DEF 14A 1 d851593ddef14a.htm DEF 14A DEF 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.    )

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CENTURYLINK, INC.
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IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 20, 2020

This proxy statement and related materials are

available at www.proxyvote.com.


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LOGO

Dear Fellow Shareholders:

On behalf of the entire Board of Directors, I want to thank you for your support of CenturyLink.

Over the last year, we have certainly been busy. We are continuing the transformation we began a little more than two years ago with the acquisition of Level 3, responding to a continually and rapidly evolving world where our technology is key, de-risking our business by significantly improving our balance sheet, listening to and acting upon your feedback regarding corporate governance and executive compensation, and, as I write this letter, dealing with the COVID-19 pandemic sweeping the world.

Committing to our Communities During the COVID-19 Pandemic

As a company, we have taken many proactive steps to help “flatten the curve” of this virus. Our first priority is for the health and safety of our employees. All employees whose jobs allow them to work at home are currently doing so, approximately 75% of our global workforce, and, excluding our critical infrastructure personnel such as field technicians, close to 95% of our North American employees. Whether working from home or not, we have established strict social distancing practices, eliminated travel, and are using our own products and services to maintain a productive and engaged workforce during this period. We have also sought to mitigate the financial impact on employees. We have instituted an additional 80 hours of paid time off to be available for COVID-19 issues and have expanded access to our short-term disability program to all U.S. employees. We are also working with our local leadership around the world to provide additional protections to our non-U.S. employees.

Our employees’ response has been phenomenal. They recognize their efforts and our services are key components to our customers and communities combatting this disease. We are actively and urgently working with State, Local and Federal Governments around the globe to ensure they have the networking, connectivity and security capabilities they need to respond effectively. Similarly, we are working with our many Business and Consumer customers to ensure they have the capabilities to implement their own work-from-home initiatives and support their businesses. This is what our network was built to do. Our team is keeping people connected when it matters most, and I am incredibly proud of our team of employees. Their appreciation of their role with each other and their role in supporting our customers and communities across the globe has been truly remarkable.

We have also taken the FCC’s Keep America Connected Pledge, which means we will not disconnect or charge late fees to Consumer or Small Business customers experiencing hardships due to COVID-19 and we have suspended data usage limits for these customers.

While the long-term effect of this pandemic remains to be fully understood, it is not too soon to say that secure, far-reaching and capable networks such as ours, together with the employees who bring them to life, are critical to the security and prosperity of the customers we serve around the world and the communities in which they live. We at CenturyLink are proud to be part of that.

The 4th Industrial Revolution

As the current crisis amply demonstrates, the world is more networked and more dynamic than ever. We are undergoing what has been termed the 4th Industrial Revolution, where digital technologies, Big Data and Artificial Intelligence (AI) fundamentally change the way the world and our customers engage in business and in governing.

CenturyLink’s core technologies are at the center of this new world. We believe the starting point for all communications is fiber as the fundamental transport technology. We are continually expanding what is already one of the world’s largest fiber networks (approximately 450,000 route miles), connecting new buildings (approximately 170,000 buildings on-net as of year-end), expanding our footprint (more than 60 countries today) and utilizing our extensive conduit systems to rapidly and economically augment with new fiber and transport technologies.


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Internet Protocol (IP) is at the heart of this fiber-connected world and CenturyLink is at the heart of the IP world. Our IP network operates at incredible scale and can easily support our customers’ growing capacity needs. Work-from-home, distance learning, remote medicine and how the economy itself functions depend on IP and the services we provide. Whether you are a Content customer, Cloud Service Provider, Wholesaler, Enterprise, Small Business or one of our almost 5 million Consumer broadband customers, you rely on CenturyLink’s IP backbone.

Although compute resources are historically centralized into a few locations for each customer, we recognize that latency concerns, along with intensive bandwidth demands of Big Data and AI, require compute resources to move closer and closer to the network edge. Our fiber network and our newly launched CenturyLink Edge Compute products are meeting that need. For one global customer, we evaluated thousands of domestic U.S. locations and found that with slightly more than 100 CenturyLink edge compute facilities, we could serve 95% of those sites with less than 5 milliseconds of delay. This is a good, but not uncommon example of how our far-reaching fiber network and our focus on providing next generation solutions work together to solve our customers’ evolving needs.

There is a lot for us to look forward to in our business. But we also face pressures. As I regularly tell our team, we have to always “face the truth”, and the truth here is that a portion of our revenue will continue to decline. Products like legacy Consumer voice services or Enterprise private lines, which are based on technology from the early 2000’s, will continue to decline. These declines are expected to occur over long periods and are flattening, but these legacy declines will continue to put pressure on our top line.

Fiber is key even here. As an example, our fiber-based Consumer broadband services are growing. When we invest in fiber to a home, we change from an analog to a digital customer experience, with higher speeds, simpler product sets, better network performance, enhanced monitoring and even intuitive self-installs.

The bottom line is we operate one of the world’s largest, most powerful fiber networks. It is a critically valuable asset in which we will continue to invest to expand and upgrade – where we invest in fiber, we grow our business.

Financial Discipline

Many of you have heard me say that I believe growing Free Cash Flow per share is the best method for driving long-term growth in shareholder value. This principle is critical to how we run the business – focusing on profitable revenue and disciplined financial management are essential to that end.

To drive profitable revenue, we have expanded our capabilities for businesses. As an example, operating in today’s hybrid-cloud world is complex for our customers. With services like Dynamic Connections (scalable, redirectable, instantaneous connectivity), Cloud Application Manager (where customers can control all of their cloud resources in a streamlined, seamless manner), Edge computing and Security embedded within the network itself, we greatly simplify our customers’ hybrid cloud environments.

At the beginning of 2019, we announced our digital and cost transformation efforts, with plans to achieve $800 million to $1 billion in cost transformation synergies over the next three years. During the year we made great progress, achieving approximately $430 million in run-rate cost savings. The primary objective of our transformation efforts is to implement a digital operating model – evolving how our employees support our services and how our customers buy and consume those services. Cost efficiencies are a natural outcome of those efforts. As 2020 begins, we remain focused on streamlining and enhancing the CenturyLink customer experience.

Similarly, in early 2019 we announced our three-year plan to reduce net leverage to a range of 2.75 to 3.25 times Adjusted EBITDA. A strong balance sheet is critical to our ability to invest, pursue future growth opportunities and provide the flexibility to adapt to unforeseen events. I am pleased to say that we have made excellent progress toward this objective. We exited 2019 at 3.7x leverage – down from 4.0x at the end of 2018 and from 4.3x at the time of the Level 3 acquisition. In addition, over the last twelve months we refinanced $17 billion of debt – roughly half of our total outstanding debt, reducing interest expense and extending debt maturities. We believe our financial position is strong.


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Corporate Governance and Executive Compensation

The CenturyLink Board continually reviews our Board composition, governance and executive compensation practices. During 2019, we deepened our engagement with you and listened to your feedback on these issues. In response to this feedback, we made extensive changes to our compensation plans. These changes are detailed in the proxy and included in a letter from the Chair of our Human Resources and Compensation Committee, Laurie Siegel.

Our Board of Directors continues to review our governance policies and Board composition to ensure we are aligned with the interests of all shareholders. Late last year, we announced several changes to the Board, including the retirement of Harvey Perry and Glen Post at our upcoming shareholder meeting. In addition, we recently added Hal Jones to the Board and, as you will see in the slate of Directors, Mary Landrieu has elected not to stand for reelection to the Board. With Harvey’s upcoming retirement, we are nominating Mike Glenn as Chairman of our Board. These changes reduce the size, improve the average tenure and position us to enhance important skills for our Board.

In addition, we established targets and expectations regarding key governance issues:

 

   

Average Board tenure of no more than 10 years. On this objective, I’m pleased to say that with the changes we are making to the Board, our average tenure will be nine years, compared to the 12-year average last year;

 

   

All Board members except the CEO should be independent. With the proposed slate, that is now the case;

 

   

Maintaining a Board of between 10 and 12 directors. As you can see from the proxy, we are proposing an 11-director slate;

 

   

Rotating Board chairs and assignments approximately every five years, which we are currently implementing; and

 

   

Strengthening oversight in key areas, such as our political contribution philosophy, ESG and gender pay equity initiatives.

Please join me in thanking Glen, Harvey and Mary for their leadership on your Board of Directors. At the time Harvey joined Glen on the Board more than 30 years ago, Century Telephone, as it was then known, had roughly $250 million in revenue, and operated primarily in small markets within 14 states. Over the years, Glen and Harvey have overseen the growth of the company into a global telecommunications leader, providing services in more than 60 countries with more than $20 billion in revenue. We are grateful to Glen, Harvey and Mary for their contributions and will miss their deep engagement and their counsel.

In the event it is not possible or advisable to hold an in-person annual meeting as currently planned, we are making arrangements to hold the meeting through virtual meeting technology. We will continue to monitor the COVID-19 situation and will announce any alternative arrangements for the meeting as soon as possible. Please monitor our website at ir.centurylink.com and our filings with the SEC for updated information. If you are planning to attend our meeting, please check our website for updates, which will be posted no later than May 10, 2020. As always, we encourage you to vote your shares prior to the annual meeting.

Operating one of the world’s largest networks, we provide services that are extraordinarily important and relevant to the marketplace. We continue enhancing those services and the reach of our fiber network, responding to our customers’ evolving needs for ubiquitous, scalable and flexible solutions that allow them to control their own digital infrastructure and fuel their ongoing digital transformations. Whether for Content distribution, Big Data applications, AI, Cloud computing, Edge computing or Security, CenturyLink is at the heart of the 4th Industrial Revolution.

Wishing you all health, safety and strength during these trying times, and with thanks for your support.

Regards,

 

LOGO

Jeff Storey

President and Chief Executive Officer

CenturyLink


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LOGO

Notice of 2020 Annual Meeting

of Shareholders

 

 

DATE AND TIME

May 20, 2020

10:00 a.m. local time

  

PLACE

CenturyLink Auditorium

CenturyLink Headquarters

100 CenturyLink Drive

Monroe, Louisiana

 

 

 

      ITEMS OF BUSINESS

 

 

  (1)

 

  

 

Elect as directors the 11 nominees named in the accompanying proxy statement

 

 

  (2)

 

  

 

Ratify the appointment of KPMG LLP as our independent auditor for 2020

 

 

  (3)

 

  

 

Approve an amendment to our 2018 Equity Incentive Plan

 

 

  (4)

 

  

 

Conduct a non-binding advisory vote to approve our executive compensation

 

 

  (5)

 

  

 

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 at the close of business on March 26, 2020.

PROXY VOTING Shareholders are invited to attend the meeting in person. Even if you expect to attend, we urge you to vote in advance using any of the methods listed below.

EMERGENCY CONTINGENCY PLAN As discussed further in the accompanying proxy statement, in the event existing public health concerns related to COVID-19 persist, CenturyLink may take steps to best protect the health and welfare of all our stakeholders, including announcing alternate meeting attendance options or restrictions, or adjourning or rescheduling the meeting.

 

 

LOGO

Stacey W. Goff

Secretary

April 8, 2020

YOUR VOTE IS IMPORTANT TO US. WE URGE YOUR PARTICIPATION.

Using the voting instructions provided in your proxy materials, you may vote one of the following ways:

 

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By Internet:

visit www.proxyvote.com

 

By Phone:

call 1-800-690-6903

 

By Mail:

mark, sign, date and return proxy card

 

In Person:

attend Annual Meeting

 


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TABLE OF CONTENTS

 

    Page  
CENTURYLINK AT-A-GLANCE     1  
ITEM NO. 1 – ELECTION OF DIRECTORS     2  

Who We Are

    2  

Our Director Nominees

    2  

Director Qualifications

    3  

Board Diversity

    4  

Director Biographies

    5  

Votes Required

    10  

Executive Officers Who Are Not Directors

    11  

How Our Board is Selected and Elected

    12  

Director Nomination Process

    12  

2019 Board Refreshment

    13  

Board Evaluation and Continuing Director Education

    13  

Director Independence

    14  

How Our Board is Organized

    14  

Board Leadership Structure

    14  

Board Committees

    15  

Our Board’s Approach to Governance

    17  

Corporate Governance Framework

    17  

Shareholder Engagement Program

    18  

Our Board’s Responsibilities

    20  

CEO and Executive Succession Planning

    20  

Long-term Strategic Planning

    20  

Risk Oversight

    20  

Commitment to Environmental, Social and Governance (ESG) Leadership

    21  

Director Meeting Attendance

    24  

Director Compensation

    24  

Overview

    24  

2019 Compensation of Outside Directors

    25  

Cash and Stock Payments

    25  

Non-Qualified Deferred Compensation

    26  

Other Benefits

    27  

Other Governance Information

    27  
ITEM NO. 2 – RATIFICATION OF KPMG AS OUR 2020 INDEPENDENT AUDITOR     28  
AUDIT COMMITTEE REPORT     30  
    Page  
ITEM NO. 3 – APPROVAL OF AN AMENDMENT TO OUR 2018 EQUITY INCENTIVE COMPENSATION PLAN     32  

Purpose of the Proposal

    32  

Summary of the Amended Plan

    33  

Federal Income Tax Consequences

    36  

Vote Required

    38  

Equity Compensation Plan Information

    38  
ITEM NO. 4 – ADVISORY VOTE ON EXECUTIVE COMPENSATION – “SAY-ON-PAY”     40  
LETTER FROM THE CHAIR OF OUR COMPENSATION COMMITTEE     41  
COMPENSATION DISCUSSION AND ANALYSIS     42  

I.   Executive Summary

    42  

II. Shareholder Engagement and Responsiveness to Say-On-Pay Vote

    46  

“Say-on-Pay” Outcome

    46  

Enhanced Shareholder Engagement Program

    46  

Shareholder Feedback and Our Responses

    47  

III. Our Compensation Philosophy, Objectives and Linkage to Corporate Strategy

    48  

Our Compensation Philosophy

    48  

Overview of Pay Elements and Link to Compensation Philosophy and Corporate Strategy

    48  

Our Pay Program Evolution

    50  

IV. Our 2019 Compensation Program and Components of Pay

    52  

Summary of 2019 Compensation for our Named Executive Officers

    52  

Salary

    53  

Short-Term Incentive Bonuses

    54  

2019 STI Plan and Performance Results

    55  

Grants of Long-Term Incentive Compensation

    57  

Other Benefits

    63  

V. Our Executive Compensation Process

    65  

Allocation of Responsibilities

    65  

Our Compensation Decision-Making Process

    67  
 

 

                                                                 
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    Page  

VI. Our Use of “Benchmarking” Data

    68  

General

    68  

Compensation Benchmarking Peer Group

    69  

Performance Benchmarking Peer Group

    71  

VII. Our Governance of Executive Compensation

    73  

Our Compensation Practices

    73  

Forfeiture of Prior Compensation

    74  

Use of Employment Agreements

    74  

No Excise Tax Gross-ups

    74  

Anti-Hedging and Anti-Pledging Policies

    74  

Robust Stock Ownership Guidelines

    74  

Deductibility of Executive Compensation

    75  
COMPENSATION COMMITTEE REPORT     76  
EXECUTIVE COMPENSATION TABLES     77  

Summary Compensation Table

    77  

Incentive Compensation Awards

    78  

2019 Awards

    78  

Outstanding Awards

    80  

Vesting of Equity Awards During 2019

    81  

Pension Benefits

    82  

Amount of Benefits

    82  

Pension Plans

    82  

Deferred Compensation

    83  
    Page  

Potential Termination Payments

    84  

General Information

    84  

Estimated Potential Termination Payments

    86  

CEO Pay Ratio

    88  
STOCK OWNERSHIP     89  

Common Stock Ownership of Principal Shareholders

    89  

Ownership of Executive Officers and Directors

    90  

Stock Ownership Guidelines

    91  
OTHER MATTERS     92  

CenturyLink Performance History

    92  

Compensation Committee Interlocks and Insider Participation

    93  

Transactions with Related Parties

    93  

Recent Transactions

    93  

Review Procedures

    93  
FREQUENTLY ASKED QUESTIONS     94  
OTHER INFORMATION     99  

Proxy Materials

    99  

Annual Financial Report

    99  
Appendix A – Non-GAAP Reconciliations     A-1  
Appendix B – Annual Financial Report     B-1  
Appendix C – Amended and Restated 2018 Equity Plan     C-1  
 

 

Forward-Looking Statements

Except for historical and factual information contained herein, matters set forth in our 2020 proxy materials identified by words such as “expects,” “believes,” “will” and similar expressions are forward-looking statements as defined by the federal securities laws, and are subject to the “safe harbor” protection thereunder. These forward-looking statements are not guarantees of future results and are based on current expectations only, and are subject to uncertainties. Actual events and results may differ materially from those anticipated by us in those statements due to several factors, including those disclosed in our other filings with the SEC. We may change our intentions or plans discussed in our forward-looking statements without notice at any time and for any reason.

Certain Defined Terms

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) “Voting Shares” refers collectively to our shares of Common Stock (“Common Shares”) and shares of Series L Preferred Stock (“Preferred Shares”), (iii) “meeting” or “annual meeting” refers to the 2020 annual meeting of our shareholders described further herein, (iv) “executives,” “executive officers,” “named executives,” “named officers,” “named executive officers” or “NEOs” refers to the five officers listed in the Summary Compensation Table appearing on page 77 of this proxy statement, (v) “senior officers” refers to our executive officers and a

 

                                                                 
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limited number of additional officers whose compensation is determined by the Compensation Committee, (vi) “Compensation Committee” refers to the Human Resources and Compensation Committee of our Board, (vii) “Nominating Committee” refers to the Nominating and Corporate Governance Committee of our Board, (viii) “Embarq” refers to Embarq Corporation, which we acquired on July 1, 2009, (ix) “Qwest” refers to Qwest Communications International Inc., which we acquired on April 1, 2011, (x) “Level 3” refers to Level 3 Parent, LLC and its predecessor, Level 3 Communications, Inc., (xi) “Level 3 Combination” refers to our business combination with Level 3, which was consummated on November 1, 2017, (xii) “SEC” refers to the U.S. Securities and Exchange Commission, (xiii) “ESG” refers to Environmental, Social and Governance, (xiv) “GAAP” refers to U.S. generally accepted accounting principles and (xv) “NYSE” refers to the New York Stock Exchange. Unless otherwise provided, all information is presented as of the date of this proxy statement.

 

 

                                                                 
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CENTURYLINK AT-A-GLANCE

Key 2019 Financial Highlights

During 2019, we met or exceeded all financial outlook measures we provided at the beginning of the year, including Adjusted EBITDA, Free Cash Flow, and Capital Expenditure objectives. Specifically, we:

 

    Generated greater Enterprise and iGAM revenue in the second half 2019, compared to the first half 2019  

 

    Grew Adjusted EBITDA (excluding integration and transformation costs and special items) to $9.070 billion compared to $9.040 billion for the full year 2018  

 

    Expanded Adjusted EBITDA (excluding integration and transformation costs and special items) margin to 40.5%, compared to 38.6% for the full year 2018  

 

    Reduced Net Debt by approximately $2.0 billion in 2019, and reduced Net Debt to Adjusted EBITDA to 3.7 times in 4Q19 from 4.0 times in 4Q18, moving closer to our three-year objective of 2.75 to 3.25 times  

 

    Refinanced approximately $17.0 billion in long-term debt (pro forma for first quarter 2020 activity), significantly reducing our cost of capital, and resulting in more than $200 million in annualized interest expense savings  

For information on how our non-GAAP metrics used above reconcile to GAAP measures, see Appendix A. For more complete information on us and our recent performance, see the remainder of this proxy statement, including Appendix B.

We are an international facilities-based communications company engaged primarily in providing a broad array of integrated services to our business and residential customers. We believe we are among the largest providers of communications services to domestic and global enterprise customers and the second largest enterprise wireline telecommunications company in the United States. We provide services in over 60 countries, with most of our revenue being derived in the United States.

We continue expanding the reach and capabilities of our network by investing at the edge of our world class fiber network consisting of approximately 450,000 route miles, connecting approximately 170,000 fiber-based on-net enterprise buildings, connecting to public and private data centers and subsea networks. We are also investing in new technologies, leveraging our extensive fiber network that provides customers with dynamic bandwidth and low-latency edge computing services to enable their digital transformation.

Our Customers:

CenturyLink provides services through five customer-facing segments:

 

  International and Global Accounts Management (“iGAM”) Segment. Under our iGAM segment, we provide our products and services to approximately 200 global enterprise customers and three operating regions: Asia Pacific, Latin America, Europe Middle East and Africa. We serve customers in more than 60 countries and conduct business in 25 languages.

 

  Enterprise Segment. Under our enterprise segment, we provide our products and services to large and medium domestic and global enterprises, and the public sector, which includes the U.S. federal, state and local governments and research and educational institutions.

 

  Small and Medium Business (“SMB”) Segment. Under our SMB segment, we provide our products and services to small and medium businesses directly and through our indirect channel partners.

 

  Wholesale Segment. Under our wholesale segment, we provide our products and services to a wide range of other communication providers across the wireline, wireless, cable, voice and data center sectors. Our wholesale customers range from large global telecom providers to small regional providers.

 

  Consumer Segment. Under our consumer segment, we provide our products and services to residential customers across the United States.
 

Adjusted EBITDA

($ in billions)

 

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Leverage

Net Debt to Adjusted EBITDA

 

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Net Debt

($ in billions)

 

 

 

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ITEM NO. 1 – ELECTION OF DIRECTORS

The first proposal for consideration at the meeting is the election of each of the 11 candidates named below for a one-year term expiring at our 2021 annual meeting of shareholders, or until his or her successor is duly elected and qualified.

Who We Are

We believe our Board of Directors contains the right combination of skills and experience to drive shareholder value. Over the last several years, we have overseen the transformation of CenturyLink from a relatively small rural local exchange provider to one of the premier providers of communication services to domestic and global customers. More recently, we have overseen our company’s growth in Adjusted EBITDA over the last two years, reduction of its leverage, attainment of its merger synergy goals, and the identification of and progress toward achievement of additional opportunities to create value.

We have also worked to set the tone for excellence, integrity and diversity within our Board. Our directors represent a wide array of backgrounds in areas critical to our success including telecommunications, technology, government and finance as well as gender and other types of diversity. Additionally, we believe our Board is well equipped to oversee the Company’s strategy and risk management. Except for our CEO, all of our nominees have been determined to be independent.

Our Board sets the tone for governance excellence by maintaining provisions for majority voting, annual director elections and proxy access. Our Board also takes steps to ensure that it obtains information from a range of diverse sources including, among others, through shareholder engagement, invitations to key experts outside the Company to make presentations and active engagement with employees below the C-suite level. Also, in addition to shares earned via Board service, some of our directors have also purchased shares individually.

We invite you to read the board bios that follow to appreciate our directors’ individual accomplishments, attributes and skills. Your voting support for these nominees enables us to continue representing your interests and those of our stakeholders. We believe we have the right Board, with the right skills, perspectives, and experience, to manage the next phase in CenturyLink’s transformation.

