required to include, pursuant to this Section 5.3, any nominee information in its proxy materials (i) with respect to any meeting of shareholders for which the Secretary of the Corporation receives a notice that the Eligible Shareholder or any other shareholder of the Corporation has nominated one or more persons for election to the Board of Directors pursuant to the advance notice requirements set forth in Section 5.1 of this Bylaw, (ii) concerning any Shareholder Nominee who (A) is not independent under the Independence Standards (as defined below in Section 5.4(d) of this Bylaw), as determined in good faith by the Board of Directors or one or more of its committees, (B) provides any information to the Corporation or its shareholders required or requested pursuant to any subsection of this Section 5 of these Bylaws that is not accurate, truthful and complete in all material respects, or that otherwise contravenes any of the agreements or representations made by the Shareholder Nominee in connection with the nomination, (C) has been an officer or director of a competitor, as defined in Section 8 of the Clayton Antitrust Act of 1914, within the past three years, (D) is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses) or has been convicted in such a criminal proceeding within the past ten years or (E) is subject to any order of the type specified in Rule 506(d) of Regulation D promulgated under the Securities Act of 1933, as amended, or (iii) with respect to any Eligible Shareholder who (A) provides any information to the Corporation or its shareholders required or requested pursuant to any subsection of this Section 5 of these Bylaws that is not accurate, truthful and complete in all material respects or (B) otherwise fails, or nominates any Shareholder Nominee who fails, to comply with its obligations pursuant to any subsection of this Section 5 of these Bylaws.

(f) The Eligible Shareholder may, at its option, provide to the Secretary of the Corporation, at the time the information required by this Section 5.3 is provided, a written statement for inclusion in the Corporation’s proxy statement for the annual meeting, not to exceed 500 words, in support of the Shareholder Nominee’s candidacy (the “Statement”). Notwithstanding anything to the contrary contained in this Section 5.3, the Corporation may omit from its proxy materials any information or Statement that it, in good faith, believes is materially false or misleading, omits to state any material fact, or would violate any applicable law or regulation.

(g) Notwithstanding the procedures set forth in Section 5.1 or 5.2 of this Bylaw, any Section 5.3 Notice, to be timely under this Section 5.3, must be received by the Secretary of the Corporation at the principal executive office of the Corporation within the time period applicable to notices of shareholder proposals made at annual meetings pursuant to Rule 14a-8 promulgated under the Exchange Act.