Our Director Nominees

CenturyLink’s Nominating Committee recommended, and the full Board nominated, the below-named 11 candidates. Other than Mr. Hal Jones, all of the nominees were elected to the Board at the 2019 annual meeting.

 

ü

Martha Bejar

 

ü

Virginia Boulet

 

ü

Peter Brown

 

ü

General Kevin Chilton

ü

Steven Clontz

 

ü

Michael Glenn

 

ü

Bruce Hanks

 

ü

Hal Jones

ü

Michael Roberts

 

ü

Laurie Siegel

 

ü

Jeff Storey

 

 

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THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE ABOVE-NAMED NOMINEES FOR DIRECTOR

 

 

                                                                 
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ITEM NO. 1 – ELECTION OF DIRECTORS

Board Qualifications

 

Director Qualifications

Board Skills and Experience

CenturyLink’s Board of Directors provides a wide array of skills, experience and perspectives that strengthen the Board’s ability to fulfill its oversight role on behalf of CenturyLink’s shareholders. We strive to maintain a well-rounded and diverse Board that balances:

 

 

telecommunications and technology experience with other industry expertise,

 

 

the institutional knowledge of long-tenured directors with the fresh perspective of newer directors, and

 

 

in-depth knowledge of areas critical to our business, such as cybersecurity and customer experience, with broad-based executive management skills.

As summarized below, our nominees bring a variety of skills and experience to our Board, developed across a variety of industries.

 

  DIRECTOR SKILLS AND EXPERTISE   Bejar   Boulet   Brown   Chilton   Clontz   Glenn   Hanks   Jones   Roberts   Siegel   Storey
                       

SENIOR LEADERSHIP/EXECUTIVE EXPERIENCE/INDUSTRY EXPERIENCE Senior/executive level experience in complex organizations, particularly those in the communications industry or selling services to enterprise customers.

  🌑   🌑   🌑   🌑   🌑   🌑   🌑   🌑   🌑   🌑   🌑

BUSINESS AND DIGITAL TRANSFORMATION Experience in leading or implementing transformation of a business or business unit, particularly with a focus on simplification and automation or risk management at an enterprise level.

  🌑           🌑   🌑   🌑   🌑   🌑   🌑   🌑   🌑

RISK MANAGEMENT Experience overseeing complex enterprise risk management programs.

      🌑   🌑   🌑           🌑                

FINANCE/PUBLIC ACCOUNTING Experience in the oversight of internal controls and reporting of public company financial and operating results.

  🌑   🌑   🌑   🌑   🌑   🌑   🌑   🌑            

GLOBAL BUSINESS EXPERIENCE Experience crafting, leading or implementing international business strategy and operations.

  🌑           🌑   🌑   🌑       🌑   🌑   🌑   🌑

CUSTOMER EXPERIENCE Experience developing strategies or leading efforts to improve and transform customer experience, particularly with respect to simplification and automation of customer platforms.

                  🌑   🌑   🌑       🌑       🌑

MERGERS AND ACQUISITIONS EXPERIENCE Experience navigating growth opportunities, analyzing strategic transactions and negotiating complex transactions.

      🌑   🌑       🌑   🌑   🌑   🌑       🌑   🌑

TECHNOLOGY AND INNOVATION Experience developing, leading or implementing new technology and innovation initiatives on an enterprise-wide basis, including a focus on digital risk mitigation.

  🌑           🌑   🌑           🌑           🌑

HUMAN RESOURCES LEADERSHIP Managed human resources and talent management functions, including executive compensation system design.

                          🌑           🌑    

CYBERSECURITY Knowledge of the evolving landscape of data security, information technology and the transmission and storage of confidential information.

  🌑           🌑                           🌑

ENVIRONMENTAL, SOCIAL AND GOVERNANCE Experience in assessing business operations in conjunction with evolving corporate governance and ESG principles to deliver responsible results to stakeholders.

      🌑               🌑               🌑    

 

                                                                 
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Table of Contents

ITEM NO. 1 – ELECTION OF DIRECTORS

Board Qualifications

 

Board Diversity

 

LOGO

Our nominees embody tenure, gender, and professional diversity: Most of our nominees have served for four years or less. The remaining five nominees each have more than nine years of service and form the institutional knowledge backbone of the Board. More than a quarter of our nominees are women, and women hold key boardroom leadership positions including chairs of two of our four principal standing Board committees. Our commitment to gender diversity is longstanding – first electing a woman to the Board in 1995, when women in the boardroom were relatively rare. With nominees from the telecommunications and technology industries, and with leadership experience in global logistics, human capital management, the U.S. military, and international brand and franchise management – the Board’s professional experience represents a diversity of perspectives essential to effective risk management oversight.

 

                                                                 
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Table of Contents

ITEM NO. 1 – ELECTION OF DIRECTORS

Director Biographies

 

Director Biographies

 

 

 

Martha H. Bejar

 

LOGO

 

Principal Occupation:

Former technology
executive and advisor

 

Committees:

Audit; Risk and
Security

 

Age 58

 

Independent Director

 

Director since 2016

 

 

 

Telecommunications Leadership with innovation experience as co-founder and principal of Red Bison Advisory Group, LLC, which provides business advisory services to telecommunications and enterprise technology firms, from January 2014 to June 2019. Ms. Bejar also served as Chief Executive Officer and director at Unium, Inc., a Wi-Fi service provider, from December 2016 to March 2018; as Chief Executive Officer and director of Flow Mobile, Inc., a broadband wireless company, from January 2012 to December 2015; as Chief Executive Officer and Chairperson of Infocrossing, Inc. (a U.S.-based cloud services affiliate of Wipro Limited) from January 2011 to March 2012; as President of Worldwide Sales and Operations at Wipro’s information technology services affiliate from 2009 to 2011; and as Corporate Vice President for the communications sector of Microsoft Corporation from June 2007 to June 2009. Prior to then, Ms. Bejar held diverse sales, operations, engineering and R&D positions at Nortel Networks Corporation and Bellsouth/AT&T

 

Current public company directorships: CommVault Systems; Sportsman’s Warehouse Holdings, Inc.; and Quadient SA (formerly Neopost)

 

Previous public company directorships in last five years: Mitel Networks Corporation and Polycom, Inc.

 

Other leadership experience: Rainer Scholars - Trustee and Board member

 

 

 

Virginia Boulet

 

 

LOGO

 

Principal Occupation:

Managing Director,
Legacy Capital LLC

 

Committees:

Nominating and
Corporate
Governance (Chair);
Human Resources
and Compensation

 

Age 66

 

Independent Director

 

Director since 1995

 

 

 

Corporate Governance and Securities expertise as Special Counsel at Adams and Reese LLP from March 2002 to March 2014; as a Corporate and Securities Partner at Phelps Dunbar LLP from 1992 to March 2002; also served as the President and Chief Operating Officer of IMDiversity, Inc. from March 2002 to March 2004 and as an adjunct professor of securities regulation and mergers and acquisitions law at Loyola University - New Orleans College of Law, 2004 to 2018

 

Current public company directorships: W&T Offshore, Inc.

 

                                                                 
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ITEM NO. 1 – ELECTION OF DIRECTORS

Director Biographies

 

 

 

Peter C. Brown

 

LOGO

 

Principal Occupation:

Chairman, Grassmere
Partners, LLC

 

Committees:

Finance (Chair); Audit

 

Age 61

 

Independent Director

 

Director since 2009

 

 

 

Executive Leadership, Finance, Growth and Strategic Development experience as former Chairman and CEO of AMC Entertainment Inc. from 1999 to 2009 and its Chief Financial Officer from 1991 to 1999. Chairman of Grassmere Partners, LLC, a private investment firm, since 2009; founded EPR Properties, a NYSE-listed real estate investment trust, where he currently serves as a member of the Board of Trustees

 

Current public company directorships: Cinedigm Corporation and EPR Properties

 

Other leadership experience: CEC Entertainment, Inc.; National CineMedia, Inc.; Midway Games, Inc.; Lab One, Inc.; Protection One, Inc.; CORE Entertainment Holdings; Digital Cinema Implementation Partners; Movietickets.com; Swope Community Enterprises; Greater Kansas City Chamber of Commerce; The Advancement Board of the University of Kansas Medical Center and Hospital; Rockhurst High School; The Advisory Board of the University of Kansas Business School; The Kansas City Art Institute; and National Association of Theatre Owners

 

   

 

Kevin P. Chilton

   

 

LOGO

 

Principal Occupation:

President, Chilton &
Associates LLC

 

Committees:

Risk and Security
(Chair); Audit

 

Age 65

 

Independent Director

 

Director since 2017

 

 

 

Cybersecurity, Risk Management and Scientific leadership experience as a retired General following 34 years of service in the U.S. Air Force, including service as Commander, U.S. Strategic Command, from 2007 to 2011, overseeing the U.S. Department of Defense’s nuclear, space and cyberspace operations; as Commander, U.S. Air Force, Space Command from 2006 to 2007; as a NASA Astronaut from 1987 to 1996, including three space shuttle flights; and as Deputy Program Manager of the International Space Station from 1996 to 1998; currently serves as President of Chilton & Associates, LLC

 

Current public company directorships: AeroJet Rocketdyne

 

Previous public company directorships in last five years: Anadarko Petroleum Corporation, Level 3 Communications, Inc., Orbital ATK

 

Other leadership experience: Aerospace Corporation (a federally-funded R&D center); Air Force Academy Falcon Foundation; Jewish Institute for the National Security of America; Cobham Advanced Electronic Solutions; SEA Adventure Crusade, National Technology; and Engineering Solutions of Sandia, Los Alamos & Lawrence Livermore National Lab

 

 

                                                                 
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ITEM NO. 1 – ELECTION OF DIRECTORS

Director Biographies

 

 

 

Steven “Terry” Clontz

 

LOGO

 

Principal Occupation:

Global Corporate
Advisor

 

Committees:

Human Resources
and Compensation;
Nominating and
Corporate
Governance

 

Age 69

 

Independent Director

 

Director since 2017

 

 

 

Innovative Technologies and Global Telecommunications experience as the Chief Executive Officer of StarHub, Ltd., a Singaporean telecommunications company, from 1999 to 2010, and as the Senior Executive Vice President (International) of Singapore Technologies Telemedia Pte. Ltd. from 2010 to 2017; previously served as the Chief Executive Officer, President and a Director of IPC Information Systems from December 1995 to December 1998; Mr. Clontz held various senior executive positions (including President, Asia-Pacific) at BellSouth International, Inc. from 1987 to 1995; currently serves as a corporate advisor to ST Telemedia Pte. Ltd. since January 2018 and as a corporate advisor to Temasek International Advisors Pte. LTD. since January 2010

 

Current public company directorships: StarHub Ltd.

 

Previous public company directorships in last five years: Level 3 Communications, Inc. (2012 to 2017), InterDigital Wireless, Inc. (1998 to 2015)

 

Other leadership experience: Various positions with other communications companies, including Cloud9 Technologies LLC, PSA International Pte. Ltd.; Virgin Mobile Latin America, Inc. and STT GDC Pte. Ltd.

 

 

 

T. Michael Glenn

 

LOGO

 

Principal Occupation:

Senior Advisor, Oak
Hill Capital Partners

 

Committees:

Human Resources
and Compensation;
Audit

 

Age 64

 

Independent Director

 

Director since 2017

 

 

 

Market Development, Customer, Communications, Strategic, and Operational experience as the Executive Vice President of Market Development and Corporate Communications for FedEx Corp. from 1998 to December 2016; also served during this time as the President and Chief Executive Officer of FedEx Corporate Services and as a member of its five-person Executive Committee responsible for developing and implementing strategic business activities; previously held the role of Senior Vice President, Worldwide Marketing, Consumer Service and Corporate Communications for FedEx Express; currently serves as a senior advisor to Oak Hill Capital Partners, a private equity firm, since 2017

 

Current public company directorships: Pentair PLC

 

Previous public company directorships in last five years: Level 3 Communications, Inc.

 

Other leadership experience: Safe Fleet; Church Health; and Madonna Learning Center

 

                                                                 
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ITEM NO. 1 – ELECTION OF DIRECTORS

Director Biographies

 

 

W. Bruce Hanks

 

LOGO

 

Principal Occupation:

Consultant, Graham,

Bordelon, Golson &

Gilbert, Inc.

 

Committees:

Audit (Chair); Finance

 

Age 65

 

Independent Director

 

Director since 1992

 

 

Corporate Development, Finance, Public Accounting and Telecommunications executive experience holding various senior level roles at CenturyLink from 1980 to 2001, including the Chief Operating Officer, Senior Vice President - Corporate Development and Strategy, Chief Financial Officer and President - Telecommunication Services; served as the Athletic Director of the University of Louisiana at Monroe from 2001 to 2004; began his career as a Certified Public Accountant with Peat, Marwick & Mitchell; currently a consultant for an investment management and financial planning company based in Monroe, Louisiana

 

Other leadership experience: Board member of the American Football Coaches Foundation and the Edward Via College of Osteopathic Medicine; National Association of Corporate Directors - Board Leadership Fellow; Advisory Board Member of IberiaBank Corporation; previous service on the executive boards of several national telecommunications industry associations, private organizations, non-profits, and other public companies not within the last five years

 

 

Hal S. Jones

 

LOGO

 

Principal Occupation:

Retired former

accounting executive

 

Committees:

None

 

Age 67

 

Independent Director

 

Director since
January 1, 2020

 

 

Public Accounting, Financial and Controls experience as the Chief Financial Officer of Graham Holdings (formerly known as the Washington Post Company) from 2009 to 2013; as the Chief Executive Officer and President of Kaplan Professional, a subsidiary of The Washington Post from 2008 to 2009; and through various senior level positions at The Washington Post Company, from 1989 to 2008; began his career as a Certified Public Accountant at PricewaterhouseCoopers from 1977 to 1988

 

Current public company directorships: Playa Hotels and Resorts, N.V.

 

Other leadership experience: Studio Theatre, a Washington, D.C.-based non-profit theater production company

 

                                                                 
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ITEM NO. 1 – ELECTION OF DIRECTORS

Director Biographies

 

 

Michael J. Roberts

 

 

LOGO

Principal Occupation:

Founder and Chief

Executive Officer,

Westside Holdings
LLC

 

Committees:

Human Resources
and Compensation;

Nominating and

Corporate
Governance

 

Age 69

 

Independent Director

 

Director since 2011

 

 

Fortune 500 Global Executive, Marketing, and Customer experience as the President and Chief Operating Officer of McDonald’s Corporation from 2004 to 2006; previously served as the Chief Executive Officer of McDonald’s USA during 2004 and prior to that in various senior level roles at McDonald’s USA from 2001 to 2004; since 2006, currently serves as founder and chief executive officer of Westside Holdings LLC, a marketing and brand development company

 

Current public company directorships: W. W. Grainger, Inc.

 

 

Laurie A. Siegel

 

 

LOGO

Principal Occupation:

Founder of LAS

Advisory Services

 

Committees:

Human Resources
and

Compensation
(Chair);

Nominating and

Corporate
Governance

 

Age 63

 

Independent Director

 

Director since 2009

 

 

Human Resources and Executive Compensation experience as Senior Vice President of Human Resources and Internal Communication of Tyco International from 2003 to 2012; held various senior level positions at Honeywell International, Inc. from 1994 to 2002; founded in 2012 LAS Advisory Services, a business and human resources consultancy; currently serves as a Senior Advisor to the G100 and as a Chairman of the G100 Talent Consortium

 

Current public company directorships: FactSet Research Systems, Inc., California Resources Corporation

 

Previous public company directorships in last five years: Volt Information Sciences, Inc.

 

Other leadership experience: Positions with various non-profit organizations, including Understood (non-profit); Morristown Festival of Books; and currently serves on the Board of Directors of Swoop, a venture-backed company providing enterprise solutions enabling co-workers to carpool to work

 

                                                                 
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ITEM NO. 1 – ELECTION OF DIRECTORS

Director Biographies

 

 

Jeffrey K. Storey

 

LOGO

 

Principal Occupation:

President and Chief

Executive Officer,

CenturyLink

 

Committees:

Risk and Security

 

Age 59

 

Director since 2017

 

 

Innovative Transformational Telecommunications and Cybersecurity experience as the President and Chief Executive Officer of CenturyLink since 2018; previously served as the Chief Operating Officer of CenturyLink between 2017 and 2018; previously served as the President and Chief Executive Officer of Level 3 Communications, Inc. from April 2013 to November 2017; also held the positions of President and Chief Operating Officer of Level 3 Communications, Inc. from December 2008 to April 2013; served as the President of Leucadia Telecommunications Group (Leucadia National Corporation) from 2006 to 2008; as the Chief Executive Officer and President of WilTel Communications Group Inc. from 2002 to 2005 and in various other senior level positions with WilTel or its affiliates from 1999 to 2002; held the title of Vice President of Commercial Services of Cox Communications from 1998 to 1999 and also served as a Vice President and General Manager of Cox Fibernet from 1994 to 1998; began his career in telecommunications in 1983 with Southwestern Bell Telephone where he held various engineering and operations positions

 

Previous public company directorships in last five years: Level 3 Communications, Inc. (2013 to 2017)

 

Other leadership experience: Member of the National Security Telecommunications Advisory Committee

Votes Required

To be elected, each of the 11 nominees must receive an affirmative vote of a majority of the votes cast with respect to the election of directors. Any director failing to receive a majority of votes cast must promptly tender his or her resignation.

Unless otherwise directed, all votes attributable to voting shares represented by each duly executed and delivered proxy will be cast for the election of each of the above-named nominees. If you wish to give specific instructions with respect to voting for directors, you may do so by indicating your instructions on your proxy or voting instruction card.

Under our Bylaws nominating procedures, these nominees are the only individuals who may be elected at the meeting. 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.

 

                                                                 
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ITEM NO. 1 – ELECTION OF DIRECTORS

Executive Officers Who Are Not Directors

 

Executive Officers Who Are Not Directors

Listed below is information on each of our executive officers who are not directors.

 

Shaun C. Andrews
Executive Vice President and Chief Marketing Officer

 

LOGO

 

Age: 47

 

 

Shaun Andrews has served as Executive Vice President and Chief Marketing Officer since August 2019. He has responsibility for the Company’s go-to-market strategy, product development, privacy, and product management. Shaun also has oversight of the Company’s global marketing organization, including managing the Company’s end-to-end customer experience, brands, global messaging, digital campaigns and marketing technology. Shaun started with CenturyLink in 2017 as Executive Vice President, Product Management. Mr. Andrews previously served in several capacities at Level 3 Communications, Inc., most recently as the Senior Vice President of IP and Real-Time Communications from 2016 until the Level 3 and CenturyLink combination. Prior to that role, Mr. Andrews served as Level 3’s Senior Vice President, Global Voice Services from 2012 to 2016. Mr. Andrews has nearly 25 years of experience in the technology industry, including positions with AT&T, WilTel and SBC Communications.

 

Indraneel Dev
Executive Vice President and Chief Financial Officer

 

LOGO

 

Age: 48

 

 

Neel Dev has served as Chief Financial Officer since September 2018. Mr. Dev has global responsibility for managing the Company’s financial planning, accounting, tax, treasury, investor relations, real estate, procurement and supply chain functions. Mr. Dev has more than 20 years of telecommunications industry experience in both operational and financial roles. He also served as Group Vice President, Finance from February 2004 to November 2017 with Level 3 Communications, Inc. and then with CenturyLink from November 2017 to September 2018. Prior to joining Level 3, Mr. Dev held leadership positions with MCI (subsequently acquired by Verizon) and MFS Communications, with both financial and operating responsibilities.

 

 

                                                                 
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ITEM NO. 1 – ELECTION OF DIRECTORS

Executive Officers Who Are Not Directors

 

Stacey W. Goff
Executive Vice President, General Counsel and Secretary

 

LOGO

 

Age: 54

 

 

Stacey Goff has practiced law for more than 25 years, and participated in our executive decision-making for several years. CenturyLink appointed him to his current role in 2009. Stacey supervises not only the Company’s legal team, but also its government relations and aviation functions. He started with CenturyLink in 1998 as Director-Corporate Legal. From November 2014 to May 2018 he served as our Chief Administrative Officer. Prior to joining CenturyLink, Stacey practiced corporate and securities law with Jones Walker LLP in New Orleans.

 

Scott A. Trezise
Executive Vice President, Human Resources

 

LOGO

 

Age: 51

 

 

Scott Trezise has served in his current position since August 2013 and has responsibility for the Company’s talent acquisition, employee engagement, training and development, compensation and benefits, payroll and labor relations. Previously, Mr. Trezise served as the Senior Vice President of Human Resources of The Shaw Group Inc. from June 2010 until its acquisition by Chicago Bridge & Iron Company N.V. in February 2013. Additionally, Mr. Trezise served as the Vice President of Human Resources for Honeywell International Inc. from June 2005 to June 2010.

 

How Our Board is Selected and Elected

Director Nomination Process

The Nominating Committee considers possible candidates suggested by Board and Committee members, shareholders who comply with our Bylaws, and senior management. From time-to-time, the Nominating Committee may engage a third-party search firm to assist in identifying and evaluating qualified candidates. In 2019, the Nominating Committee retained an independent firm to help identify director prospects, perform candidate outreach, assist in reference and background checks, and provide other related services.

Under our Corporate Governance Guidelines, the Nominating Committee assesses director candidates based on their merits, independence, diversity, character, skills, and experience in the context of the needs of the Board. When evaluating candidates for nomination as new directors, the Nominating Committee will consider (and will ask any search firm that it engages to provide) a pool of candidates that includes women and individuals from diverse backgrounds. Our Corporate Governance Guidelines also establish a target average director tenure of no more than ten years, set a goal of all Board members (except our CEO) being independent, and express the Board’s general sense that no director should be age 75 or older prior to the next annual shareholders meeting. The Nominating Committee may, but has not formally chosen to, establish additional qualifications. The Nominating Committee evaluates each individual in the context of the Board as a whole, with the objective of recommending nominees who can best contribute to the success of the business and best represent shareholder interests through the contribution of their particular perspective, merit, experience, and skill set. The Nominating Committee and the Board also evaluates on a periodic basis the effectiveness of its nominating processes and procedures. For information on how a shareholder may nominate a person for election as a director, please see the mandatory procedure described in our Bylaws.

 

                                                                 
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ITEM NO. 1 – ELECTION OF DIRECTORS

How Our Board is Selected and Elected

 

Agreements to Nominate Certain Directors – In connection with the Level 3 combination, on October 31, 2016, we entered into a Shareholder Rights Agreement (the “Shareholder Rights Agreement”) with STT Crossing Ltd. (“STT Crossing”), which was Level 3’s largest shareholder as of such date. In early 2018, STT Crossing assigned its rights under this agreement to two of its affiliates, Everitt Investments Pte. Ltd and Aranda Investments Pte. Ltd. (the “STT Affiliates”). Pursuant to the Shareholder Rights Agreement, the Nominating Committee is currently obligated to nominate the individual designated by the STT Affiliates for election to the Board, subject to: (i) the fiduciary duties of the members of that Committee, (ii) any applicable regulation or listing requirement of the NYSE, and (iii) any applicable provisions of any network security agreement between us, STT Crossing and a government agency. Following the execution of the Shareholder Rights Agreement, STT Crossing or the STT Affiliates in each instance have designated Steven T. Clontz as their designee. The Board is required to recommend that the shareholders vote in favor of the STT Affiliates’ designee and we are required to use all reasonable efforts to cause the individual to be elected as a member of the Board. In connection with recommending Mr. Clontz as a nominee, the Nominating Committee considered, among other things, his extensive experience in the telecommunications industry and his prior contributions as a director of CenturyLink and Level 3. For additional information about the Shareholder Rights Agreement, please see the full copy of the agreement that we have filed as an exhibit to our prior SEC reports.

Additionally, on December 30, 2019, the Company announced that effective January 1, 2020, Hal Jones would join the Board. Mr. Jones was among several director candidates recommended to the Board by Southeastern Asset Management, our fourth largest shareholder at the time of his appointment. With his appointment, the Board will continue to be comprised of 14 members until the 2020 Annual Shareholder Meeting.

2019 Board Refreshment

In 2019, the Nominating Committee and Board considered a wide range of factors in assessing the composition of the Board, including:

 

   

the input of our shareholders;

 

   

the critical importance of balancing the need for fresh perspectives and the continued value of institutional knowledge, particularly given the complexity of our transformation over the past 10-15 years;

 

   

the current and long-term needs of the Board; and

 

   

the skillsets necessary to oversee the implementation of our business strategies, including our continued evolution to a digital technology company offering a simpler and improved customer experience.

Following these discussions, we announced in late December 2019: (i) the appointment of Hal Jones to our Board, effective January 1, 2020, (ii) the designation of Mr. Glenn as Chairman of the Board and the retention of Mr. Hanks as Vice Chairman of the Board, each effective immediately following the 2020 annual meeting, (iii) the retirement of two of our long-tenured directors, Messrs. Perry and Post, effective immediately following the 2020 annual meeting, and (iv) certain changes to our governance policies discussed elsewhere herein. Earlier this year, Ms. Landrieu advised us that she had elected not to stand for re-election at the 2020 annual meeting. Additionally, we currently plan to refresh the composition of our committees on or about the date of our annual shareholder meeting.

Our Board continues to regularly review the need for refreshment by focusing on identifying individuals whose skills and experiences will enable them to make meaningful contributions to shaping and implementing CenturyLink’s business strategies. The Nominating Committee remains engaged with third-party search firms to identify candidates with the skills and attributes necessary to further advance our board refreshment goals in 2020 and beyond.

Board Evaluation and Continuing Director Education

Recognizing that a robust and constructive performance evaluation process is an essential component of Board effectiveness, the Board performs an annual evaluation of its members, committees, and the Board as a whole to determine the skills, processes, structure, and policies necessary to attain its goals and fulfill its responsibilities. While this formal evaluation is conducted on an annual basis, directors share their perspectives, feedback, and suggestions periodically throughout the year.

 

                                                                 
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ITEM NO. 1 – ELECTION OF DIRECTORS

How Our Board is Selected and Elected

 

As part of its 2019 evaluation process, our Nominating Committee engaged a nationally recognized third-party governance consultant to assist with our Board and committee evaluation process. After the independent third-party distilled the information and perspectives gathered during interviews and surveys, it presented findings to the Nominating Committee and Board for review and discussion. This year’s evaluation process, combined with shareholder input and third-party guidance, led to governance changes we believe strengthened the Board and its practices, including Board and committee composition. Specifically, the Board evaluated and refined our director skills and experience qualifications criteria to meet the current and anticipated needs of the business. Results of the process, including a review of contributions and performance of each director, are used by the Nominating Committee when considering whether to nominate such director for re-election to the Board.

New directors participate in an orientation which familiarizes them with the Company’s business, operations, strategies, and corporate governance practices, and assists them in developing Company and industry knowledge to optimize their service on the Board. The onboarding process includes meetings with members of our management team to accelerate new directors’ ability to effectively and fully discharge their responsibilities.

We encourage directors to participate in continuing education programs focused on our business and industry, committee roles and responsibilities and legal and ethical responsibilities of directors. We reimburse directors for their expenses associated with this participation. We encourage our directors to participate in nationally recognized governance organizations, including the National Association of Corporate Directors (“NACD”) and G100. We provide continuing director education during Board and committee meetings and other Board discussions as part of the formal meetings which from time-to-time include presentations from third parties.

Director Independence

We believe that director independence enhances the Board’s ability to provide oversight of our strategy, long-term planning and risk oversight, among other responsibilities. As a result, our Board evaluates the independence of each director nominee on an annual basis, using standards required by the SEC, NYSE and our Corporate Governance Guidelines. Consistent with these standards, the Board reviewed all relationships between the Company and each director based upon detailed written submissions by each director nominee and the volume of business transacted by us, either as a service provider or customer, with other companies with which our directors are employed or affiliated. Following its review, the Board affirmatively determined that all of our director nominees are independent other than Mr. Storey. Mr. Storey is not independent because he is CenturyLink’s President and CEO.

How Our Board is Organized

Board Leadership Structure

The Nominating Committee periodically reviews the Board’s leadership structure and, when appropriate, recommends leadership structural changes, taking into consideration the needs of the Board and the Company at such time.

Mr. Perry, who announced his retirement plans in December 2019, currently serves as non-executive Chairman of our Board and Mr. Hanks serves as our Board’s Vice Chairman and Lead Outside Director. As Chairman, Mr. Perry presides over meetings of the Board, oversees the management, development and functioning of the Board, and performs additional duties as the Board determines. As Vice Chairman and Lead Outside Director, Mr. Hanks coordinates and develops the agenda for each meeting of non-management directors and serves as the conduit for information management believes is necessary for the non-management directors to perform their duties effectively and responsibly. In that regard, he also provides guidance to the CEO on the quality, quantity, and timeliness of the flow of information, with the understanding that the non-management directors will receive any information requested on their behalf by the Lead Outside Director.

In connection with Mr. Perry’s upcoming retirement, the Board approved changes to its senior leadership structure. Effective May 20, 2020, Mr. Perry will step down from his position as non-executive Chairman of our Board and the Board intends to appoint Mr. Glenn, one of the Company’s independent directors, as non-executive Chairman. Our Corporate Governance Guidelines require an independent director to serve as

 

                                                                 
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ITEM NO. 1 – ELECTION OF DIRECTORS

How Our Board is Organized

 

Lead Outside Director if the Chairman is not an independent director. In light of the Board’s plans to replace Mr. Perry with an independent director, there will be no subsequent need to maintain a Lead Outside Director, although the Board intends to continue to retain Mr. Hanks as Vice Chairman.

The Board believes that the separation of the Chairman and CEO positions has functioned effectively over the past several years. Separating these positions has allowed 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 separate oversight of management. The Board further believes that this separate oversight has fostered additional focus on strategic planning and risk management.

As noted in our Corporate Governance Guidelines, it is the sense of the Board that the Chairman of the Board and the chairs of our committees should rotate approximately every five years. As described in our 2019 proxy statement, the Board comprehensively overhauled its committee structure in 2018, and, as noted above, plans to make additional refinements on or about May 20, 2020.

Board Committees

Each of our five standing Board committees supports the full Board with various risk management, governance, and strategic responsibilities.

 

  AUDIT      

  MEMBERS*

   KEY RESPONSIBILITIES     

2019
MEETINGS
HELD
 
 
 

Martha Bejar

Peter Brown

Kevin Chilton

Michael Glenn

Bruce Hanks (C)

 

*  Each is an audit committee financial expert, other than Michael Glenn

  

Responsible for overseeing the Company’s system of financial reporting and for reviewing and discussing with management, our internal auditors and our independent auditors our major financial risks, including matters potentially impacting financial reporting

 

Assists the Board in fulfilling its oversight responsibilities relating to the adequacy and effectiveness of (i) our internal control over financial reporting, (ii) our internal controls regarding information technology security, and (iii) our disclosure controls and procedures

 

See “Audit Committee Matters—Audit Committee Report” for additional information

     9  
     
  FINANCE   

  MEMBERS

   KEY RESPONSIBILITIES     

2019
MEETINGS
HELD
 
 
 

Peter Brown (C)

Bruce Hanks

Harvey Perry*

Glen Post*

 

*  non-independent

  

Assists the Board in fulfilling its oversight responsibilities with respect to the management of our financial resources and capital structure, including our (i) capital requirements, (ii) capital allocation plans, (iii) benefit plan funding, and (iv) hedging strategies

 

Provides guidance, as needed, regarding capital markets transactions

     4  
     

 

                                                                 
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Table of Contents

ITEM NO. 1 – ELECTION OF DIRECTORS

How Our Board is Organized

 

  HUMAN RESOURCES AND COMPENSATION   

  MEMBERS

   KEY RESPONSIBILITIES     

2019
MEETINGS
HELD
 
 
 

Virginia Boulet

Steven Clontz

Michael Glenn

Michael Roberts

Laurie Siegel (C)

  

Responsible for establishing executive compensation

 

Responsible, in consultation with management, for overseeing our compliance with regulations governing executive and director compensation

 

Oversees labor relations risk

 

See “Compensation Discussion and Analysis” for additional information

     4  
     
  NOMINATING AND CORPORATE GOVERNANCE   

  MEMBERS

   KEY RESPONSIBILITIES     

2019
MEETINGS
HELD
 
 
 

Virginia Boulet (C)

Steven Clontz

Mary Landrieu

Michael Roberts

Laurie Siegel

  

Recommends to the Board nominees to serve as directors and officers

 

Oversees CEO’s annual performance evaluation

 

Monitors and advises on ESG matters

 

Oversees and recommends improvements to our governance principles, policies, and practices

 

Assists the Board in fulfilling its oversight responsibilities with respect to the management of risks associated with the company’s Board leadership structure and corporate governance matters

 

Performs other governance responsibilities described under “Corporate Governance”

     7  
     

 

                                                                 
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Table of Contents

ITEM NO. 1 – ELECTION OF DIRECTORS

How Our Board is Organized

 

  RISK AND SECURITY   

  MEMBERS

   KEY RESPONSIBILITIES     

2019
MEETINGS
HELD
 
 
 

Martha Bejar

Kevin Chilton (C)

Mary Landrieu

Harvey Perry*

Glen Post*

JeffStorey*

 

*  non-independent

  

Assists the Board in fulfilling its oversight responsibilities with respect to, among others:

 

•  risks posed by cyberattacks or other casualty events

•  risks related to network reliability, privacy and regulations

•  other key enterprise or operational risks as jointly determined by the Committee and management

 

Oversees our classified activities and facilities through a subcommittee

 

Oversees our corporate compliance and enterprise risk management programs and activities

 

Receives periodic reports on various risk exposures, including quarterly reports on cybersecurity, which typically include reports on recent cyber intrusions, mitigation steps taken in response to those intrusions, and ongoing cybersecurity initiatives

 

Coordinates risk oversight functions of other Board committees

     4  

Additional information on the roles and responsibilities of our committees is available in the committees’ respective charters, which can be obtained at our website at http://www.CenturyLink.com/aboutus/governance.html.

Our Board’s Approach to Governance

Our Board is responsible for overseeing management, which is responsible for the day-to-day operations of the Company. The Board’s primary areas of focus includes selection of CenturyLink’s leadership, risk management oversight, strategy, long-range planning, capital allocation, corporate governance, and compliance. In addition, our Board evaluates management in its effectiveness in operating and achieving the objectives of the company. In carrying out this responsibility, our Board advises our senior management to help drive success for the long-term value creation for our shareholders. Our Board discusses and receives regular updates on a wide variety of matters affecting our business.

Corporate Governance Framework

The Board continuously reviews our governance practices and Board composition to ensure we are aligned with the interests of our shareholders and continue to take actions that will enhance our ability to oversee the execution of strategies that drive value. In 2019, the Board approved the following changes to its Corporate Governance Guidelines:

 

   

Targeting average Board tenure of no more than 10 years

   

Targeting to have all Board members, except our CEO, be independent

   

Targeting a Board size of between 10 and 12 directors

   

Targeting the rotation of Board committee and Board chairs approximately every five years

Our Corporate Governance Guidelines, along with other governance documents including our Code of Conduct, Bylaws, and Board committee charters and other governance policies are available on our website at http://www.centurylink.com/aboutus/governance.html.

 

                                                                 
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ITEM NO. 1 – ELECTION OF DIRECTORS

Shareholder Engagement Program

 

Shareholder Engagement Program

 

Our Approach

 

The Board believes that input from shareholders is essential to continue to enhance our governance practices, earn our shareholders’ confidence and provide the foundation for improving shareholder value. We engage on a year-round basis with holders of our equity and debt securities, as well as proxy advisory firms and ESG rating firms, among others.

 

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Our formal governance engagement process includes members of management, as well as key representatives from our Board.

 

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In 2019, our compensation program received the support of 41% of the total votes cast at our meeting. These results were disappointing and significantly below the support we have received in the past. In response to the vote, we reengaged with shareholders throughout the summer and fall, contacting shareholders representing 53% of our outstanding common stock and directly engaging with 47%, as well as the two largest proxy advisory firms. Our primary purpose for initiating these meetings was to listen to our shareholders, discuss proposed changes to our compensation plans and obtain feedback on a series of other topics, including board composition, corporate governance, strategy, performance, ESG initiatives and human capital management.

 

                                                                 
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Table of Contents

ITEM NO. 1 – ELECTION OF DIRECTORS

Shareholder Engagement Program

 

During the fall of 2019, each of the shareholder and proxy advisory firm meetings was attended by the Chair of our Human Resources and Compensation Committee, and most were also attended by our Chairman, along with members of our senior management team. The input we received was shared with the members of the Board who did not directly engage in our outreach process. The chart below summarizes this feedback from our shareholders and our response:

 

We Listened

   We Responded

Corporate Governance

  

Promote board diversity

  

ü  We adopted the “Rooney Rule” and are committed to interviewing minority candidates for open board seats.

Support gender equality

  

ü  We made the “Parity Pledge” for open Vice President and higher roles, including open board seats.

Review board oversight/process for political contributions

  

ü  We clarified the Board oversight role and political contributions policy, which is discussed further below under the heading “—Our Board’s Responsibilities—Commitment to Environmental, Social and Governance (ESG) Leadership.”

Board Composition

  

Consider new board candidates

  

ü  At the recommendation of a large CenturyLink shareholder, Southeastern Asset Management, we appointed a new independent director, Hal Jones, to the board effective January 1, 2020.

Reduce board tenure and increase independence

  

ü  We announced the retirements of two of our longest-tenured and non-independent directors, Chairman Harvey Perry and Glen F. Post III, effective after the Company’s 2020 Annual Shareholder Meeting.

Have an Independent Chairman

  

ü  The Board intends to designate an independent director, Michael Glenn, as Chairman effective after the Company’s 2020 Annual Shareholder Meeting.

ESG/Sustainability

  

Provide updated and increased disclosure on:

  

ü  We issued our 2020 ESG report, which is discussed further below under the heading “—Our Board’s Responsibilities—Commitment to Environmental, Social and Governance (ESG) Leadership,” and implemented protocols to enhance ESG oversight by our Nominating Committee.

(1) Environmental topics such
as electrical usage

(2) Non-financial benefits and other ways we attract and retain employees

Cybersecurity

  

Increase disclosure on privacy and data security

  

ü  We provided explanations of our risk mitigation strategies for cybersecurity and data privacy risks below under the heading “—Our Board’s Responsibilities—Risk Oversight.”

Executive Compensation*

  

One-time awards

  

ü  In 2019, there were no one-time awards for any of our executive officers.

STI and LTI plan metrics

  

ü  We redefined our metrics under both the STI and LTI plans to enhance differentiation and pay-for-performance alignment.

Shorten performance period under LTI plan

  

ü  For 2020, we returned to our normal practice of three-year cliff-vested cumulative performance periods for our 2020 Annual PBRS grant.

 

*

An expanded Executive Compensation list can be found in the Compensation Discussion and Analysis section beginning on page 42.

 

                                                                 
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ITEM NO. 1 – ELECTION OF DIRECTORS

Our Board’s Responsibilities

 

Our Board’s Responsibilities

 

CEO and Executive Succession Planning

 

The Board and management recognize the importance of continuously developing our executive talent, identifying potential outside candidates and preparing for emergency situations. Our Compensation Committee, along with management, conducts periodic talent reviews that includes succession plans for our senior leadership positions, including 360° peer reviews. In 2019, the Nominating Committee engaged a nationally recognized third-

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party consultant to develop a comprehensive succession planning strategy, and CenturyLink has retained the same consultant to continue to advise the Board and the Company’s leadership. Specific objectives were to:

 

   

Understand the external market of CEO-ready talent and update this understanding at regular intervals over the upcoming three years

 

   

Assess the current gaps in CEO readiness of key CenturyLink executives, the probability that they will be able to close the gaps, and the executive development plans and timeframes for doing so

 

   

Ensure that key CenturyLink executives have a clear and actionable development plans and establish a transparent process for leadership and the Board to track progress against development goals as needed

 

   

Consider possible CEO succession scenarios based on individual as well as collective team strengths and gaps

In 2019, our Board approved an emergency succession plan and related communications plan.

Long-term Strategic Planning

Recognizing the importance of assuring that our business strategies are designed to create long-term, sustainable value for our shareholders, our Board regularly engages in active discussions with management to formulate and implement those strategies for the overall Company and each business segment. The Board and management routinely discuss key initiatives, transformative technologies, innovation, and corporate governance opportunities focused on driving long-term value. In addition to regular Board and committee meetings, which include presentations and discussions of tactical and strategic initiatives, the Board participates in an annual in-depth review of the Company’s overall strategy with our management team. The Board and our management team discuss the industry and competitive landscapes, short and long-term plans and capital allocation strategies.

Risk Oversight

The Board, along with its committees, reviews and oversees CenturyLink’s risk management processes in many ways, including receiving regular reports about our enterprise risk management (“ERM”) program, which is designed to comprehensively identify our most significant risks. Under the ERM program, management develops a response plan for prioritized risks, as well as monitoring and mitigation plans for other identified risk focus areas. Management provides regular reports on the risk portfolio and response efforts to the Risk and Security Committee. The Board also works with management to assess our key short-and long-term risks and mitigation efforts relating to, among other things, financial reporting, strategic plans, operations, capital budgets, corporate functions, and business units. Among others, key areas we assess include:

 

   

Cybersecurity Risks – As a communications company that transmits large amounts of information over our networks, we clearly recognize that maintaining the security and integrity of information and systems under our control is a priority among our operational risk management efforts. We view cybersecurity risk as an enterprise-wide risk subject to control and monitoring at various levels of management throughout the Company. The Risk and Security Committee reviews on at least a quarterly basis risk assessments from management with respect to cybersecurity, including the adequacy and effectiveness of the

 

                                                                 
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ITEM NO. 1 – ELECTION OF DIRECTORS

Our Board’s Responsibilities

 

  Company’s internal controls regarding cybersecurity, emerging cybersecurity developments and threats, and the Company’s strategy to mitigate cybersecurity risks such as our contingency plans in the event of security breaches or other system disruptions and cyber insurance coverage. To mitigate risk, we have implemented a global information security management program to provide consistent mitigation, common solutions, and consistent risk assessment, which is subject to oversight by and reporting to the Risk and Security Committee. Additionally, the Company periodically engages outside cybersecurity experts to assess our exposure and enhance our controls, monitoring and mitigation activities related to these risks.

 

   

Data Privacy Risks – In addition to protecting data transmitted across our network, we also protect the content of data CenturyLink collects, stores, uses, and distributes. Employee and customer information collected is encrypted both at rest and in transmission. We have adopted a data minimization policy designed to comply with and detect breaches of state, U.S., and other international jurisdictions’ laws and ensure appropriate protections when sharing information with third parties, including vendors. As part of the ERM process, the Risk and Security Committee receives reports on data privacy protection efforts and controls to meet and enhance legal and compliance requirements across the enterprise.

 

   

Other Risks and Information – Our Board committees oversee the other risks specified in the chart included in the preceding section “—Board Committees,” and our Board and committees further oversee the ESG and other risks discussed below under the heading “—Commitment to Environmental, Social and Governance (ESG) Leadership”.

Commitment to Environmental, Social and Governance (ESG) Leadership

Responsible corporate citizenship has long been a part of our governance and business strategy and continues to be a key priority for our Board and management team. The Board and the Nominating Committee, in conjunction with designated management teams, are continually evaluating our ESG program and identifying meaningful environmental, product, consumer, financial, and other factors to develop metrics material to our business, and communication plans regarding our ESG strategy. Some of our ESG highlights are described below.

Ethics and Compliance Our Code of Conduct sets forth the ethical expectations and standards of conduct required in all business dealings and interactions around the world and applies to all directors, officers, and employees alike. Our Ethics and Compliance team is an independent function led by the Company’s Chief Ethics and Compliance Officer who maintains full and direct access and makes regular reports to the Risk and Security Committee of the Board of Directors. Specifically, CenturyLink’s program:

 

   

Conducts mandatory Code of Conduct training annually, the scope and content of which is fashioned through risk assessments, and reinforced through localized, risk-based and targeted training and compliance strategies.

 

   

Offers employees several confidential avenues to report concerns and allegations of misconduct, including the Company’s Integrity Line, our global, multilingual, independent, and continuously staffed compliance hotline.

 

   

Maintains a strong multidisciplinary compliance program supported by internal processes and resources, including compliance analysts, attorneys and an investigations team, all of whom are fully trained to evaluate and facilitate the review of allegations and concerns.

 

   

Prohibits retaliation against any individual who raises a concern, makes a report, participates in an investigation, refuses to participate in suspected improper or wrongful activity, or exercises rights protected by law.

 

   

Protects human rights by incorporating our own principles and ethics in our business and supplier relationships, through contractual commitments and our Supplier Code of Conduct.

 

                                                                 
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ITEM NO. 1 – ELECTION OF DIRECTORS

Our Board’s Responsibilities

 

ESG Reporting – Since 2015, we have published an annual ESG report highlighting our efforts to track our impact on the communities in which we live and operate. Although not part of this proxy statement, our most recent ESG report can be located on our website at https://ir.centurylink.com/esg/default.aspx.

Environmental Sustainability – Our recent environmental initiatives and achievements include:

 

    Reducing our absolute carbon emissions and carbon intensity by purchasing renewable energy and investing in facility efficiency improvements and new technologies in our data centers and network facilities around the world.

 

    Improving energy efficiency by partnering with other service providers, as well as manufacturers of set-top boxes and small network equipment.

 

    Maintaining or expanding the number of company locations with third-party certified Energy, Environmental, and Safety Management Systems.

 

    In January 2020, Barron’s named CenturyLink among its list of “100 Most Sustainable U.S. Companies” for the third year in a row.

 

 

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Customer Experience – We strive to continually improve the experience we provide to our customers, including their interactions with our employees. We believe that an excellent experience not only leads to satisfied customers – but also will improve our sales and revenue results, boost employee engagement and reduce costs. We have a dedicated team responsible for evaluating the best approach to the customer experience from our largest enterprise customers to our residential customers, coupled with frequent, transparent and informative communication processes.

An essential element of delivering on our commitment is listening to our customers by offering several channels for communication including voice, text, email, chat and social media, among others. In 2019 we launched CenturyLink’s inaugural customer experience (CX) event, during which we invited customers to our headquarters to collaborate directly with our management team.

While listing to customers is the best source of customer experience feedback, we believe overlaying it with employee feedback is the most effective way to continuously improve. Consequently, we regularly invite our front-line employees to provide feedback on opportunities to improve the experience and to make it easier to do their jobs.

Community Impact We support the passions and interests of our employees and empower them to be a positive influence in the world. We are proud to provide many opportunities to be good neighbors by volunteering time and talent to support the causes that matter most to our employees. We seek to strengthen the communities in which we live and work through philanthropy, local community initiatives, and global initiatives. Among our efforts are:

 

   

In support of STEM Education, CenturyLink offers teachers an opportunity to earn grants to innovatively implement technology in their classrooms

 

   

Employees are encouraged to actively volunteer and are supported through our Dollars for Doers grants program

 

 

                                                                 
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ITEM NO. 1 – ELECTION OF DIRECTORS

Our Board’s Responsibilities

 

   

Employees are offered a method for continual giving to causes that matter to them, while maximizing their contribution with our corporate match

 

   

Employees are encouraged to volunteer and donate through our annual Campaign to Fight Hunger to support hunger relief efforts around the globe

Oversight of Political and Lobbying Contributions – Our Board is engaged in the oversight of our political initiatives, and reviews annually CenturyLink’s political and lobbying activities and related budgets. We strive to advocate public policy solutions that best serve our customers, our shareholders, our employees, and the communities we serve. Our semi-annual Political Contributions Report provides transparency in this process, demonstrating ethical corporate governance and promoting confidence in the democratic process. Specifically, our Report discloses our corporate political contributions and those of our political action committees in accordance with applicable federal and state campaign finance laws, and contributions to trade associations and 501(c)(4) organizations. Although not part of this proxy statement, our most recent Political Contributions Report can be located at “About Us/Company—Information/Public Policy” on our website at https://www.centurylink.com.

Human Capital Management – The Board and management know our highly competitive business requires skilled and motivated employees and leaders with the necessary expertise to execute our innovation, efficiency, and transformation strategies. Human capital management and employee engagement have always been a priority for CenturyLink, and as we integrated with Level 3, the Board focused on the risk that a shift in culture, as well as the ongoing risk we may encounter in our competitive industry’s “war for talent,” could create for retaining the talented employees who contributed to each company’s success. The Board regularly discusses with management CenturyLink’s continuous efforts to attract and retain the caliber of employee with the type of knowledge and skills necessary to realize our goals. Both the Board and management set a “tone at the top” through: participating in and promoting our “One Company, One Culture” initiative, regularly meeting with our EVP, HR to discuss culture, talent strategy, and leadership development and staying ahead of market trends by identifying early the skills needed for our future, and designing strategies to bridge any gaps by cultivating our in-house talent to evolve critical skills or engaging third parties. Our Human Resources team applies this strategy to every layer of our Company during annual talent assessment and succession reviews by having senior officers identify from among their direct reports potential candidates for “next-layer” leadership. Additionally, as a tactic for retaining skilled, non-executive level employees, our Compensation Committee has approved special incentive programs from time to time in an effort to retain our talent.

Positive Corporate Culture – The Board and management believe that engaged and satisfied employees are important to creating shareholder value. From the Board on down, we have dedicated time and expertise to creating a thriving culture throughout the organization, particularly following the closing of the Level 3 transaction. As part of this initiative, we engaged a nationally recognized third-party consultant, to partner in the development of CenturyLink’s “One Company One Culture” program, which incorporates a wide variety of training and communication activities to promote a collaborative, engaged workplace. We measure the program’s efficacy and identify opportunities for improvements through an engagement survey distributed approximately every four months. The survey is sent to all employees within the organization, and has been a great success, receiving approximately 80% participation rate.

Promoting Diversity – To maintain and grow CenturyLink’s diverse workforce, we formed a Diversity & Inclusion Steering Committee comprised of senior leaders focused on developing and realizing our overall diversity strategy. Efforts include (i) recruiting and outreach designed to attract diverse talent and (ii) employee resource groups – some active for more than 40 years – to support employee engagement, awareness, career development, and training. Recognition for our diversity and inclusion efforts include:

 

   

Forbes, January 2020 distinguished list of the top 500 employers in the area of Diversity

 

   

The top score of 100% again for 2020 from Corporate Equality Index, a national report by the Human Rights Campaign on corporate policies and practices related to lesbian, gay, bisexual, transgender and queer workplace equality

 

 

                                                                 
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ITEM NO. 1 – ELECTION OF DIRECTORS

Our Board’s Responsibilities

 

Commitment to Pay Equity CenturyLink recently conducted a pay equity review of our U.S., non-union employees to determine whether male and female employees who perform similar work at the same level are receiving similar pay. When evaluating peers, we reviewed, among other factors, similar roles, company tenure, work level and performance, and identified a small group of our employees who were paid below expected levels which may have been gender related. In response, we developed a plan to achieve gender pay equity in the first quarter of 2020. Moving forward, we plan to conduct these analyses regularly to ensure we continue to pay employees fairly and equitably, regardless of gender. We plan to expand it to include other factors like race and ethnicity. We also plan to continue to review our processes and technology to ensure we are making good, equitable decisions real time for all of our employees.

Director Meeting Attendance

Directors are expected to attend all Board meetings and meetings of committees on which they serve. Directors also are expected to attend each annual shareholders’ meeting. All current directors, except Hal Jones who joined our Board effective January 1, 2020, attended our 2019 annual shareholders’ meeting. During 2019 there were nine regular or special meetings of the Board, as well as 28 standing committee meetings. Each current director who served on the Board during 2019 attended more than 75% of the total number of the 2019 Board and respective Committee meetings on which he or she served. Our independent Board members met in executive session, chaired by our Lead Outside Director, without management and non-independent directors present during four of its 2019 full Board meetings. Also, our non-management Board members met in executive session without management present during four of its 2019 full Board meetings.

Director Compensation

Overview

The Board believes that each of our non-employee directors (whom we also refer to as outside directors or non-management directors) should be compensated through a mix of cash and equity-based compensation. Our Compensation Committee, consisting entirely of independent directors, has primary responsibility for periodically reviewing and considering any revisions to director compensation. In recent years, the Compensation Committee has reviewed director compensation annually with assistance from its independent compensation consultant, including conducting annual benchmarking to help assess the appropriateness and competitiveness of our director compensation programs. The Board reviews the Compensation Committee’s recommendations, discusses those recommendations with the compensation consultant, and determines the amount of director compensation.

The table and the discussion below summarize how we compensated our outside directors in 2019. This table does not include compensation paid to our CEO and President, Jeff Storey, who does not receive any additional compensation for his service as a director. Please see the “Summary Compensation Table” below for details regarding all compensation paid to Mr. Storey during fiscal 2019.

 

                                                                 
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ITEM NO. 1 – ELECTION OF DIRECTORS

Director Compensation

 

2019 Compensation of Outside Directors

 

Name

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

Continuing Directors:

                   

Martha H. Bejar

     $ 120,000      $ 146,472      $ 4,000      $ 270,472

Virginia Boulet

       130,000        146,472        —          276,472

Peter C. Brown

       128,375        146,472        —          274,847

Kevin P. Chilton

       128,500        146,472        —          274,972

Steven T. Clontz

       115,000        146,472        —          261,472

T. Michael Glenn

       121,000        146,472        —          267,472

W. Bruce Hanks

       244,000        146,472        17,000        407,472

Michael J. Roberts

       114,000        146,472        —          260,472

Laurie A. Siegel

       113,000        146,472        —          259,472

Non-Returning Directors:(4)

                   

Mary L. Landrieu

       113,000        146,472        —          259,472

Harvey P. Perry

       309,000        146,472        15,950        471,422

Glen F. Post, III

       109,000        146,472        4,436        259,908

 

(1)

For fiscal 2019, the Compensation Committee granted each outside director an award of restricted shares or restricted stock units valued at $165,000 based upon the volume-weighted average closing price of our Common Shares over a 15-day trading period ending prior to the May 22, 2019, grant date. However, as required by SEC rules, the dollar value reported in this column reflects the grant date fair value of that award based upon the closing stock price of our Common Shares on the grant date in accordance with FASB ASC Topic 718. These awards vest on May 22, 2020 (subject to accelerated vesting or forfeiture in certain limited circumstances). See “—Cash and Stock Payments.”

 

(2)

As of December 31, 2019, Mr. Post held 365,221 unvested shares of restricted stock (consisting of 14,706 time-based and 350,515 performance-based shares, which will vest and pay out or be forfeited in accordance with their original performance conditions) and each of our other outside directors held 14,706 unvested shares of restricted stock or unvested RSUs deferred under the Non-Employee Director Deferred Compensation Plan (the “Deferred RSUs”), which constituted the only unvested equity-based awards held by our outside directors as of such date. 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)

Includes (i) reimbursements for the cost of annual physical examinations and related travel of $5,000 for each of Mr. Hanks and Ms. Landrieu, $3,950 for Mr. Perry and $4,436 for Mr. Post, (ii) the payments related to the attendance of the KPMG Conference of $6,000 for Messrs. Hanks and Perry, (iii) payments related to the attendance of the NACD Global Board Leaders’ Summit of $6,000 for each of Ms. Landrieu and Messrs. Hanks and Perry and the payments related to the attendance of the G100 Conference of $4,000 for each of Ms. Bejar and Mr. Chilton. 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 the directors or their family members participating in recreational activities scheduled during Board retreats or meetings (as described further under the heading “Compensation Discussion and Analysis—Our Compensation Program Objectives and Components of Pay—Other Benefits—Perquisites”).

 

(4)

The terms of each of these directors will end immediately following the 2020 annual shareholders meeting.

Cash and Stock Payments

Cash Fees – Each outside director is paid an annual fee of $75,000 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.

During 2019, Harvey P. Perry, in his capacity as the non-executive Chairman of the Board, received supplemental Board fees of $200,000 payable in cash. The Chairman’s duties are set forth principally in our Corporate Governance Guidelines. See “How Our Board is Organized—Board Leadership Structure.”

 

 

                                                                 
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ITEM NO. 1 – ELECTION OF DIRECTORS

Director Compensation

 

During 2019, W. Bruce Hanks, in his capacity as non-executive Vice Chairman of the Board and Lead Outside Director, received supplemental Board fees of $100,000 payable in cash. Under our Bylaws, the Vice Chairman is charged with the responsibility of assisting the Chairman and performing such other duties as may be assigned to him by the Board or the Bylaws.

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

Equity Grant – During 2019, the Compensation Committee awarded an annual equity grant valued at $165,000 to each outside director, with the number of shares determined by dividing this target value by the volume-weighted average closing price of our Common Shares over a 15-day trading period ending prior to the grant date and rounding up to the nearest whole share.

This grant was awarded to each director in the form of time-vested shares of restricted stock unless the director made an election to defer all or a portion of the award under our Non-Employee Directors Deferred Compensation Plan (discussed below). For those directors who elected to defer any portion of the grant, the portion deferred was issued to the director as time-vested restricted stock units. These awards are scheduled to vest on May 22, 2020 (one year after grant), with vesting accelerated in certain circumstances as described in the award agreement.

Dividends (or, for restricted stock units, dividend equivalents) on these awards are not paid currently but rather accrue from the grant date through the date of vesting (for restricted stock) or the date of issuance of the underlying shares (for restricted stock units) and are subject to the same vesting terms as the related award. Dividends on shares of restricted stock are paid to the director upon vesting while dividend equivalents on restricted stock units are paid to the director at the same time as the underlying shares are issued to him or her.

Non-Qualified Deferred Compensation

Non-Employee Director Deferred Compensation Plan – In March 2019, the Board adopted a deferred compensation plan for our non-employee directors. Under this plan, our non-employee directors may defer up to 100% of their cash and equity compensation, effective for (1) equity compensation granted to non-employee directors for service after May 17, 2019 and (2) cash compensation earned by non-employee directors after December 31, 2019.

Participants in the Non-Employee Director Deferred Compensation Plan may elect to receive payment of their account balances in either two to five annual installments or a lump sum upon a fixed date, separation from service, or up to five years following separation from service, subject to any deferrals mandated by federal law.

All cash amounts deferred under this deferred compensation plan by non-employee directors are allocated among deemed investments that follow the performance of a broad array of funds and are reflected in the market value of each participant’s account. Distribution amounts will include investment returns (positive or negative).

If a non-employee director elects to defer all or a portion of the director’s annual equity award under this plan, as noted above, the portion of the award subject to the deferral election will be issued as restricted stock units instead of shares of restricted stock.

Legacy Qwest Deferred Compensation Plan – Closed to New Participants and Contributions – 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 shareholders “reinvested” in additional phantom units. Plan balances attributable to amounts deferred on or after January 1, 2005, by Qwest directors who joined our Board following the merger

 

                                                                 
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ITEM NO. 1 – ELECTION OF DIRECTORS

Director Compensation

 

were converted, based on the merger exchange ratio, to phantom units based on the value of one of our Common Shares. 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, 2019, Michael J. Roberts was the only remaining participant in this plan, with a balance of 7,521 phantom units with an aggregate value of approximately $99,353 as of such date.

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

Directors may use our aircraft in connection with company-related business. However, we generally do not permit our directors or their family members to use our aircraft for personal trips (except when such use can be accommodated at no incremental cost to us or on terms generally available to all of our employees in connection with a medical emergency).

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.

Other Governance Information

For information on our stock ownership guidelines for our outside directors and executive officers, see “Stock Ownership—Stock Ownership Guidelines.”

For information on our hedging policies, see “Compensation Discussion and Analysis—Our Governance of Executive Compensation—Anti-Hedging and Anti-Pledging Policies.”

 

                                                                 
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ITEM NO. 2 – RATIFICATION OF KPMG AS OUR 2020 INDEPENDENT AUDITOR

 

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THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL

 

The Audit Committee of the Board has appointed KPMG LLP as our independent auditor for the fiscal year ending December 31, 2020, 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. In determining whether to reappoint KPMG as our independent auditor, the Audit Committee considered a number of factors, including, among others, the firm’s qualifications, industry expertise, prior performance, control procedures, proposed staffing and the reasonableness of its fees on an absolute basis and as compared with fees paid by comparable companies.

If the shareholders fail to vote on an advisory basis in favor of the appointment, the Audit Committee will reconsider whether to retain KPMG, and may appoint that firm or another without resubmitting 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 the audit of the 2019 financial statements, we entered into an engagement letter with KPMG 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, none of which are intended to restrict the remedies that our shareholders might independently pursue against KPMG.

The following table lists the aggregate fees and costs billed to us by KPMG and its affiliates for the 2018 and 2019 services identified below:

 

     Amount Billed  
      2018      2019  

Audit Fees(1)

   $ 16,014,014      $ 17,639,702  

Audit-Related Fees(2)

     106,528        153,203  

Tax Fees(3)

     1,318,798        119,098  

Other

     —        —  

Total Fees

   $ 17,439,340      $ 17,912,003  

 

(1)

Includes the cost of services rendered in connection with (i) 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) reviewing our registration statements and issuing related comfort letters, (vi) statutory audits for certain of our foreign subsidiaries, and (vii) consultations regarding accounting standards. In addition, the amount listed for 2018 includes a final billing of $785,000 that was received after we finalized our 2019 proxy statement and consequently was not reflected in the auditor fee table included in our 2019 proxy statement.

 

(2)

Includes the cost of preparing agreed upon procedures reports and providing general accounting consulting services.

 

(3)

Includes costs associated with general tax planning, consultation and compliance (which were approximately $1,300,000 in 2018 and approximately $100,000 in 2019).

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

 

                                                                 
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ITEM NO. 2 – RATIFICATION OF KPMG AS OUR 2020 INDEPENDENT AUDITOR

 

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 if the total anticipated cost of all projects pre-approved by him during any fiscal quarter does not exceed $250,000. 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 permit us to waive these pre-approval requirements in certain limited circumstances, the Audit Committee did not use these waiver provisions in either 2018 or 2019.

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 2020 will require the affirmative vote of a majority of the votes cast on the proposal at the meeting.

 

                                                                 
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AUDIT COMMITTEE REPORT

Our Audit Committee has oversight authority over CenturyLink’s financial reporting function, including our internal controls over financial reporting (“ICFR”) and our external independent audit process. In carrying out its oversight responsibilities, the Audit Committee:

 

   

Monitors management’s responsibility for fairly presenting our financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) by maintaining accurate and reliable financial information through our ICFR processes.

 

   

Appoints our independent auditor.

 

   

Regularly communicates with our independent auditor regarding the scope and status of its annual audit of our consolidated financial statements, including our ICFR.

As part of the Committee’s oversight of the Company’s financial statements, the Committee reviews and discusses with management, the internal audit team and the Company’s independent auditor, management’s key initiatives and programs aimed at maintaining and improving ICFR, the effectiveness of the Company’s internal and disclosure control structure, and the scope and adequacy of the Company’s internal auditing program.

The Committee met nine times in 2019 and included, whenever appropriate, executive sessions in which the Committee met separately with KPMG, our independent auditor, as well as representatives of our internal audit group and management. During 2019, the Committee discussed with KPMG: (i) those matters required to be discussed by the applicable requirements of the SEC and the Public Company Accounting Oversight Board (“PCAOB”), including the quality of the Company’s accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements; (ii) the written disclosures required by PCAOB regarding the independent auditor’s communications with audit committees concerning independence; (iii) KPMG’s independence, and considered the effects that the provision of non-audit services may have on KPMG’s independence; and (iv) various other matters pertaining to the audit and other matters handled by KPMG.

Among other matters, over the course of the past year, the Committee also:

 

   

emphasized the continued importance of an environment supporting the integrity of the financial reporting process;

 

   

reviewed the scope of and overall plans for the annual audit and the internal audit program, including a review of critical accounting policies, critical accounting estimates, and significant unusual transactions;

 

   

reviewed a report by the independent auditor describing the independent auditor’s internal quality control procedures;

 

   

reviewed the performance of the lead engagement partner of our independent auditor;

 

   

reviewed and discussed each quarterly and annual earnings press release before issuance, including reviewing the Company’s issuance of guidance and use of non-GAAP financial information;

 

   

received quarterly reports from the director of internal audit, including the Company’s work regarding ICFR, and met with other members of the internal audit staff;

 

   

monitored the Company’s remediation of the two material weaknesses reported in our Annual report on Form 10-K for the year ended December 31, 2018;

 

   

received reports on the Company’s testing of Goodwill Impairment and the recording of an impairment in the first quarter 2019;

 

                                                                 
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AUDIT COMMITTEE REPORT

 

   

received periodic reports pursuant to our policy for the submission of confidential communications from employees and others about accounting, internal controls and auditing matters, and conducted certain follow-up inquiries as necessary;

 

   

amended our disclosure controls and procedures in connection with assessing their effectiveness;

 

   

received and evaluated a report concerning the Company’s major financial risks along with the Company’s mitigating actions;

 

   

oversaw the implementation of new accounting standards, including receiving quarterly updates on the Company’s implementation of the new lease accounting standard and the appropriate related internal controls;

 

   

received detailed analyses on the Company’s accounting for income taxes and the Company’s accounting for pension assets and liabilities;

 

   

discussed our 2019 Critical Accounting Matters with KPMG, including the work performed;

 

   

met quarterly in separate executive sessions, including private sessions with the Company’s independent auditors, internal auditors and top executives;

 

   

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

 

   

coordinated with other committees of the Board to oversee the Company’s risk management function, especially with respect to matters that could impact the Company’s financial results or financial position; and

 

   

participated in the process of hiring the Company’s new head of internal audit.

Taking all of these reviews and discussions into account and subject to the limitations on the role and responsibilities of the Committee referred to in its charter, the undersigned Committee members recommended that the Board include the Company’s audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2019.

In addition to the Company’s corporate compliance program and integrity line, the Audit Committee has established procedures for the receipt and evaluation, on a confidential basis, of any complaints or concerns regarding our accounting, auditing, financial reporting or related matters. To report such matters, please send written correspondence to Audit Committee Chair, c/o Post Office Box 4364, Monroe, Louisiana 71211.

Submitted by the Audit Committee of the Board of Directors.

W. Bruce Hanks (Chair)

Martha H. Bejar

Peter C. Brown

Kevin P. Chilton

T. Michael Glenn

 

                                                                 
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ITEM NO. 3 – APPROVAL OF AN AMENDMENT TO OUR 2018 EQUITY INCENTIVE COMPENSATION PLAN

Our growth depends upon the efforts of our officers, directors, employees, consultants, and advisors, and we believe that our current equity compensation plan, the CenturyLink 2018 Equity Incentive Plan (the “2018 Plan”), provides an effective means of attracting, retaining, and motivating qualified key personnel while encouraging long-term focus on maximizing shareholder value.

A maximum of 34,600,000 Common Shares were initially reserved for issuance under the 2018 Plan as approved by our shareholders at our 2018 annual meeting. As noted in the chart on page 39, we had 5,250,061 Common Shares available for grant under the 2018 Plan as of March 9, 2020, which we do not believe will be sufficient for future grants.

Therefore, we are proposing an amendment to increase the maximum number of Common Shares reserved for issuance under the 2018 Plan to 75,600,000, which reflects an increase of 41,000,000 Common Shares (the “Share Increase Amendment” and the 2018 Plan, after giving effect to the Share Increase Amendment, the “Amended Plan”).

We have carefully reviewed the provisions of the 2018 Plan in its entirety, and we feel that the plan still reflects good equity compensation practices and is in line with shareholder interests. We are not proposing any other changes to the terms of the 2018 Plan. The Share Increase Amendment is the only difference between the 2018 Plan and the Amended Plan.

Our Board, on the recommendation of its Human Resources and Compensation Committee, has unanimously approved the Share Increase Amendment, subject to approval by our shareholders at the meeting.

The principal features of the Amended Plan are summarized below. However, this summary is qualified in its entirety by reference to the full text of the Amended Plan, as attached to this proxy statement as Appendix C. Because this is a summary, it may not contain all the information that you may consider to be important. Therefore, we recommend that you read Appendix C carefully before you decide how to vote on this proposal.

Purpose of the Proposal

We believe that providing officers, directors, employees, consultants and advisors with a proprietary interest in the growth and performance of our Company is crucial to stimulating individual performance while at the same time enhancing shareholder value. While we believe that employee equity ownership is a significant contributing factor in achieving strong corporate performance, we recognize that increasing the number of available shares under incentive plans may potentially dilute the equity ownership of our current shareholders. However, given the few number of Common Shares remaining available for issuance under the 2018 Plan as noted above, we believe that adoption of the Share Increase Amendment is integral to our continued ability to attract, retain, and motivate key stakeholders in a manner aligned with the interests of our shareholders.

If shareholders do not approve the Share Increase Amendment at the annual meeting, we will continue to use our 2018 Plan but, given the limited number of Common Shares remaining available for issuance, we may be required to re-evaluate our compensation structure to ensure that it remains competitive. Specifically, if the Share Increase Amendment is not approved, the Company may be required to increase the cash-based component of employee compensation, which could reduce the alignment of employee and shareholder interests.

 

                                                                 
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ITEM NO. 3 – APPROVAL OF AN AMENDMENT TO OUR 2018 EQUITY  INCENTIVE COMPENSATION PLAN

Summary of the Amended Plan

 

Summary of the Amended Plan

Administration of the Amended Plan. The Human Resources and Compensation Committee (or a subcommittee of this committee; in either case, the “Committee”) will generally administer the Amended Plan and has the authority to make awards under the Amended Plan, including setting the terms of the awards. The Committee also generally has the authority to interpret the Plan, to establish any rules or regulations relating to the Amended Plan, and to make any other determination that it believes necessary or advisable for proper administration of the Amended Plan. Subject to the limitations specified in the Amended Plan, the Committee may delegate its authority to our Chief Executive Officer or his designee with respect to grants to employees or consultants who are not subject to Section 16 of the Exchange Act.

Eligibility. Key employees, officers, and directors of CenturyLink and our consultants or advisors are eligible to receive awards (“Incentives”) under the Amended Plan. Based on current estimates, we anticipate that approximately 1,875 officers and 10 non-employee directors would be eligible to receive Incentives under the Amended Plan. Incentives may be granted in any one or a combination of the following forms: incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), non-qualified stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), and other stock-based awards (“Other Stock-Based Awards”). Each of these types of Incentives is discussed in more detail in “Types of Incentives” below.

Shares Issuable under the Amended Plan. A total of 75,600,000 of our Common Shares are authorized for issuance under the Amended Plan (giving effect to the Share Increase Amendment). This figure represents approximately 7% of the outstanding Common Shares as of our record date of March 26, 2020. The closing price of a Common Share on the record date, as quoted on the NYSE, was $9.29.

Limitations on Shares Issuable under the Amended Plan. Under the Amended Plan, incentives relating to no more than 1,500,000 Common Shares may be granted to a single participant in any fiscal year. A maximum of 34,600,000 Common Shares may be issued upon exercise of options intended to qualify as incentive stock options under the Code. The maximum value of Incentives that may be granted under the Amended Plan to each non-employee director of CenturyLink during a single calendar year is $500,000.

Share Counting. For purposes of determining the maximum number of Common Shares available for delivery under the Amended Plan, shares that are not delivered because an Incentive is forfeited, canceled, or expired will return to the Amended Plan and be available for reissuance. However, Common Shares subject to an Incentive will not be recycled if (a) they are tendered in payment of exercise or base price of a stock option or stock-settled SAR; (b) they were covered by, but not issued upon settlement of, stock-settled SARs; or (c) they were delivered or withheld by the Company to satisfy any tax withholding obligation related to stock options or stock-settled SARs. If an Incentive, by its terms, may only be settled in cash, it will not impact the number of Common Shares available for issuance under the Amended Plan.

Adjustments to Shares Issuable under the Amended Plan. Proportionate adjustments will be made to all of the share limitations provided in the Amended Plan, including shares subject to outstanding Incentives, in the event of any recapitalization, reclassification, stock dividend, stock split, combination of shares, or other comparable change in our Common Shares, and the terms of any Incentive will be adjusted to the extent appropriate to provide participants with the same relative rights before and after the occurrence of any such event.

Minimum Vesting Periods. Except for any Incentives that are issued in payment of cash amounts earned under our short-term incentive program, all Incentives must be granted with a minimum vesting period of at least one year without providing for incremental vesting during that first year.

Dividends and Dividend Equivalents. The Amended Plan provides that the Committee may grant dividends or dividend equivalent rights on certain types of awards (restricted stock, RSUs, and Other Stock-Based Awards). If the Committee elects to grant such rights, any such rights must vest and pay out or be forfeited in tandem with underlying Incentives rather than during the vesting period.

 

                                                                 
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ITEM NO. 3 – APPROVAL OF AN AMENDMENT TO OUR 2018 EQUITY INCENTIVE  COMPENSATION PLAN

Summary of the Amended Plan

 

Amendments to the Amended Plan. Our Board may amend or discontinue the Amended Plan at any time. However, our shareholders must approve any amendment to the Amended Plan that would:

 

   

materially increase the number of Common Shares that may be issued through the Amended Plan;

 

   

materially increase the benefits accruing to participants;

 

   

materially expand the classes of persons eligible to participate;

 

   

expand the types of awards available for grant;

 

   

materially extend the term of the Amended Plan;

 

   

materially reduce the price at which Common Shares may be offered through the Amended Plan; or

 

   

permit the repricing of an option or stock appreciation right.

Duration of the Amended Plan. No Incentives may be granted under the Amended Plan after May 23, 2028 (the tenth anniversary of the date on which the 2018 Plan was initially approved by our shareholders).

Types of Incentives. Each type of Incentive that may be granted under the Amended Plan is described below.

Stock Options. A stock option is a right to purchase Common Shares from CenturyLink. The Committee will determine the number and exercise price of the options, and the time or times that the options become exercisable, provided that the option exercise price may not be less than the fair market value of a Common Share on the date of grant, except for an option granted in substitution of an outstanding award in an acquisition. The term of an option will also be determined by the Committee, but may not exceed ten years. The Committee may accelerate the exercisability of any stock option at any time. As noted above, the Committee may not, without the prior approval of our shareholders, decrease the exercise price for any outstanding option after the date of grant. In addition, an outstanding option may not, as of any date that the option has a per share exercise price that is greater than the then-current fair market value of a Common Share, be surrendered to us as consideration for the grant of a new option with a lower exercise price, another Incentive, a cash payment, or Common Shares, unless approved by our shareholders. Incentive stock options will be subject to certain additional requirements necessary in order to qualify as incentive stock options under Section 422 of the Code.

The option exercise price may be paid:

 

   

in cash or by check;

 

   

in Common Shares;

 

   

through a “cashless” exercise arrangement with a broker approved by CenturyLink;

 

   

through a net exercise procedure if approved by the Committee; or

 

   

in any other manner authorized by the Committee.

Stock Appreciation Rights. A stock appreciation right, or SAR, is a right to receive, without payment to CenturyLink, a number of Common Shares determined by dividing the product of the number of shares as to which the stock appreciation right is exercised and the amount of the appreciation in each share by the fair market value of a share on the date of exercise of the right. The Committee will determine the base price used to measure share appreciation (which may not be less than the fair market value of a Common Share on the date of grant), whether the right may be paid in cash, and the number and term of stock appreciation rights, provided that the term of a SAR may not exceed ten years. The Committee may accelerate the exercisability of any SAR at any time. The Amended Plan restricts decreases in the base price and certain exchanges of SARs on terms similar to the restrictions described above for options.

Restricted Stock. The Committee may grant Common Shares subject to restrictions on sale, pledge, or other transfer by the recipient for a certain restricted period. All shares of restricted stock will be subject to such restrictions as the Committee may provide in an agreement with the participant, including provisions that may

 

                                                                 
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ITEM NO. 3 – APPROVAL OF AN AMENDMENT TO OUR 2018 EQUITY  INCENTIVE COMPENSATION PLAN

Summary of the Amended Plan

 

obligate the participant to forfeit the shares to us in the event of termination of employment or if specified performance goals or targets are not met. Subject to restrictions provided in the participant’s incentive agreement and the Amended Plan, a participant receiving restricted stock shall have all of the rights of a shareholder as to such shares, including the right to receive dividends although, as noted above, any such dividends would not be paid currently but would vest or be forfeited in tandem with the related shares of restricted stock.

Restricted Stock Units. A restricted stock unit, or RSU, represents the right to receive from CenturyLink one Common Share on a specific future vesting or payment date. All RSUs will be subject to such restrictions as the Committee may provide in an agreement with the participant, including provisions that may obligate the participant to forfeit the RSUs in the event of termination of employment or if specified performance goals or targets are not met. Subject to the restrictions provided in the incentive agreement and the Amended Plan, a participant receiving RSUs has no rights of a shareholder until Common Shares are issued to him or her. RSUs may be granted with dividend equivalent rights. Any such dividend equivalent rights would not be paid currently but would vest or be forfeited in tandem with the related RSUs.

Other Stock-Based Awards. The Amended Plan also permits the Committee to grant to participants awards of Common Shares and other awards that are denominated in, payable in, valued in whole or in part by reference to, or are otherwise based on the value of, or the appreciation in value of, Common Shares (other stock-based awards). The Committee has discretion to determine the times at which such awards are to be made, the size of such awards, the form of payment, and all other conditions of such awards, including any restrictions, deferral periods, or performance requirements.

Termination of Employment. In the event that a participant ceases to be an employee of CenturyLink or its subsidiaries or to provide services to us for any reason, including death, disability, early retirement, or normal retirement, any Incentives may be exercised, shall vest, or shall expire at such times as provided in the applicable incentive agreement or as may be otherwise determined by the Committee.

Change in Control. Upon a change in control of CenturyLink, as defined in the Incentive Plan or the applicable incentive agreement, the vesting of time-based Incentives will only occur if the participant has a contemporaneous or subsequent termination of employment. In addition, the payout of any performance-based Incentives upon a change of control may not exceed the greater of a pro-rata payout based on target performance or payout of the Incentive based on actual performance. However, within certain time periods and under certain conditions, the Committee may:

 

   

require that all outstanding Incentives be exercised by a certain date;

 

   

require the surrender to CenturyLink of some or all outstanding Incentives in exchange for a stock or cash payment for each Incentive equal in value to the per share change of control value, calculated as described in the Amended Plan, over the exercise or base price;

 

   

make any equitable adjustment to outstanding Incentives as the Committee deems necessary to reflect our corporate changes; or

 

   

provide that an Incentive shall become an Incentive relating to the number and class of shares of stock or other securities or property (including cash) to which the participant would have been entitled in connection with the change of control transaction if the participant had been a shareholder.

Transferability of Incentives. No Incentives granted under the Amended Plan may be transferred, pledged, assigned, or otherwise encumbered by a participant except: (a) by will; (b) by the laws of descent and distribution; (c) if permitted by the Committee and so provided in the applicable incentive agreement, pursuant to a domestic relations order, as defined in the Code; or (d) as to options only, if permitted by the Committee and so provided in the applicable incentive agreement, to immediate family members or to a partnership, limited liability company or trust for which the sole owners, members or beneficiaries are the participant or immediate family members.

Tax Withholding. We may withhold from any payments or share issuances under the Amended Plan, or collect as a condition of payment, any taxes required by law to be withheld. The participant may, but is not required to,

 

                                                                 
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ITEM NO. 3 – APPROVAL OF AN AMENDMENT TO OUR 2018 EQUITY INCENTIVE  COMPENSATION PLAN

Summary of the Amended Plan

 

satisfy his or her withholding tax obligation by electing to deliver currently-owned Common Shares, or to have us withhold shares from the shares the participant would otherwise receive, in either case having a value equal to the maximum amount required to be withheld. This election must be made prior to the date on which the amount of tax to be withheld is determined. The Committee has the right to disapprove of any such election, except for participants who are subject to Section 16 of the Exchange Act.

Purchase of Incentives. The Committee may approve the repurchase by CenturyLink of an unexercised or unvested Incentive from the holder by mutual agreement, so long as the repurchase would not constitute the repricing of an option or SAR.

Federal Income Tax Consequences

The federal income tax consequences related to the issuance of the different types of Incentives that may be awarded under the Amended Plan are summarized below. Participants who are granted Incentives under Amended Plan should consult their own tax advisors to determine the tax consequences based on their particular circumstances.

Stock Options. A participant who is granted a stock option normally will not realize any income, nor will we normally receive any deduction for federal income tax purposes, in the year the option is granted.

When a non-qualified stock option granted under the Amended Plan is exercised, the participant will realize ordinary income measured by the difference between the aggregate purchase price of the shares acquired and the aggregate fair market value of the shares acquired on the exercise date and, subject to the limitations of Section 162(m) (as described below), we will be entitled to a deduction in the year the option is exercised equal to the amount the participant is required to treat as ordinary income.

Incentive stock options may only be granted to employees. An employee generally will not recognize any income upon the exercise of any incentive stock option, but the excess of the fair market value of the shares at the time of exercise over the option price will be an item of tax preference, which may, depending on particular factors relating to the employee, subject the employee to the alternative minimum tax imposed by Section 55 of the Code. The alternative minimum tax is imposed in addition to the federal individual income tax, and it is intended to ensure that individual taxpayers do not completely avoid federal income tax by using preference items. An employee will recognize capital gain or loss in the amount of the difference between the exercise price and the sale price on the sale or exchange of shares acquired pursuant to the exercise of an incentive stock option, provided the employee does not dispose of such shares within two years from the date of grant and one year from the date of exercise of the incentive stock option (the holding periods). An employee disposing of such shares before the expiration of the holding periods will recognize ordinary income generally equal to the difference between the option price and the fair market value of the shares on the date of exercise. The remaining gain, if any, will be capital gain. We will not be entitled to a federal income tax deduction in connection with the exercise of an incentive stock option, except where the employee disposes of the shares received upon exercise before the expiration of the holding periods.

If the exercise price of a non-qualified option is paid by the surrender of previously-owned shares, the basis and the holding period of the previously-owned shares carry over to the same number of shares received in exchange for the previously-owned shares. The compensation income recognized on exercise of these options is added to the basis of the shares received. If the exercised option is an incentive stock option and the shares surrendered were acquired through the exercise of an incentive stock option and have not been held for the holding periods, the optionee will recognize income on such exchange, and the basis of the shares received will be equal to the fair market value of the shares surrendered. If the applicable holding period has been met on the date of exercise, there will be no income recognition and the basis and the holding period of the previously owned shares will carry over to the same number of shares received in exchange, and the remaining shares will begin a new holding period and have a zero basis.

Stock Appreciation Rights. Generally, a participant who is granted a stock appreciation right under the Amended Plan will not recognize any taxable income at the time of the grant. The participant will recognize ordinary income upon exercise equal to the amount of cash or the fair market value of the shares received on the day they are received.

 

                                                                 
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ITEM NO. 3 – APPROVAL OF AN AMENDMENT TO OUR 2018 EQUITY  INCENTIVE COMPENSATION PLAN

Federal Income Tax Consequences

 

In general, there are no federal income tax deductions allowed to CenturyLink upon the grant of stock appreciation rights. Upon the exercise of the stock appreciation right, however, we will be entitled to a deduction equal to the amount of ordinary income that the participant is required to recognize as a result of the exercise, provided that the deduction is not otherwise disallowed under Section 162(m).

Restricted Stock. Unless the participant makes an election to accelerate recognition of the income to the date of grant under Section 83(b) of the Code (as described below), the participant will not recognize income, and we will not be allowed a tax deduction, at the time the restricted stock award is granted. When the restrictions lapse, the participant will recognize ordinary income equal to the fair market value of the shares as of that date, and we will be allowed a corresponding federal income tax deduction at that time, subject to any applicable limitations under Section 162(m). If the participant files an election under Section 83(b) of the Code within 30 days of the date of grant of restricted stock, the participant will recognize ordinary income as of the date of the grant equal to the fair market value of the shares as of that date, and we will be allowed a corresponding federal income tax deduction at that time, subject to any applicable limitations under Section 162(m). Any future appreciation in the shares will be taxable to the participant at capital gains rates. If the shares are later forfeited, however, the participant will not be able to recover the tax previously paid pursuant to a Section 83(b) election.

Restricted Stock Units. A participant will not be deemed to have received taxable income upon the grant of restricted stock units. The participant will be deemed to have received taxable ordinary income at such time as shares are distributed with respect to the restricted stock units in an amount equal to the fair market value of the shares distributed to the participant. Upon the distribution of shares to a participant with respect to restricted stock units, we will ordinarily be entitled to a deduction for federal income tax purposes in an amount equal to the taxable ordinary income of the participant, subject to any applicable limitations under Section 162(m). The basis of the shares received will equal the amount of taxable ordinary income recognized by the participant upon receipt of such shares.

Other Stock-Based Awards. Generally, a participant who is granted an Other Stock-Based Award under the Amended Plan will recognize ordinary income at the time the cash or Common Shares associated with the award are received. If shares are received, the ordinary income will be equal to the excess of the fair market value of the shares received over any amount paid by the participant in exchange for the shares.

In the year that the participant recognizes ordinary taxable income in respect of such Incentive, we will be entitled to a deduction for federal income tax purposes equal to the amount of ordinary income that the participant is required to recognize, provided that the deduction is not otherwise disallowed under Section 162(m).

Section 162(m). Section 162(m) of the Code limits the amount of compensation paid to certain covered employees that we may deduct for federal income tax purposes to $1 million per employee per year. Under Section 162(m), “covered employees” consist of any individual who served as our CEO or CFO at any time during the taxable year plus the three other most highly-compensated officers (other than the CEO and CFO) for the taxable year. Once an individual becomes a covered employee for any taxable year beginning after December 31, 2016, that individual will remain a covered employee for all future years, including after termination of employment or even death. As a result, compensation payable to a covered employee under the Amended Plan that might otherwise be deductible may not be deductible if all compensation paid to the employee for the taxable year exceeds $1 million.

Section 409A of the Code. If any Incentive constitutes non-qualified deferred compensation under Section 409A, it will be necessary that the Incentive be structured to comply with Section 409A to avoid the imposition of additional tax, penalties, and interest on the participant.

Tax Consequences of a Change of Control. If, upon a change of control of CenturyLink, the exercisability, vesting, or payout of an Incentive is accelerated, any excess on the date of the change of control of the fair market value of the shares or cash issued under accelerated Incentives over the purchase price of such shares, if any, may be characterized as “parachute payments” (within the meaning of Section 280G of the Code) if the sum of such amounts and any other such contingent payments received by the employee exceeds an amount

 

                                                                 
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ITEM NO. 3 – APPROVAL OF AN AMENDMENT TO OUR 2018 EQUITY INCENTIVE  COMPENSATION PLAN

Federal Income Tax Consequences

 

equal to three times the “base amount” for such employee. The base amount generally is the average of the annual compensation of the employee for the five years preceding such change in ownership or control. An “excess parachute payment,” with respect to any employee, is the excess of the parachute payments to such person, in the aggregate, over and above such person’s base amount. If the amounts received by an employee upon a change of control are characterized as parachute payments, the employee will be subject to a 20% excise tax on the excess parachute payment and we will be denied any deduction with respect to such excess parachute payment.

The foregoing discussion summarizes the federal income tax consequences of Incentives that may be granted under the Amended Plan based on current provisions of the Code, which are subject to change. This summary does not cover any foreign, state, or local tax consequences.

Vote Required

Approval of the Amended Plan requires the affirmative vote of the holders of a majority of the votes cast on the proposal at the meeting.

 

LOGO       

 

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR

THIS PROPOSAL

 

Equity Compensation Plan Information

The following tables provide information as of December 31, 2019, and March 9, 2020, about our equity compensation plans under which Common Shares are authorized for issuance.

A. As of December 31, 2019

 

Plan Category

   Number of
securities to be
issued upon
exercise of
outstanding
options and rights
(a)
(1)
   Weighted-average
exercise price of
outstanding
options and rights
(b)
(2)
  

Number of securities
remaining available for
future issuance under plans    
(excluding securities
reflected in column (a))

(c)

Equity Compensation Plans approved by shareholders

       8,821,040        $—            18,784,622

Equity Compensation Plans not approved by shareholders(3)

       3,424,930      $ 28.04        —        

Totals

       12,245,970 (4)       $ 28.04        18,784,622 (5) 

 

(1)

These amounts include restricted stock units, some of which represent the difference between the number of shares of restricted stock subject to market conditions granted at target and the maximum possible payout for these awards. Depending on performance, the actual share payout of these awards may range between 0-200% of target.

 

(2)

The amounts in column (a) include restricted stock units, which do not have an exercise price. Consequently, those awards were excluded from the calculation of this exercise price. The weighted-average remaining term of the option awards included in this column is 0.18 years.

 

(3)

These amounts represent Common Shares to be issued upon exercise or vesting of equity awards that were assumed in connection with certain acquisitions or issued under plans that were assumed in those acquisitions.

 

(4)

This figure consists of 469,042 options to purchase Common Shares and 11,776,928 Common Shares subject to restricted stock units (RSUs). In addition, as of December 31, 2019, we had 17,136,454 unvested shares of restricted stock outstanding (which, when combined with the Common Shares subject to RSUs in the prior sentence, yields a total of 29,382,424 full-value awards outstanding). These were the only types of equity awards outstanding as of December 31, 2019.

 

(5)

Represents the number of shares remaining available for issuance as new awards under our 2018 Plan as of December 31, 2019.

 

                                                                 
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ITEM NO. 3 – APPROVAL OF AN AMENDMENT TO OUR 2018 EQUITY  INCENTIVE COMPENSATION PLAN

Equity Compensation Plan Information

 

B. As of March 9, 2020

 

Plan Category

   Number of
securities to be
issued upon
exercise of
outstanding
options and rights
(a) (1)
   Weighted-average
exercise price of
outstanding
options and rights
(b) (2)
  

Number of securities
remaining available for
future issuance under plans    
(excluding securities
reflected in column (a))

(c)

Equity Compensation Plans approved by shareholders

       12,752,160        $—            5,250,061

Equity Compensation Plans not approved by shareholders(3)

       1,314,171      $ 38.15        —        

Totals

       14,066,331 (4)       $ 38.15        5,250,061 (5) 

 

(1)

These amounts include restricted stock units, some of which represent the difference between the number of shares of restricted stock subject to market conditions granted at target and the maximum possible payout for these awards. Depending on performance, the actual share payout of these awards may range between 0-200% of target.

 

(2)

The amounts in column (a) include restricted stock units, which do not have an exercise price. Consequently, those awards were excluded from the calculation of this exercise price. The weighted-average remaining term of the option awards included in this column is 0.59 years.

 

(3)

These amounts represent Common Shares to be issued upon exercise or vesting of equity awards that were assumed in connection with certain acquisitions or issued under plans that were assumed in those acquisitions.

 

(4)

This figure consists of 1,245 options to purchase Common Shares and 14,065,086 Common Shares subject to restricted stock units (RSUs). In addition, as of March 9, 2020, we had 19,820,297 unvested shares of restricted stock outstanding (which, when combined with the Common Shares subject to RSUs in the prior sentence, yields a total of 33,886,628 full-value awards outstanding). These were the only types of equity awards outstanding as of March 9, 2020.

 

(5)

Represents the number of shares remaining available for issuance as new awards under our 2018 Plan as of March 9, 2020.

 

                                                                 
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ITEM NO. 4 – ADVISORY VOTE ON EXECUTIVE COMPENSATION – “SAY-ON-PAY”

Each year, we provide our shareholders the opportunity to vote on a non-binding, advisory resolution to approve the compensation of our named executive officers as disclosed in our annual proxy statements pursuant to the rules of the SEC.

Under our executive compensation programs, our NEOs 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 Human Resources and Compensation Committee of our Board (the “Committee”) continually reviews our executive compensation programs to ensure they achieve the goals of aligning our compensation with both current market practices and your interests as shareholders.

As discussed in greater detail elsewhere in this proxy statement, the Committee spends considerable time and effort to ensure that not only do we have the right leadership in place, but also that our executive compensation programs continue to appropriately incentivize and reward each key member of the team in a manner that aligns with shareholder interests. During 2019, this included a significant emphasis on shareholder outreach, and taking action in response to the input we received from shareholders, including making changes to our 2020 compensation programs. For additional information on our executive compensation programs generally and our recent compensation actions specifically, 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 named executive officers, as described in this proxy statement, 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 element of compensation, but rather relates to the overall compensation of our named executive officers and our executive compensation policies and practices 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.

While this “say-on-pay” vote is advisory and will not be binding on our Company or the Board, it will provide valuable information for future use by our Committee regarding shareholder sentiment about our executive compensation. We understand that executive compensation is an important matter for our shareholders. Accordingly, 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–Shareholder Engagement.”

Approval of this proposal will require the affirmative vote of the holders of a majority of the votes cast on the proposal at the meeting.

 

LOGO       

 

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL

 

 

                                                                 
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LETTER FROM THE CHAIR OF OUR COMPENSATION COMMITTEE

Fellow shareholders,

2018 was a transformative year for CenturyLink as we completed the acquisition of Level 3, made significant leadership changes including our CEO and CFO roles and undertook ambitious plans for integration and synergy realization. It was not a year of “business as usual”, and our compensation practices varied from what our shareholders have come to expect of us. In particular, significant one-time awards were utilized to effect leadership changes and some plan features were altered, such as shifting from a three-year performance period to two years in our long-term incentive plan. While we never intended for these practices to be repeated in subsequent years, our shareholders sent us a strong message of disapproval in the form of a significant drop in shareholder support for our say-on-pay proposal. We have heard that message, engaged with our shareholders and benefited greatly from this engagement.

Our 2019 say-on-pay proposal received only 41% support from shareholders, well below previous years and also falling well short of our goals. The vote result was a clear indication that investors had reservations with how we paid our executive team in 2018. For the Board, the vote result was a clear call to action: the Committee committed to reviewing our executive compensation program from top to bottom, and making changes to improve the program.

Our review started with our shareholders. We embarked on an ambitious effort to meet directly with our shareholders to specifically seek feedback on executive compensation. We invited investors holding a total of more than half of our outstanding shares to meet with us; more than 47% of our shareholder base accepted our invitation. I participated in every one of these meetings, and our Board Chairman attended most of these meetings.

The feedback from our investors, among other factors, led us to make substantial changes to our executive compensation program. For instance, we immediately discontinued the use of one-time awards, deemphasized and differentiated the use of Adjusted EBITDA in our short- and long-term incentive plans, returned to a three-year performance period and added a relative TSR modifier for our long-term incentive plan.

The impact of many of these changes won’t be fully reflected in our compensation tables until the end of 2020. The 2019 compensation program was already in place prior to our 2019 say-on-pay vote and our subsequent shareholder engagement program. However, as you’ll see from the summary compensation table numbers, our CEO’s total pay fell by more than half from 2018. The majority of this reduction is due to elimination of one-time awards and the impact of timing of changes in position for our CEO.

I express my gratitude to our shareholders who took the time to provide thoughtful and insightful input. The Committee is dedicated to structuring an executive compensation program that motivates our management team to perform and create long-term value for our shareholders. We look forward to continuing our engagement with shareholders, and we invite your input on our compensation program and the changes that we have put in place for 2020.

Thank you for the privilege of serving you as a Director of CenturyLink.

LOGO

Laurie Siegel

Director and Chair, Human Resources and Compensation Committee

 

                                                                 
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COMPENSATION DISCUSSION AND ANALYSIS

This CD&A section is comprised of the following subsections:

 

I.

Executive Summary

II.

Shareholder Engagement and Responsiveness to Say-On-Pay Vote

III.

Our Compensation Philosophy, Objectives and Linkage to Corporate Strategy

IV.

Our 2019 Compensation Program and Components of Pay

V.

Our Executive Compensation Process

VI.

Our Use of “Benchmarking” Data

VII.

Our Governance of Executive Compensation

I. Executive Summary

Our Business

We are an international facilities-based communications company engaged primarily in providing a broad array of integrated services to our business and residential customers. We believe we are among the largest providers of communications services to domestic and global enterprise customers and the second largest enterprise wireline telecommunications company in the United States. We provide services in over 60 countries, with most of our revenue being derived in the United States.

We continue expanding the reach and capabilities of our network by investing at the edge of our world class fiber network consisting of approximately 450,000 route miles, connecting approximately 170,000 fiber-based on-net enterprise buildings, connecting to public and private data centers and subsea networks. We are also investing in new technologies, leveraging our extensive fiber network that provide customers with dynamic bandwidth and low-latency edge computing services to enable their digital transformation.

 

LOGO

Our Named Executive Officers

 

•  Jeffrey K. Storey

   Chief Executive Officer and President

•  Indraneel Dev

   Executive Vice President and Chief Financial Officer

•  Stacey W. Goff

   Executive Vice President, General Counsel and Secretary

•  Scott A. Trezise

   Executive Vice President, Human Resources

•  Shaun C. Andrews

   Executive Vice President and Chief Marketing Officer

For additional information on each, please see “Item No. 1—Election of Directors—Executive Officers Who Are Not Directors.”

 

                                                                 
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COMPENSATION DISCUSSION AND ANALYSIS

I. Executive Summary

 

Recent Business Developments

We completed our combination with Level 3 on November 1, 2017, which transformed our company into the second largest domestic wireline communications provider serving global enterprise customers. By the end of 2018, we had achieved $850 million of deal-related synergies ahead of our three-year target. Additionally, during 2019 we announced an incremental $800 million to $1 billion of annualized cost savings target over a three-year period.

During 2019, we met or exceeded all financial outlook measures we provided at the beginning of the year, including Adjusted EBITDA, Free Cash Flow, and Capital Expenditure objectives. Specifically, we:

 

   

Generated greater Enterprise and iGAM revenue in the second half 2019, compared to the first half 2019

 

   

Grew Adjusted EBITDA (excluding integration and transformation costs and special items) to $9.070 billion compared to $9.040 billion for full year 2018

 

   

Expanded Adjusted EBITDA (excluding integration and transformation costs and special items) margin to 40.5%, compared to 38.6% for full year 2018

 

   

Reduced Net Debt by approximately $2.0 billion in 2019, and reduced Net Debt to Adjusted EBITDA to 3.7 times in 4Q19 from 4.0 times in 4Q18, moving closer to our three-year objective of 2.75 to 3.25 times

 

   

Refinanced approximately $17.0 billion in long-term debt (pro forma for first quarter 2020 activity), significantly reducing our cost of capital, and resulting in more than $200 million in annualized interest expense savings

See Appendix A for a reconciliation of the non-GAAP metrics above to GAAP measures.

Say-on-Pay Vote Results, Shareholder Engagement, and Compensation Program Updates

As described in greater detail below, in response to only 41% of our shareholders supporting our 2019 say-on-pay proposal, our Board and its Human Resources and Compensation Committee (the “Committee”) spent considerable time and effort during 2019 conducting a robust shareholder engagement program and recalibrating our executive compensation programs to address the challenges and opportunities of the Company going forward. In that program, as discussed in greater detail in subsection II below, our Board and management solicited input from investors representing 53% of our outstanding shares, ultimately meeting with investors representing 47% of our outstanding shares.

As a result of that engagement process, the Committee has approved extensive changes to our 2020 incentive programs. To help you understand these changes, this Compensation Discussion and Analysis (the “CD&A”) addresses our executive compensation for 2019, which were made before our 2019 say-on-pay vote, as well as previewing program changes that have been implemented for 2020 in response to shareholder input.

During 2020, we have transitioned into the operational phase of our long-term strategy. Following discussions with our shareholders, an internal review process and consultation with the Committee’s independent compensation consultants, we have made significant changes to our 2020 incentive programs as follows:

 

   

We discontinued the use of one-time awards.

 

   

We confirmed our target pay relative to market pay.

 

   

In our short-term incentive (“STI”) plan:

 

  o

We deemphasized EBITDA;

 

  o

We added Revenue as a metric; and

 

  o

We added a cap on the individual performance adjustment.

 

                                                                 
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COMPENSATION DISCUSSION AND ANALYSIS

I. Executive Summary

 

   

In our long-term incentive (“LTI”) plan:

 

  o

We returned to a three-year performance period;

 

  o

We transitioned from a two-year Adjusted EBITDA Run Rate metric to a three-year cumulative Adjusted EBITDA target; and

 

  o

We added a relative total shareholder return (“TSR”) Modifier.

While we have made significant changes to our 2020 incentive plans following our shareholder outreach, our 2019 incentive plans remained unchanged from 2018 (other than the discontinuance of one-time awards). The 2019 compensation program was in place prior to the 2019 Annual Meeting, and the Committee did not have the benefit of the latest shareholder feedback before formulating the 2019 program.

Additional details of our 2019 compensation programs and 2020 program changes are described in the sections that follow.

2019 Performance Highlights

During 2019, we met and exceeded several financial and operational goals that the Committee had previously selected as short-term and equity compensation targets and made tough decisions that will create shareholder value, including the following:

 

   

Improved 2019 revenue performance:

 

  o

Met our objective to grow second half 2019 revenue compared to first half 2019 for two of our business segments, Enterprise and iGAM

 

  o

Maintained our focus on profitable growth

 

   

Grew Adjusted EBITDA and expanded Adjusted EBITDA margins

 

   

Invested in transformation initiatives, enabling us to:

 

  o

Enhance the customer experience

 

  o

Achieve $430 million in annualized run-rate cost savings as of the end of 2019, one year into the three-year program that we announced in early 2019

 

   

Executed on our capital allocation plan:

 

  o

Reduced debt outstanding by over $2 billion

 

  o

Refinanced over $17 billion in debt (pro forma for first quarter 2020 activity)

 

  o

Reduced net-cash interest expense

 

  o

Reduced our Net Debt to Adjusted EBITDA leverage ratio to 3.7x as of the end of 2019, from 4.0x as of the end of 2018

 

  o

Invested in our business, increasing capital expenditures by more than $450 million in 2019 compared to 2018

 

  o

Continued to return more than $1 billion in cash to shareholders via dividends

Pay for Performance Orientation

Our executive compensation programs continued to be heavily performance-based and emphasize variable “at risk” compensation. The majority of each named executive officer’s (“NEOs”) total target compensation is structured as a combination of short- and long-term performance-driven incentives (which, for our CEO, represented 90% of his total target compensation).

 

 

                                                                 
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COMPENSATION DISCUSSION AND ANALYSIS

I. Executive Summary

 

The following chart illustrates the approximate allocation of the total target compensation opportunity for our current CEO and named executive officers (shown as “CEO” and “2019 NEOs,” respectively, below) between elements that are fixed and variable or performance-based pay that is “at risk”:

 

LOGO

 

   

A fixed annual salary (“base”) represents 10% of our CEO’s total target compensation and 20% of our other NEOs’ average target total compensation.

 

   

Variable pay is comprised of a short-term incentive (“STI”) bonus, time-vested restricted stock awards (“TBRS”) and performance-based restricted stock (“PBRS”) awards, which represents 90% of our CEO’s total target compensation and 80% of our other current NEOs’ average target total compensation. This portion of pay is considered “at risk” since the receipt or value of the award is subject to the attainment of certain performance goals, vesting requirements, and overall stock performance.

2019 Compensation Highlights

Total CEO Pay, as reported in the Summary Compensation Table appearing below, was reduced by over 50%, from 2018 to 2019, by returning to traditional pay practices. As in prior years, the Committee set challenging performance targets under our incentive programs designed to ensure that payouts track corporate performance and, over the long term, shareholder value creation.

 

   

During 2019, we achieved 97% of target payout for our STI plan. Specifically, we:

 

  o

Substantially met our target for Adjusted EBITDA, comprising 65% of our STI plan, at a 98.6% attainment level;

 

  o

Met our target for Free Cash Flow, comprising 25% of our STI plan, at a 100.6% attainment level; and

 

  o

Partially met our Customer Experience goals, comprising 10% of our STI plan, resulting in our 80% attainment level.

 

   

PBRS awards accounted for 60% of the LTI awards originally granted to our senior officers in 2017 and 2018 which completed their respective performance periods on December 31, 2019.

 

   

For our 2017 annual grant of PBRS, approximately 84.6% of the target shares vested based upon our actual performance over the three-year performance period ending December 31, 2019 based on two equally weighted metrics:

 

  o

We achieved $57.9 billion of our $58.6 billion target for three-year cumulative Core Revenue, for a 83.4% payout and

 

  o

We achieved the 43rd percentile for three-year Relative TSR, for an 85.7% payout.

 

                                                                 
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COMPENSATION DISCUSSION AND ANALYSIS

I. Executive Summary

 

   

For our 2018 annual grant of PBRS, approximately 157.1% of the shares vested based upon our actual performance over the two-year performance period ending December 31, 2019, based on:

 

  o

Adjusted EBITDA Run Rate Growth of 7.6% compared to target of 6.8%, for a two-year Adjusted EBITDA Run Rate payout of 157.1%. Half of these shares remain subject to a continued service requirement and will vest on February 19, 2021.

II. Shareholder Engagement and Responsiveness to Say-On-Pay Vote

“Say-on-Pay” Outcome

 

   

In 2017, 2018 and 2019, our shareholders cast approximately 88%, 79% and 41%, respectively, of their votes, excluding abstentions, in favor of our “say-on-pay” proposal.

 

   

We took our unfavorable 2019 vote very seriously and conducted an enhanced shareholder engagement process, review and recalibration of our existing executive compensation programs during the remainder of 2019.

Enhanced Shareholder Engagement Program

 

   

In order for management and the Board to better understand and consider shareholders’ perspectives, we regularly communicate with our shareholders, including to solicit and discuss their views on governance, executive compensation and other matters. We believe our regular engagement has been productive and permits an open exchange of ideas and perspectives between us and our shareholders.

 

   

We are committed to providing our shareholders with an opportunity for open dialogue on compensation matters and other issues relevant to our business.

 

   

During 2019, the Chairman of our Board of Directors, the Chair of our Compensation Committee, and members of management instituted an expanded shareholder engagement process in two phases (prior to and after our 2019 say-on-pay vote), soliciting input from our top institutional investors representing 53% of outstanding shares, ultimately meeting with investors representing 47% of our outstanding shares.

 

   

The Board of Directors and the Compensation Committee value the opinions of our shareholders and when making compensation decisions for our executive officers we will continue to consider the voting outcome of future say-on-pay proposals and investor feedback received during our annual shareholder engagement program.

 

                                                                 
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COMPENSATION DISCUSSION AND ANALYSIS

II. Shareholder Engagement and Responsiveness to Say-On-Pay Vote

 

Shareholder Feedback and Our Responses

Our 2019 shareholder engagement meetings covered a wide range of important executive compensation, corporate governance, environmental and social stewardship, and public policy issues, and we shared the input we received with our full Board or its key committees. The chart below summarizes the executive compensation feedback from our shareholders and our response:

 

We Listened

  We Responded

Use of one-time awards

 

 

ü In 2019, there were no one-time awards for any of our executive officers.

 

Similar metrics used in STI and LTI plans

 

 

ü In 2020, we reduced and differentiated the emphasis of Adjusted EBITDA, which is a metric in both our STI and LTI plans, by:

 

(i) reducing the portion of our STI plan measured on Adjusted EBITDA (from 65% to 50%) and

 

(ii) differentiating the time horizon and target setting process for Adjusted EBITDA in our STI and LTI plans (our STI plan is based on one-year targets and our LTI plan is based on a three-year cumulative target, which in each case are based on our annual and long-range plans that are reviewed and approved by our Board of Directors)

 

ü We made further changes to our LTI plan to further differentiate the metrics used between our STI and LTI plans, as described further below:

 

ü We added a Relative TSR Modifier to our LTI plan

 

ü We added Revenue for 15% weighting to our STI plan

 

ü We added to our STI plan a 20% cap for individual performance adjustments for our NEOs (starting with our 2019 bonus payouts)

 

Shortened performance period under LTI plan

 

 

ü For 2020, we returned to our normal practice of 3-year cumulative performance periods for our 2020 Annual PBRS grant. This change also extends the vesting to 100% at the end of 3 years.

 

No relative metrics under LTI plan

 

 

ü In order to strengthen shareholder alignment and to further diversify the metrices used in our incentive plans, we added to our LTI plan a Relative TSR Modifier performance measure over three-years. The results of our 3-year TSR could result in a positive or negative adjustment (+/- 20%) to our 2020 annual performance-based restricted stock grant for senior officers. There will be no positive adjustment if CenturyLink’s TSR is negative over the 3-year period.

 

CEO Pay not aligned with company performance

 

 

ü For 2018, total CEO pay was impacted by one-time items and timing of transitional changes that added additional complexity to pay-for-performance analyses

 

ü Through our realizable pay analysis (see subsection III below), we will continue to provide additional disclosure that demonstrates how performance and “realized” and “realizable” pay are appropriately aligned with Company performance

 

ü We believe the 2020 STI and LTI plan changes described further above will continue to strengthen future pay for performance alignment and are consistent with our Company strategy of profitable growth

 

 

                                                                 
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COMPENSATION DISCUSSION AND ANALYSIS

II. Shareholder Engagement and Responsiveness to Say-On-Pay Vote

 

We believe the input we received from our shareholders has strengthened our compensation plans and look forward to continuing the dialogue with our shareholders regarding how best to align our executive compensation practices with shareholder interests.

III. Our Compensation Philosophy, Objectives and Linkage to Corporate Strategy

 

Our Compensation Philosophy

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

 

  provide an appropriate mix of fixed and variable compensation to attract, retain and motivate key executives,

 

  ensure that a majority of our executive compensation is performance-based to support creation of long-term shareholder value without encouraging excessive risk taking and to reward performance over multiple time horizons,

 

  generally target compensation at the 50th percentile of market levels, when targeted levels
   

of performance are achieved, for similarly-situated and comparably-skilled executives at a select group of peer companies approved by the Committee,

 

  recognize and reward outstanding contributions and results, both on an individual basis and a company or divisional basis, compared to peer compensation and performance benchmark levels,

 

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

 

  monitor share dilution.
 

 

Overview of Pay Elements and Link to Compensation Philosophy and Corporate Strategy

The Committee believes the following core elements and performance metrics of our compensation programs help us to realize our compensation philosophy and objectives and support our strategic and cultural priorities for 2019 as described below:

 

   

Characteristics, Compensation

Philosophy and Objectives

    Corporate Strategy
       

Base Salary 

   

Characteristics:

 

Annual fixed cash compensation

 

Compensation Philosophy & Objectives:

 

Provides a competitive and stable component of income to our executives

    Attract and retain key talent

 

                                                                 
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COMPENSATION DISCUSSION AND ANALYSIS

III. Our Compensation Philosophy, Objectives and Linkage to Corporate Strategy

 

   

Characteristics, Compensation

Philosophy and Objectives

    Corporate Strategy
       

Short-Term

Incentive

Bonus

     

Characteristics:

 

Annual variable cash compensation based on the achievement of annual performance measures

 

Compensation Philosophy and Objectives:

 

Provides competitive short-term incentive opportunities for our executives to earn annual cash bonuses 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

   

STI annual performance metrics were selected to align to our corporate strategy for profitable growth:

 

2019 STI Plan:

 

Adjusted EBITDA(1) (65% of STI plan)

- measures the operational performance and profitability of our businesses and commonly used with industry investors to evaluate our total enterprise value.

 

Free Cash Flow(2) (25% of STI plan)

- comprehensive measure of the company’s overall financing position

 

Customer Experience(3) (10% of STI plan)

- critical to maintain and grow our revenue base.

 

Individual Performance

- for each senior officer, the Committee has an opportunity to make a positive or negative adjustment based on “line of sight” to each senior officer’s performance regarding their specific areas of responsibility and individual objectives

 

- for our NEOs, the individual performance adjustment is capped at 20% positive adjustment from calculated STI payout

 

Preview of 2020 STI Plan:

 

Same metrics as our 2019 STI with reduced weighting for Adjusted EBITDA to 50% and added revenue as an additional metric.

 

Revenue (15% of STI plan)

- generation of revenue is critical to our goal of stabilizing, and ultimately increasing, our consolidated revenues with a view to attain strategic revenue growth sufficient to offset our continuing legacy revenue losses

       

Long-Term

Incentive

Awards

     

Characteristics:

 

Annual long-term variable equity awards that vest over three years from the date of grant with 60% based on the achievement measured against pre-established performance measures and 40% based on three years of service.

 

Compensation Philosophy and Objectives:

 

Fosters a culture of ownership, aligns the long-term interests of our executives with our shareholders and rewards or penalizes executives based on our performance of Adjusted EBITDA growth over two-year period and helps to retain executives through stock price growth and the creation of long-term value

   

Performance-Based Restricted Shares

(60% of LTI grant value)

 

2019 LTI Plan:

 

- Due to the complex and urgent nature of integration and transformation following the Level 3 combination, our 2019 LTI plan’s performance metric and period was:

 

- Adjusted EBITDA Run Rate target over a two-year period, which aligns to our corporate strategy for profitable growth (50% vests after the two-year period and remaining 50% vests after one additional year of service)

 

Preview of 2020 LTI Plan:

 

- For 2020, we have transitioned into the operation phase of our long-term strategy and we have returned to normal LTI practice and our 2020 LTI plan’s performance metrics and period are:

 

- Cumulative Adjusted EBITDA target to reward for achieving profitable growth over a three-year period; and

 

- Relative TSR Modifier to reward for achieving stock price growth relative to TSR peer group over a three-year period

 

Time-Vested Restricted Shares

(40% of LTI grant value)

 

2019 and 2020 LTI Plans:

 

- amount of time-vested restricted share compensation that is ultimately realized depends on how well we successfully execute our strategic plans and overall our stock performance

 

                                                                 
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COMPENSATION DISCUSSION AND ANALYSIS

III. Our Compensation Philosophy, Objectives and Linkage to Corporate Strategy

 

(1)

Adjusted EBITDA - measures the operational performance and profitability of our businesses, excluding certain non-operating and non-cash expenses, and cash availability prior to servicing debt and pension commitments, returning cash to shareholders, and capital investments to grow and maintain company assets

 

(2)

Free Cash Flow - measures cash flow available to debt and equity shareholders after the company has paid all operating costs including interest payments on debt and pension commitments, capital expenditures, and working capital; comprehensive measure of the company’s overall financing position taking into account expenses such as interest payments, tax payments, and capital expenses.

 

(3)

Customer Experience - measure includes operational goals and metrics that measure how well we are serving our customers as well as their perceptions of our service

Our Pay Program Evolution

Following our November 1, 2017, combination with Level 3, under Mr. Storey’s leadership and with the support of the Board, we defined a long-term strategy that includes a multi-year approach focusing on integration in 2018, transformation in 2019 and operation of the combined company in 2020.

Our Strategy, Objectives and 2019 Imperatives

 

LOGO

 

During the integration and transformation phases of our long-term strategy, in 2018 and 2019, our STI and LTI plans included the following performance metrics to support our strategic priorities and align the pay for our NEOs with performance as discussed below and further in this CD&A:

 

    STI Performance Metrics - Adjusted EBITDA, Free Cash Flow and Customer Experience

 

    LTI Performance Metric - two-year performance period measured on Adjusted EBITDA Run Rate

2020 Incentive Plan Enhancements. For 2020, we have transitioned into the operation phase of our long-term strategy. As discussed further in this

CD&A, following an internal review process, extensive discussions with our shareholders and consultation with our executive compensation consultants, we revised the design for our 2020 incentive programs to support our strategic priorities as described below:

 

    added Revenue as metric to our STI plan to encourage and reward top-line performance

 

    changed the metric and performance period for our LTI plan to three-year cumulative Adjusted EBITDA target

 

    added three-year Relative TSR Modifier, as a positive or negative adjustment +/- 20%, for our LTI plan.
 

 

                                                                 
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COMPENSATION DISCUSSION AND ANALYSIS

III. Our Compensation Philosophy, Objectives and Linkage to Corporate Strategy

 

Short-Term Incentive Plan

Strategy

   Integrate and
Transform
  Operate

Metrics

  

2018 & 2019

Weighting

 

2020

  Weighting  

Adjusted EBITDA

   65%   50%

Free Cash Flow

   25%   25%

Revenue

   —     15%

Customer Experience

   10%   10%

 

 

Long-Term Incentive Plan

Strategy

   Integrate and
Transform
  Operate

Metrics

  

2018 & 2019

Weighting

 

2020

  Weighting  

Adjusted EBITDA Run Rate (2 year)

   100%   —  

Cumulative Adjusted EBITDA (3 year)

   —     100%

Relative TSR Modifier (3 year)

   —     +/-20%

Pay Outcome Alignment with Performance

Over the last three- and five-years, our pay-for-performance alignment reflects actual performance against our STI and LTI targets, with realized (or realizable) equity compensation impacted by stock performance for the same periods. As summarized in the chart below, the average realizable pay, excluding one-time items, for our CEO (Mr. Post from 2015 to 2017 and Mr. Storey from 2018 to 2019) was 84.4% and 71.6% of target pay for last three- and five-years, respectively.

For 2015 to 2017, realized pay was significantly below target which reflects the below target STI and LTI plan performance and declining stock performance for those years. For further information on our incentive plan performance for these years, please see our 2016, 2017 and 2018 proxy statements.

Following our combination with Level 3, we have seen positive improvement in the execution against our STI and LTI targets. Specifically, during 2018 and we achieved strong financial performance, driving STI payout of 107.0% and the Adjusted EBITDA Run Rate payout of 157.1% for the two-year performance period that ended on December 31, 2019. Our overall stock performance has declined approximately 26% since our 2018 annual LTI award, which has offset the 157.1% PBRS payout, and in combination with STI performance, resulted in estimated realizable pay of 101.7% for 2018.

During 2019, we achieved solid financial performance by substantially meeting our STI targets, for a 97.0% payout. For purpose of realizable pay, we are assuming target level performance with respect to our Adjusted EBITDA Run Rate two-year performance period and actual stock performance through the first vesting date for estimated realizable pay of 93.0% for 2019.

Some of the changes to our STI and LTI plans outlined above were not implemented until late 2019 or early 2020 and we anticipate seeing pay-for-performance alignment to become increasingly clear in future years.

 

                                                                 
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COMPENSATION DISCUSSION AND ANALYSIS

III. Our Compensation Philosophy, Objectives and Linkage to Corporate Strategy

 

The chart below illustrates the realizable pay for our CEO, 90% of which was “at risk” variable compensation (STI, TBRS and PBRS), with each year’s realized and realizable pay illustrated in the table and chart below.

 

5 Year Realized and Realizable Pay

   
2015   2016   2017   2018   2019
   

STI – Payout 77.6%

  STI – Payout 80.2%   STI – Payout 73.0%   STI – Payout 107.0%   STI – Payout 97.0%
   

TBRS – Realized 62.1%

  TBRS – Realized 71.7%   TBRS – Realized 58.4%   TBRS – Realized 75.4%   TBRS – Realized 90.8%
   

PBRS – Realized 17.9%

 

•  3 Year Performance Period

 

•  Core Revenue – 76.2%

 

•  Relative TSR – 0%

 

PBRS – Realized 40.1%

 

•  3 Year Performance Period

 

•  Core Revenue – 82.4%

 

•  Relative TSR – 76.2%

 

PBRS – Realized 42.9%

 

•  3 Year Performance Period

 

•  Core Revenue – 83.4%

 

•  Relative TSR – 85.7%

 

PBRS – Realized 115.8% (half) and Realizable

 

•  2 Year Performance Period

 

•  Adjusted EBITDA Run Rate – 157.1%

 

PBRS – Realizable 90.8%

 

•  2 Year Performance Period

 

•  Adjusted EBITDA Run Rate - TBD (assume target for this purpose)

   
2015 Realized Pay(1) 49.2%   2016 Realized Pay(1) 62.2%   2017 Realized Pay(1) 58.4%   2018 Realizable Pay(2) 101.7%   2019 Realizable Pay(2) 93.0%

 

 

LOGO

 

(1)

Realized Pay - measures the actual pay realized, excluding one-time awards, for our former CEO Mr. Post, for a given year by adding together the (i) actual salary paid during the year, (ii) STI bonus that was ultimately paid during the year and (iii) the value of time- and performance-based LTI that vested.

 

(2)

Realizable Pay - measures the actual pay realized and realizable, excluding one-time awards, for Mr. Storey, for a given year by adding together the (i) actual salary paid during the year, (ii) STI bonus that was ultimately paid during the year, (iii) the value of time- and performance-based LTI that vested and (iv) the value of unvested time- and performance-based LTI, at “target” levels, based on stock price as of February 28, 2020.

IV. Our 2019 Compensation Program and Components of Pay

Summary of 2019 Compensation for our Named Executive Officers

Historically, we have had considerable success in attracting and retaining talent with fiscally prudent market-based pay packages. As our Company continues to evolve into a leading technology company, the pool of individuals we compete to hire continuously constricts, making recruitment more challenging. The individuals in that limited candidate pool, who have unique talents and expertise, are able to command much higher levels of compensation than what we have paid historically and now include candidates from software and other technology-focused companies.

The remaining sections outline why we believe the compensation packages awarded to our executives are in the best interests of our shareholders. For more information on how we determined specific pay levels in 2019, see further discussion under the heading “—Our Executive Compensation Process” and “—Use of ‘Benchmarking Data—Compensation Benchmarking” in Subsections V and VI below.

 

                                                                 
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COMPENSATION DISCUSSION AND ANALYSIS

IV. Our 2019 Compensation Program and Components of Pay

 

As of December 31, 2019, the total target compensation opportunities for our NEOs are shown in the table below.

 

Total Target Compensation(1)

Named Officer

   Salary      STI Target
Bonus
Percentage
  STI Target
Bonus
Opportunity
   Total
Target
Cash
   LTI
Target
(2)
   Total Target
Compensation

Jeffrey K. Storey

     $1,800,011      200%   $3,600,022    $5,400,034    $12,600,000    $18,000,034 (3)

Indraneel Dev

     $   650,000      120%   $   780,000    $1,430,000    $  2,700,000    $  4,130,000 (4)

Stacey W. Goff

     $   600,018      120%   $   720,021    $1,320,039    $  2,000,000    $  3,320,039 (5)

Scott A. Trezise

     $   500,011        90%   $   450,010    $   950,021    $     800,000    $  1,750,021 (4)

Shaun C. Andrews

     $   525,000      100%   $   525,000    $1,050,000    $  1,400,000    $  2,450,000 (5)

 

(1)

For more complete information presented in accordance with the SEC’s rules, see the Summary Compensation Table below.

 

(2)

The LTI target in this table represents the value of the target levels of equity awards to be granted as of December 31, 2019, which differ from amounts reported in the Summary Compensation Table, which are calculated in accordance with FASB ASC Topic 718. As described further below, two of our NEOs received changes to their LTI targets and grants in February 2020 may differ from amounts above.

 

(3)

The Total Target Compensation for Mr. Storey is between the 50th and 75th percentiles of our compensation benchmarking data.

 

(4)

The Total Target Compensation for Messrs. Dev and Trezise is between the 25th and 50th percentile of our compensation benchmarking data.

 

(5)

The Total Target Compensation for Messrs. Goff and Andrews is near the 50th percentile of our compensation benchmarking data.

Mr. Storey is an experienced executive in the telecommunications industry, as discussed in detail under “Election of Directors—Our Director Nominees” and his total target compensation is competitive compared to CEOs in our peer group. Mr. Dev was appointed as our CFO in November 2018 and his total target compensation between the 25th and 50th percentile of our compensation benchmarking data is commensurate with his experience compared to CFOs in our peer group. As discussed further below, the Committee reviewed the compensation benchmarking data for all executive officers in February 2020 and increased the base salary, STI target bonus, and the LTI target bonus for Mr. Dev after completing another year as our CFO. Following Mr. Dev’s pay increase in February 2020, the ratio of Mr. Storey’s total target compensation is approximately 3.2 times more than Mr. Dev’s total target compensation, which aligns with market benchmarks.

Salary

General. Early each year, the Committee takes a number of steps in connection with setting annual salaries, including reviewing compensation tally sheets and benchmarking data, reviewing each senior officer’s pay and performance relative to other senior officers, and considering when the officer last received a pay increase.

Annual Review Process (February 2019). During its annual review of executive compensation in February 2019, the Committee reviewed the compensation benchmarking data for each senior officer, comparing the officer’s pay to our peer group for the combined company. Following this review and discussion, the Committee increased Mr. Trezise’s annual salary to $500,011 and left unchanged the salary for our other NEOs.

Mid-Year Salary Adjustments. After its annual review process, one of our senior officers resigned, who previously lead our marketing function, and the Company consolidated our product management and marketing functions under Mr. Andrews. The Board appointed Mr. Andrews Chief Marketing Officer effective August 21, 2019. In conjunction with this appointment, his base salary was increased from $425,006 to $525,000.

Recent Actions (February 2020). In February 2020, the Committee reviewed the compensation benchmarking data for all executive officers and increased Mr. Dev’s annual salary to $750,000, in light of his position to market and performance as CFO, and left unchanged the salary for our other NEOs.

 

                                                                 
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COMPENSATION DISCUSSION AND ANALYSIS

IV. Our 2019 Compensation Program and Components of Pay

 

Short-Term Incentive Bonuses

General. With the assistance of its compensation consultant and management, the Committee approves STI bonus target percentages each year. Typically, in the first quarter of each year, with the assistance of management, the Committee evaluates our STI program and approves: (i) the performance objectives for prospective bonuses, (ii) the “threshold,” “target” and “maximum” performance levels, (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 bonus payments attributable to performance for the prior year.

STI Performance Objectives and Target Setting Process. Each year, over the course of several meetings, the Committee reviews the alignment of our STI performance objectives with our business goals and objectives for the current year.

STI Performance Objectives. In February 2019, the Committee approved the STI performance objectives for our 2019 STI program, comprised of the below-listed financial and operational metrics, to align with the corporate strategy.

 

 

Adjusted EBITDA. As used in our 2019 STI plan, adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) is a non-GAAP measure that excludes non-cash compensation and includes total STI bonus expense for eligible employees and approved payout level. Adjusted EBITDA is our largest financial performance objective, weighted at 65%, and, as noted further above, is critical to our 2019 corporate objective of focusing on our operations and profitable growth.

 

 

Free Cash Flow. Free Cash Flow, weighted at 25%, is a non-GAAP measure of net cash from operating activities less capital expenditures and before dividends. Free Cash Flow performance similarly aligns with our 2019 corporate objective of focusing on profitable growth.

 

 

Customer Experience. Improving our customer experience is critical to maintain and grow our revenue base. This performance measure, weighted at 10%, includes operational goals and metrics that measure how well we are serving our customers as well as their perceptions of our service. CenturyLink is committed to meeting the needs of all our customers, improving customer satisfaction and service scores, reducing customer inconveniences and decreasing repair times.

 

 

Individual Performance Objectives. The Committee evaluates the degree to which each senior officer achieves their individual performance objectives, comprised of certain specific objectives and benchmarks, as well as qualitative assessments of each officer’s performance during the year and reserves the right to increase or decrease the bonus payout level based on these assessments. In response to shareholder feedback, effective with our 2019 STI plan, the Committee has added a cap of 20% for positive adjustments to payout levels for our NEOs. Additional information about our views on discretionary adjustments is included below in this Subsection.

See the further discussion under the heading “—Overview of Pay Elements and Linkage to Compensation Philosophy and Objectives” in Subsection II above, “—2019 Performance Results and Calculation of Bonuses” below.

STI Target Setting Process. Similar to prior years, in 2019, the Company employed a rigorous process to establish its budget, which directly supported the Company’s strategic objectives and was the basis for developing the 2019 STI performance targets.

First, the annual budget was “built up” from business unit and department levels to create a consolidated corporate budget reviewed and approved by the Board and publicly-released financial guidance.

In February 2019, the Committee approved the previously-described STI performance objectives including threshold, target, and maximum performance levels derived from the Board-approved budget and external guidance. The Committee, in collaboration with our CEO, also approved the above-described guidelines designed to enable the Committee, in its discretion, to increase or decrease the bonus of each senior officer based on the officer’s individual performance during 2019. Based on shareholder feedback during our expanded 2019 shareholder engagement process, the Committee will implement a cap, of no more than 20%, to increase the bonus of our NEOs based on individual performance.

 

                                                                 
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COMPENSATION DISCUSSION AND ANALYSIS

IV. Our 2019 Compensation Program and Components of Pay

 

Upon completion of each fiscal year, our actual financial performance results may be adjusted up or down, as appropriate, 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 did not make any adjustments to our actual financial performance results for 2019.

2019 Performance Results and Calculation of Bonuses. During 2019, the Committee monitored interim performance through quarterly updates to assess projected bonus payout levels. In February 2020, the Committee reviewed internal audited results of the Company’s performance as compared to the financial performance targets established for 2019 and certified the achieved company performance composite score. As explained below, the Committee determined that the calculated company performance was 97% of the target bonus opportunity for our NEOs.

The table below illustrates the weighting of each performance objective, the target and achieved performance for 2019. For a more detailed description of our performance under each of the performance objectives, please see “—Calculation of Bonuses” under this section.

2019 STI Plan and Performance Results

 

Financial Performance Objectives (90% Weighting)

     Weighted Score Achieved 89%(1)  

Financial Targets ($ in Millions)

   Threshold           Target      Maximum      Weighting     Achieved(1)  

Adjusted EBITDA

   $8,800             $9,100        $9,600        65%       $9,070     

Performance Payout %

   50%             100%        200%          98.6%     

Free Cash Flow

   $2,608             $3,260        $3,912        25%       $3,276     

Performance Payout %

   50%             100%        150%          100.6%     

Customer Experience Performance (10% Weighting)

     Weighted Score Achieved 8%(1)  

Goals

   Performance      Weighting     Achieved(2)  

Customer Experience

  

-  Our overall customer satisfaction is not at our desired level but the Committee concluded that we made positive progress in 2019. Based on these results, the Committee awarded 80% for the customer experience performance objective.

   

     10%       80%  

 

2019 Overall STI Company Performance

   Achieved 97%  

 

(1)

The achieved payout percentage is calculated for each financial performance objective based on a corresponding payout scale approved by the Committee. If the threshold performance level with respect to any particular financial performance objective under our STI program is not attained, the bonus payable to the participating officer with respect to that portion of his or her targeted bonus opportunity will be calculated as zero. If threshold performance is met on any particular metric, each participating officer will earn a reduced portion of his or her target bonus amount for that portion of the award. If the maximum performance level with respect to any particular metric is met or exceeded, each participating officer will earn a maximum of 200% of his or her target bonus amount. Measurement of the attainment of any particular metric will be interpolated if actual performance is between (i) the “threshold” and the “target” performance levels or (ii) the “target” and the “maximum” performance levels.

 

(2)

The achieved payout percentage is determined based on the Committee’s qualitative review of certain criteria and performance metrics, as described under “Customer Experience Performance” below.

Customer Experience Performance. Our overall customer satisfaction performance for 2019 showed year over year improvement in our Business relationship net promotor scores and our consumer relationship net promotor scores were up slightly, and we saw improvement in strategic focus areas. As a result of these results, the Committee awarded 80% for the customer experience performance objective. Customer experience research suggests increased promotor scores will drive increase in customer spend within 24 months.

 

                                                                 
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COMPENSATION DISCUSSION AND ANALYSIS

IV. Our 2019 Compensation Program and Components of Pay

 

Calculation of Bonuses. For 2019, the STI bonuses paid to our named executives were calculated under a two-step process.

 

   

step one, the Committee calculated the company performance composite score by weighting the company’s achieved performance against the financial and operational performance objectives described in the table above. After our internal audit personnel have reviewed these determinations and calculations, they are provided in writing to the Committee for its review and approval.

 

   

step two, the Committee authorized actual STI bonuses for our NEOs, which were consistent with Committee approved company payout level, which includes certain discretionary adjustments for individual performance as discussed below.

Committee Discretion on Company-Wide Performance. For 2019, the Committee did not elect to use its discretion to adjust the calculated company-wide performance STI payout.

The Committee believes that exercising discretion (positive and negative) is an important supplemental component of our pay-for-performance philosophy, which is designed to reach balanced compensation decisions that are consistent with our strategy and adjust compensation for both current year performance and sustained long-term value creation. By applying discretion, the Committee seeks to mitigate the risks associated with a rigid and strictly formulaic compensation program, which could unintentionally create incentives for our executives to focus only on certain performance metrics, encourage imprudent risk taking, and not provide the best results for shareholders. In addition, the use of discretion allows the Committee to respond to changes in economic conditions, our operating environment, and other significant factors that may affect the long-term performance of our business that are not directly reflected in the year’s financial results. The use of discretion also allows the Committee to adjust compensation based on factors that would not be appropriately reflected by a strictly formulaic approach, such as reducing risk or championing company values. Notwithstanding the foregoing, the Committee firmly believes that quantitative factors should play the central role in determining performance-based payouts, and that positive discretionary adjustments should be used sparingly.

Discretionary Adjustment for Individual Performance. The Committee discussed at great length the financial accomplishments achieved in 2019, including Adjusted EBITDA and Free Cash Flow results against guidance outlook and internal targets, and placed emphasis on below financial and operational accomplishments in support of their election to make individual performance adjustments for three of our NEOs.

The Committee rewarded each of Messrs. Dev, Trezise and Andrews with a 10% discretionary adjustment for their individual performance described further below.

Mr. Dev’s leadership and fiscal oversight was pivotal to reducing our outstanding debt by over $2 billion, refinancing over $17 billion in debt, reduction in interest expense by over $200 million on an annualized basis, reduction in our Net Debt to Adjusted EBITDA leverage ratio and, in addition, Mr. Dev successfully oversaw the remediation of two material weaknesses.

Under Mr. Trezise’s individual performance and leadership we had the following achievements in human resources and talent areas, specifically: successful labor negotiations ahead of schedule for cost savings of approximately $45M, transformed our HR operating model driving efficiency and cost savings, implemented artificial intelligence tools, strong talent acquisition performance, positive trending for employee engagement scores, completed first pay equity review, enhanced focus on skills transformation for our employees and achieved overall budget savings targets.

Mr. Andrews exceeded expectations for delivery of industry leading functionality and experiences across several of our key products. Through his leadership and collaboration with sales leaders for our Business segment, we successfully turned iGAM and GEAR from decline to growth in the second half of 2019. Mr. Andrews transformed our sales overlay function, consolidated our marketing and product organizations and created a public sector ecosystem, all of which drove increased sales results and improved alignment and operational efficiencies across multiple functions.

 

 

                                                                 
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COMPENSATION DISCUSSION AND ANALYSIS

IV. Our 2019 Compensation Program and Components of Pay

 

Actual STI Bonus Amounts Authorized. The actual amounts of the NEOs’ 2019 bonuses were calculated as follows:

 

2019 STI Bonus Amounts

 

Named Officer

   Target Bonus
Opportunity
(1)
     X      Company
Performance
%
(2)
    X      Discretionary
Adjustment  for
Individual
Performance
(3)
    =     

STI Bonus 

Amount 

 

Current Executives:

                  

Jeffrey K. Storey

     $3,600,022              97%          100%        $ 3,492,021   

Indraneel Dev

     780,000              97%          110%          832,260   

Stacey W. Goff

     720,021              97%          100%          698,420   

Scott A. Trezise

     439,654              97%          110%          469,111   

Shaun C. Andrews

     461,442                    97%                110%                492,359   

 

(1)

Determined based on earned salary and applicable STI target bonus percentage during 2019 and includes pro-rations for any changes to salary and/or STI target bonus percentage described below.

 

  a)

Target Bonus Opportunity for Mr. Storey reflects his salary earned during 2019 of $1,800,011 and a STI target bonus percentage of 200%.

 

  b)

Target Bonus Opportunity for Mr. Dev reflects his salary earned during 2019 of $650,000 and a STI target bonus percentage of 120%.

 

  c)

Target Bonus Opportunity for Mr. Goff reflects his salary earned during 2019 of $600,018 and a STI target bonus percentage of 120%.

 

  d)

Target Bonus Opportunity for Mr. Trezise reflects his salary earned during 2019 with a salary increase, from $475,010 to $500,011, effective on February 23, 2019, and an increase of STI target bonus percentage from 80% to 90%, also effective on February 23, 2019.

 

  e)

Target Bonus Opportunity for Mr. Andrews reflects his salary earned during 2019 with a salary increase, from $425,006 to $525,000, effective on August 21, 2019, and a STI target bonus percentage of 100%.

 

(2)

Calculated or determined as discussed above under “—2019 Performance Results.”

 

(3)

Determined based on achievement of individual performance objectives as described further above in this Subsection.

Committee Discretion to Pay in Cash or Shares. The Committee may authorize the payment of annual bonuses in cash or shares of common stock. Since 2000, the Committee has paid these bonuses entirely in cash, principally to diversify our compensation mix and to conserve shares in our equity plans.

Recent Actions (February 2020). In connection with establishing targets for the 2020 STI program, the Committee increased Mr. Dev’s STI Target Bonus Percentage to 125%, in light of his position to market and performance as CFO, and made no changes to the target bonus percentage for any of our other NEOs.

Grants of Long-Term Incentive Compensation

General. Our long-term incentive (“LTI”) compensation plans authorize the Committee to grant a variety of stock-based incentive awards to key personnel. We strive to provide equity compensation in forms that (1) create appropriate incentives to optimize performance at reasonable cost, (2) minimize enterprise risk, (3) align the interests of our officers and shareholders, (4) foster our long-term financial and strategic objectives and (5) are competitive with incentives offered by other companies.

On an annual basis, over the course of several meetings, the Committee evaluates our LTI program and reviews the relevance of our LTI plans and performance benchmarks for alignment with our long-term strategic plan. As described in more detail below, CenturyLink has a long-standing practice of granting 60% of LTI compensation for our executives, which is the largest component of pay for our senior officers at 42% and average of 35% for our CEO and Other NEOs’ total target compensation, respectively, in PBRS or units that is measured on metrics that are aligned with our long-term strategy and will drive shareholder value.

 

 

                                                                 
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COMPENSATION DISCUSSION AND ANALYSIS

IV. Our 2019 Compensation Program and Components of Pay

 

Below is an overview that summarizes to the history and evolution of our LTI plans:

 

 

Form of LTI Awards: Since 2008, the Committee has elected to grant all of our LTI awards in the form of restricted stock (and, in limited situations, in restricted stock units or RSUs) for a variety of reasons, including:

 

   

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

 

   

the benefit of providing shareholder alignment through the use of shares,

 

   

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

 

   

the retentive value of restricted stock under varying market conditions.

 

 

Because Mr. Storey is retirement eligible, his annual LTI awards (2018 and 2019) were in the form of RSUs rather than shares of restricted stock.

 

 

LTI Performance Mix: Since 2010, the Committee has elected to include performance-based restricted stock or RSUs (“PBRS”) as part of our annual LTI grants with the weighting of PBRS increasing from 50% to 60% in 2014, and the remaining portion in the form of time-based restricted stock or RSUs (“TBRS”).

 

 

LTI Performance and Vesting Period: In 2010 through 2017, our annual grants of performance-based restricted stock were based on a three-year performance period. Due to the transformative nature of the Level 3 combination and the continuing evolution of our business strategy as we integrate the two companies, for our 2018 and 2019 grants, the Committee believed that a two-year performance period was most appropriate to achieve our business goals with 50% vesting at the end of two years and remaining 50% at three years. For our 2020 grant, we have returned to three-year performance period with cliff vesting at the end of three years.

 

 

LTI Performance Benchmark: The ultimate number of our PBRS that have or will vest are contingent upon the Company’s performance as measured against certain pre-established criteria, including:

 

   

Relative TSR in 2010 through 2012,

 

   

Cumulative Core Revenue and Relative TSR in 2013 through 2017,

 

   

Adjusted EBITDA Run Rate in 2018 and 2019, and

 

   

Cumulative Adjusted EBITDA and Relative TSR in 2020.

 

 

LTI Performance Target and Payout: In order to further align our pay with performance, our PBRS are granted at target performance levels, but the ultimate payout of those awards can range between 0% to 200%, depending on our actual performance as determined at the end of the two- or three-year performance period.

2019 LTI Performance Objectives and Target Setting Process. Our annual LTI grants to our named executives consisted of a combination of PBRS awards (60% of the target grant value) and TBRS awards (40% of the target grant value).

LTI Performance Objectives. In 2019, similar to 2018, the PBRS granted to senior officers is measured on an absolute Adjusted EBITDA Run Rate performance benchmark, described in further detail below:

 

 

2019 Performance Benchmark: Our benchmark is an absolute Adjusted EBITDA Run Rate target over the below-described two-year performance period. “Adjusted EBITDA” is defined as consolidated earnings before interest, taxes, and depreciation and amortization, applying the same adjustments that were approved in setting the target (which include the exclusion of transformation, integration and transaction costs, inclusion of synergy savings, exclusion of stock based compensation, adjustments to reflect a 100% bonus accrual for the given quarter, and adjustments to exclude certain one-time or non-recurring charges or credits), in each case defined in the same manner as the Company reported such amounts in its earnings release for the year ended December 31, 2018.

 

 

2019 Performance Period: January 1, 2019 through December 31, 2020.

 

 

                                                                 
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2019 Vesting Dates: The PBRS earned under the 2019 PBRS will vest in two equal installments on March 1 of each of 2021 and 2022 based on attainment during the performance period of an Adjusted EBITDA Run Rate target of 0.0%, subject to continued employment through the applicable vesting date.

 

 

2019 Performance Target and Payout: The ultimate number of our PBRS that vest, can range between 0% to 200%, and will be based on our achievement of the absolute Adjusted EBITDA Run Rate target (measured from fourth quarter of 2018 to fourth quarter of 2020), as illustrated in the table below.

 

Performance Level

Adjusted EBITDA

Run Rate(1)

Payout as % of  

Target Award(2)   

Maximum

³ 2.8% 200%

Target

    0.0% 100%

Threshold

    (2.8)%   50%

Below Threshold

< (2.8)%     0%

 

(1)

Determined by dividing (i) the Adjusted EBITDA actually attained for the fourth quarter of 2020 minus the Adjusted EBITDA actually attained for the fourth quarter of 2018 by (ii) the Adjusted EBITDA actually attained for the fourth quarter of 2018.

 

(2)

Linear interpolation is used when our Adjusted EBITDA Run Rate performance is between the threshold, target and maximum amounts to determine the corresponding percentage of target award earned.

LTI Performance Target Setting Process. Similar to prior years, in 2019, the Company employed a rigorous process to establish its annual budget and long-range plan, which directly supported the Company’s long-term strategic objectives and was the basis for developing the Adjusted EBITDA Run Rate threshold, target and maximum amounts, as illustrated in the table above.

First, the annual budget and long-range plan was “built up” from business unit and department levels to create a consolidated corporate budget and long-range plan reviewed and approved by the Board.

In February 2019, the Committee approved the previously-described LTI performance objectives including threshold, target, and maximum performance levels derived from the Board-approved budget and long-range financial plan. The long-range financial plans are informed by the Company’s strategic planning process, where capital allocation strategy, go to market, operational and transformation plans are discussed with the Board of Directors. The strategic and financial plans are informed by wireline industry trends, competitive landscape, product lifecycle, operational initiatives, capital allocation priorities and several other company specific and external factors that influence our business. As a result, our Committee determined that our LTI performance objectives were based on rigorous performance requirements designed to motivate executives to achieve Company financial results that generate shareholder value.

Upon completion of the performance period, our actual financial performance results may be adjusted up or down, as appropriate, 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.

2019 Annual LTI Grants. Except for Messrs. Dev, Trezise and Andrews, the Committee granted annual LTI awards to our named executives in February 2019 at amounts substantially similar to the awards granted to them in 2018. Mr. Dev’s 2019 LTI target was increased to $2,700,000, as previously approved by the Committee upon his promotion to CFO in November 2018. Mr. Andrews’ 2019 LTI target was increased to $750,000, as previously approved by the Committee following a review of compensation benchmarking in November 2018. In February 2019, the Committee reviewed the compensation benchmarking data for all executive officers and increased Mr. Trezise’s LTI target to $800,000 and left unchanged the LTI target for our other NEOs.

On February 28, 2019, the Committee granted our named executives the following number of (i) restricted shares or RSUs that will vest over a three-year period principally in exchange for continued service (“time-vested restricted shares or RSUs”), (ii) performance-based restricted shares or RSUs that will vest in two equal

 

                                                                 
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IV. Our 2019 Compensation Program and Components of Pay

 

installments on March 1 of each of 2021 and 2022 based on attainment during the 2019 Performance Period, as defined above, of an Adjusted EBITDA Run Rate target of 0.0% (the “Performance-Vested Shares or RSUs”), as described further above:

 

2019 Annual LTI Grants

 
      Time-vested
Restricted Shares or  RSUs
             Performance-based
Restricted Shares or  RSUs
                 

Named Officer

   No. of
Shares
(1)(3)
     Grant Value(1)              No. of
Shares
(2)(3)
     Grant Value(4)              Total Grant
Value
(4)
 

Current Executives:

                    

Jeffrey K. Storey(5)

  

 

358,884

 

  

 

$5,040,000

 

     

 

538,328

 

  

 

$7,560,000

 

     

 

$12,600,000  

 

Indraneel Dev

  

 

  76,904

 

  

 

  1,080,000

 

     

 

115,356

 

  

 

  1,620,000

 

     

 

    2,700,000  

 

Stacey W. Goff

  

 

  56,966

 

  

 

     800,000

 

     

 

  85,449

 

  

 

  1,200,000

 

     

 

    2,000,000  

 

Scott A. Trezise

  

 

  22,786

 

  

 

     320,000

 

     

 

  34,180

 

  

 

     480,000

 

     

 

       800,000  

 

Shaun. C. Andrews

       21,362             300,000                   32,043             450,000                        750,000    

 

(1)

Represents the number of restricted shares or RSUs granted in 2019.

 

(2)

As discussed further above, the actual number of shares that vest in the future may be lower or higher, depending on the level of performance achieved.

 

(3)

Dividends on the shares of restricted stock (or, with respect to RSUs, dividend equivalents) will not be paid while unvested, but will accrue and paid or be forfeited in tandem with the vesting of the related shares or RSUs.

 

(4)

For purposes of these grants, we determined both the number of time-vested and performance-based restricted shares or RSUs by dividing the total grant value granted to the executive by the volume-weighted average closing price of a share of our common stock over the 15-trading-day period ending five trading days prior to the grant date (“VWAP”), rounding to the nearest whole share. However, as noted previously, for purposes of reporting these awards in the Summary Compensation Table, our shares of time-vested restricted stock or RSUs are valued based on the closing price of our common stock on the date of grant and our shares of performance-based restricted stock or RSUs are valued as of the grant date based on probable outcomes, as required by applicable accounting and SEC disclosure rules. See footnote 2 to the Summary Compensation Table for more information.

 

(5)

Mr. Storey’s annual grant was in the form of RSUs.

Recent Actions (February 2020). Except for Messrs. Dev, Trezise, and Andrews, the Committee granted annual LTI awards to our named executives in February 2020 at amounts substantially similar to the awards granted to them in 2019. Mr. Andrews’ 2020 LTI target was increased to $1,400,000 in August 2019, following his promotion to Chief Marketing Officer and the Committee’s review of compensation benchmarking data. In February 2020, the Committee reviewed the compensation benchmarking data for all executive officers and increased Mr. Dev’s LTI target to $4,000,000 and Mr. Trezise’s LTI target to $1,000,000 and left unchanged the LTI target for our other NEOs. See further discussion under the heading “—Use of Benchmarking Data—Compensation Benchmarking” in Subsection IV below.

As discussed earlier in this CD&A, at its February 2020 meeting, the Committee changed the metrics and returned to a three-year performance period for our 2020 LTI plan. The vesting of the 2020 PBRS is contingent upon achievement of a three-year Cumulative Adjusted EBITDA target and Relative TSR modifier over the three-year performance period, each of which is described in further detail below and will cliff vest at the end of three years. Consistent with past practice, the Committee granted LTI awards to our senior officers with the same mix of 60% PBRS and 40% TBRS.

 

 

2020 Performance Benchmarks: As described further under “performance vesting” below, our two-step process utilizes two performance metrics in order to determine the ultimate payout.

 

   

Absolute Cumulative Adjusted EBITDA: Our primary metric is an absolute Cumulative Adjusted EBITDA target over the below-described three-year performance period (2020-2022). “Adjusted EBITDA” is defined each year in a manner designed to correspond to our annual guidance as reported in our earnings release for consolidated earnings before interest, taxes, and depreciation and amortization, excluding Connect

 

                                                                 
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COMPENSATION DISCUSSION AND ANALYSIS

IV. Our 2019 Compensation Program and Components of Pay

 

  America Fund and Rural Digital Opportunity Fund revenue, applying the same adjustments that were approved in setting the target (which include the exclusion of certain transformation, integration and transaction costs, inclusion of synergy savings, exclusion of stock based compensation, adjustments to reflect a 100% bonus accrual, foreign currency, and adjustments for other material non-operational driven charges or credits).

 

   

Relative TSR Modifier: Our second metric is our percentile rank versus a 17 company TSR peer group that provides an opportunity to earn up to 20% above or below Cumulative Adjusted EBITDA performance as described further below. See further discussion under the heading “—Use of ‘Benchmarking’ Data—Performance Benchmarking Peer Group” in Subsection VI below.

 

 

2020 Performance Period: January 1, 2020 through December 31, 2022.

 

 

Vesting Dates: The ultimate number of our performance-based restricted shares will vest in full on March 1, 2023, three years from the grant date, subject to our senior officers’ continued employment through such date and the Committee’s certification of the results.

 

 

2020 Performance Target and Payout: The ultimate number of our performance-based restricted shares that vest will be determined on a two-step payout calculation, with the ultimate payout ranging from 0-200% as illustrated in the table below:

Step 1—Absolute Cumulative Adjusted EBITDA:

 

   

From 0% to 200% of the target number of performance-based restricted shares may be earned based on Cumulative Adjusted EBITDA for the three-year performance period.

 

Performance

Achievement Level

  

Step 1:

Absolute Cumulative
Adjusted EBITDA
Performance

  Payout as % of Target  
Number of  
Performance-Based  
Restricted Shares
(1)  

Maximum

  

Maximum Amount

 

200%

Target

  

Target Amount(2)

 

100%

Threshold

  

Threshold Amount

 

50%

Below Threshold

  

< Threshold

 

0%

 

(1)

Payouts interpolated between defined performance levels / minimum, target and maximum levels.

 

(2)

We do not feel it is appropriate to disclose our Cumulative Adjusted EBTIDA target as it would constitute forward-looking guidance. The Company employed a rigorous process to establish its annual budget and long-range plan for the same three-year period when setting the threshold, target and maximum amounts which directly support the Company’s long-term strategic objectives.

Step 2—Relative TSR Modifier:

 

   

Provided that the Cumulative Adjusted EBITDA target exceeds threshold, our senior officers have an opportunity to earn up to 20% above or below the achieved number of the target number of PBRS, determined under Step 1, based on CenturyLink’s TSR performance for the three-year performance period relative to the Company TSR peer group. No additional incremental payout under Step 2 is possible if our TSR is negative. Maximum payout under Steps 1 and 2 cannot exceed 200%.

For information regarding our TSR peer group, see further discussion under the heading “-Use of Benchmarking Data-TSR Performance Benchmarking” in Subsection VI below.

Long-Term Incentive Performance Update and Outcomes. The payout percentages in the tables below represent the percentage of the target number of PBRS granted to our senior officers that ultimately vested, with all remaining shares being forfeited. To further enhance the pay for performance linkage, any dividends paid on these shares of PBRS (or dividend equivalents on performance-based RSUs) are not paid while unrestricted, but rather accumulate during the restricted period and vest or are forfeited in tandem with the related shares or

 

                                                                 
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IV. Our 2019 Compensation Program and Components of Pay

 

units. The average target number of PBRS that ultimately vested for the four annual LTI grants from 2015 through 2018 (with performance periods ending on December 31, 2017, 2018 and 2019) is 89.8%.

 

LTI Grant Year,

Performance Period and

Performance Metric

 

Attainment Level for LTI Grant Year(1)

 

           Total Payout  
Percentage
(2)  
 
  2015     2016     2017     2018     2019     2020     2021     2022          

2015 Annual LTI Grant (2015-2017)

                    

Cumulative Core Revenue (50% weighting)

    76.2%                    38.1

Relative TSR (50% weighting)

    0%                    0.0

Total

                                                                             38.1

2016 Annual LTI Grant (2016-2018)

                    

Cumulative Core Revenue (50% weighting)

      82.4%                  41.2

Relative TSR (50% weighting)

      76.2%                  38.1

Total

                                                                             79.3

2017 Annual LTI Grant (2017-2019)

                    

Cumulative Core Revenue (50% weighting)

        83.4%(3)                41.7

Relative TSR (50% weighting)

        85.7%(4)                42.9

Total

                                                                             84.6

2017 Special Grant for Mr. Storey (2018)

     

Adjusted EBITDA Run Rate (100% weighting)

                            200%                                                200.0

2018 Annual LTI Grant (2018-2019)

     

Adjusted EBITDA Run Rate (100% weighting)

                            157.1%(5)                                        157.1

2018 Promotion Grant for Mr. Storey (2018-2020)

     

Cumulative Adjusted EBITDA (0-100% payout)

          TBD              TBD  

Relative TSR (101-200% payout)

          TBD              TBD  

Total

                                                                             TBD  

2019 Annual LTI Grant (2019-2020)

     

Adjusted EBITDA Run Rate (100% weighting)

                                    TBD                                TBD  

2020 Annual LTI Grant (2020-2022)

     

Cumulative Adjusted EBITDA (100% weighting)

              TBD          TBD  

Relative TSR Modifier (+/-20% modifier)

              TBD          TBD  

Total

                                                                             TBD  

 

(1)

“TBD” means to be determined upon completion of the performance period.

 

(2)

The achieved payout percentage is calculated for each performance metric based on a corresponding payout scale. If the threshold performance level with respect to any particular performance metric under our LTI program is not attained, the target number of shares for each participating officer will be forfeited and zero shares will vest. If threshold performance is met on any particular performance metric, then 50% of the target number of shares for each participating officer will vest, with all remaining shares being forfeited. If target performance is met on any particular performance metric, then 100% of the target number of shares for each participating officer will vest. If the maximum performance level with respect to any particular metric is met or exceeded, each participating officer will earn 200% of his or her target number of shares. Measurement of the attainment of any particular metric will be interpolated if actual performance is between (i) the “threshold” and the “target” performance levels or (ii) the “target” and the “maximum” performance levels.

 

(3)

The three-year performance period was completed on December 31, 2019 for the Cumulative Core Revenue PBRS stock granted to our senior officers in 2017. The table below outlines the payout percentages that represent the percentage of the target number of shares that ultimately vested, with all remaining shares being forfeited.

 

Cumulative Core Revenue

   Target      Company’s
Performance
    

Actual  

Payout %  

 

Maximum

   $ 60.6 billion        

Target

   $ 58.6 billion      $ 57.9 billion        83.4 %   

Threshold

   $ 56.5 billion                    

 

 

                                                                 
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(4)

The three-year performance period was completed on December 31, 2019 for the Relative TSR PBRS granted to our senior officers in 2017. The table below outlines the payout percentages that represent the percentage of the target number of that ultimately vested, with all remaining shares being forfeited.

 

Relative TSR

   Target      Company’s TSR
Performance
    

Actual  

Payout %  

 

Maximum

     75th Percentile Rank        

Target

     50th Percentile Rank       

-22.96%;

43rd Percentile Rank

 

 

     85.7 %   

Threshold

     25th Percentile Rank                    

 

(5)

The performance period was completed on December 31, 2019 for the Adjusted EBITDA Run Rate PBRS granted to our senior officers in 2018. The table below outlines the payout percentages that represent the percentage of the target number of that ultimately vested, with all remaining shares being forfeited.

 

Adjusted EBITDA Run Rate

   Target      Company’s
Performance
    

Actual  

Payout %  

 

Maximum

     8.2%        

Target

     6.8%        7.6%        157.1 %   

Threshold

     5.4%                    

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 traditional broad-based qualified defined benefit and defined contribution retirement plans for our employees who meet certain eligibility requirements. 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 welfare benefits are continued 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.

 

                                                                 
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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  

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” in the next subsection below.

Severance Benefits. Our executive severance 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 in the event that the senior officer is involuntarily terminated by us without cause in the absence of a change of control.

The table below shows (i) the multiple of salary and bonus payment and (ii) years of welfare benefits to which officers will be entitled if a senior officer is involuntarily terminated by us without cause in the absence of a change of control:

 

      Multiple of
Annual Cash
Compensation
  

Years of  

Welfare  

Benefits  

CEO

   2 times    2 years  

Other Executives and Senior Officers

   1 time    1 year  

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 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 payments in connection with certain qualifying terminations.

Under a policy that we adopted in 2012, we are required 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.

Life Insurance Benefits. We sponsor a long-standing supplemental life insurance premium reimbursement plan that has been closed to new participants for nearly a decade. Under this plan, one of our current senior officers (Mr. Goff) holds supplemental life insurance policies for which we are obligated to pay the premiums. We paid no premiums to fund these benefits from 2012 to 2016. Over the past several years, we began to assist our officers in converting older life insurance policies into newer, lower-cost policies. Most recently, in December 2016, we converted the last of these policies and were able to fix the cost of future annual premiums, resulting in reductions ranging from 33% to 91% from premiums paid in 2011. In 2017, the Committee approved the resumption of premium payments on behalf of our four grandfathered senior executives, and the Company paid premium for years 2016 and 2017. As such, the 2017 premium amount reflected in the Summary Compensation Table represents twice the annual premium cost paid in 2018 and future years. In consultation with the Committee, we plan to continue to evaluate other options to control the cost of providing these benefits to the three remaining grandfathered plan participants.

 

                                                                 
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Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

IV. Our 2019 Compensation Program and Components of Pay

 

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 up to $250,000 per year in personal travel without reimbursing us, and permits each other executive officer to use our aircraft for personal travel only if he or she pays for cost in advance of flight. In all such cases, personal travel is permitted only if aircraft is available and not needed for superseding business purposes. Periodically, the Committee reviews the cost associated with the personal use of aircraft by senior management and determines whether or not to alter our aircraft usage policy. In connection with electing to retain this policy, the Committee has determined that the policy (i) provides valuable and cost-effective benefits to our executives that reside or frequently travel into our corporate headquarters that is located in a small city with limited commercial airline service, (ii) enables our executives to travel in a manner that we believe is more expeditious than commercial airline service, and (iii) is being utilized responsibly by the executives.

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.

From time to time, we have scheduled one of our annual regular Board meetings and related committee meetings over a multi-day period. These meetings are often held in an area where we conduct operations, and in such cases 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 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.

V. Our Executive Compensation Process

Allocation of Responsibilities

Role of Human Resources and Compensation Committee. Subject to the Board’s oversight, the Committee establishes, evaluates and monitors our executive compensation programs and oversees our human resources strategies. Specifically, the Committee approves:

 

   

the compensation payable to each executive officer, as well as any other senior officer;

 

   

for our STI and performance-based LTI programs, (i) the performance objectives, (ii) the “threshold,” “target” and “maximum” levels of performance, (iii) the weighting of the performance objectives, (iv) the amount of bonus payable or shares to vest if the target level of performance is attained and (v) the finally determined amount of cash bonus payments or fully-vested shares;

 

   

the peer group for compensation benchmarking and the peer group for performance benchmarking; and

 

   

a delegation of authority to the CEO for LTI grants to our non-senior officers.

Among other things, the 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.

 

                                                                 
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Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

V. Our Executive Compensation Process

 

For 2019, the Committee engaged Meridian Compensation Partners, LLC (“Meridian”) as its independent compensation consultant. For 2019, representatives of Meridian actively participated in the design and development of our executive compensation programs, assisted in the development of special non-recurring compensation grants and attended all of the Committee’s meetings. Meridian provides no other services to the Company, and, has no prior relationship with any of our NEOs. As required by SEC rules and NYSE listing standards, the Committee has assessed the independence of Meridian and concluded that its work has not raised any conflicts of interest.

Role of CEO and Management. Although the Compensation Committee is responsible for all executive compensation decisions, each year it solicits and receives the CEO’s recommendations, particularly with respect to senior officers’ salaries and performance in the key areas outlined above in “—Our Compensation Decision-Making Process.”

Senior Officers. The CEO and the executive management team, in consultation with the compensation consultant, recommend to the Committee business goals to be used in establishing incentive compensation performance metrics targets and awards 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.

Non-Senior Officers. The Committee oversees our processes and receives an annual report from the CEO on the compensation programs for our non-senior officers. The CEO, in consultation with the executive management team, is responsible for approval of:

 

   

the total cash compensation paid to our non-senior officers; and

 

   

all LTI awards to the non-senior officers, acting under authority delegated to him by the Committee in accordance with our shareholder-approved equity plans.

 

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