DEF 14A 1 rrd-def14a_20200514.htm DEF 14A rrd-def14a_20200514.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

SCHEDULE 14A

(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

 

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

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Check the appropriate box:

Preliminary Proxy Statement

 

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

 

Definitive Proxy Statement

 

Definitive Additional Materials

 

Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

R. R. Donnelley & Sons Company

(Name of Registrant as Specified In Its Charter)

 

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

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RRD 2019 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS & PROXY STATEMENT

 

 

 


 

Notice of annual

meeting of stockholders

 

 

 

 

  WHEN:

  Thursday, May 14, 2020

  11 a.m. Central time

    

      WHERE*

      Hotel Arista

      2139 City Gate Lane

      Naperville, Illinois 60563

 

    

RECORD DATE

The close of business    

March 27, 2020

 

 

 

 

 

Dear Stockholders:

We are pleased to invite you to the R. R. Donnelley & Sons Company 2020 Annual Meeting of Stockholders.

Items of Business

Item 1. To elect the nominees identified in this proxy statement to serve as directors until the 2020 Annual Meeting of Stockholders

Item 2. To approve, on an advisory basis, the compensation of our named executive officers

Item 3. To ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm

Item 4. To transact other business as may properly come before the meeting and any adjournments or postponements of the meeting

 

Stockholders of record as of the close of business on March 27, 2020 are entitled to vote at the 2020 Annual Meeting of Stockholders and any postponement or adjournment thereof. On the record date, there were 71,331,233 shares of common stock of R. R. Donnelley & Sons Company (“RRD” or the “Company”) issued and outstanding and entitled to vote at the meeting.

Your vote is important! We strongly encourage you to exercise your right to vote as a stockholder. Please sign, date and return the enclosed proxy card or voting instruction card in the envelope provided. You may also vote by calling the toll-free number or logging on to the Internet—even if you plan to attend the meeting. You may revoke your proxy at any time before it is exercised.

You will find instructions on how to vote on page 58. While most stockholders vote by proxy and do not attend the meeting in person, as long as you were a stockholder at the close of business on March 27, 2020, you are invited to attend the meeting, or to send a representative. Please note that only persons with an admission ticket or evidence of stock ownership, or who are guests of the Company, will be admitted to the meeting.

By Order of the Board of Directors,

 

Deborah L. Steiner

General Counsel and Corporate Secretary

April 10, 2020

 

  

 

 

 

    

  

 

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting To Be Held
on May 14, 2020

 

This proxy statement and our annual report to stockholders are available at
www.rrd.com/proxymaterials. On this site, you will be able to access our 2020 Proxy Statement and
our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and all amendments or supplements to the foregoing materials that are required to be furnished to stockholders. 

 

*As part of our precautions regarding the coronavirus or COVID-19, we are planning for the possibility that the annual meeting may be held solely by means of remote communication. If we take this step, we will announce the decision to do so in advance, and details on how to participate will be available at www.rrd.com/proxymaterials.  Please monitor the website for updated information. If you are planning to attend the annual meeting, please check the website one week prior to the meeting date. As always, we encourage you to vote your shares prior to the meeting.

 

    

 

  

 

 

 

 

 

 

 

 

 

 


 

 

Proposals

  

 

 

 

 

 

Proposal 1: Election of Directors

  

 

1

 

 

 

Proposal 2: Advisory Vote to Approve
Executive Compensation

  

 

8

 

 

 

Proposal 3: Ratification of Independent Registered Public Accounting Firm

  

 

10

 

 

 

Company Information

  

 

 

 

 

 

The Board’s Committees and Their Functions

  

 

11

 

 

 

Policy on Attendance at Stockholder Meetings

  

 

14

 

 

 

Corporate Governance

  

 

15

 

 

 

Stock Ownership

  

 

 

 

 

 

Beneficial Stock Ownership of Directors, Executives and Large Stockholders

  

 

19

 

 

 

Compensation Discussion & Analysis

  

 

 

 

 

 

Executive Summary

  

 

21

 

 

 

Compensation Program Design

  

 

25

 

 

 

2019 Compensation Detail

  

 

27

 

 

 

Employment Arrangements

  

 

32

 

 

 

Certain Other Policies

  

 

33

 

 

 

Human Resources Committee Report

  

 

35

 

 

 

Executive Compensation

  

 

 

 

 

 

2019 Summary Compensation Table

  

 

37

 

 

 

2019 Grants of Plan-Based Awards

  

 

39

 

 

 

Outstanding Equity Awards at 2019 Fiscal
Year-End

  

 

40

 

 

 

2019 Option Exercises and Stock Vested

  

 

42

 

 

 

Pension Benefits

  

 

42

 

 

 

 

Potential Payments Upon Termination or Change in Control

  

 

 

 

 

 

Termination Other Than After a Change in Control

  

 

44

 

 

 

Termination After a Change in Control

  

 

45

 

 

 

Potential Payment Obligations Under Employment Agreements upon Termination of Employment

  

 

46

 

 

 

CEO Pay Ratio Disclosure

  

 

52

 

 

 

Director Compensation

  

 

 

 

 

 

Director Compensation Program

  

 

53

 

 

 

2019 Non-Employee Director Compensation Table

  

 

54

 

 

 

Certain Transactions

  

 

55

 

 

 

 

 

Report of the Audit Committee

  

 

56

 

 

 

The Company’s Independent Registered Public Accounting Firm

  

 

57

 

 

 

Questions and Answers About How to Vote Your Proxy

  

 

58

 

 

 

Submitting Stockholder Proposals and Nominations for 2021 Annual Meeting

  

 

61

 

 

 

Discretionary Voting of Proxies on Other Matters

  

 

62

 

 

 

Appendix A: Reconciliation of Non-GAAP Financial Measures

  

 

A-1

 

 

 

 

 


 

proposals

1. Election of Directors

Each director will serve until the next annual meeting of stockholders and until a successor is elected and qualified, or until
such director’s earlier resignation, removal, or death.

As described below, the composition of the board of directors (“Board”) represents a wide range of qualifications, experiences and skills that bring diversity of thought and perspectives and contribute to the Board’s effectiveness as a whole.

Board Summary

 

This proxy statement is issued by RRD in connection with the 2020 Annual Meeting of Stockholders scheduled for May 14, 2020.

This proxy statement and accompanying proxy card are first being mailed to stockholders on or about April 10, 2020.


 

 

RRD | 2020 NOTICE OF MEETING AND PROXY STATEMENT

1

 


PROPOSAL 1. ELECTION OF DIRECTORS

 

 

The Board carefully considers the qualifications of each nominee and the overall composition of the Board.  Our directors represent a wide range of qualifications, experiences, and skills that are important to the success of the business and that bring diversity of thought and perspectives.

  

The names of the nominees, along with their present positions, their principal occupations, their current directorships held with other public corporations, as well as such directorships held during the past five years, their ages, the year first elected as a director and the qualifications, experience, skills and attributes that qualify each director to serve on the Board at this time are set forth below.

 

  

 

 

Daniel L. Knotts

 

 

 

 

AGE: 55

 

DIRECTOR

SINCE: 2016

 

CURRENT

DIRECTORSHIPS:

None

 

FORMER

DIRECTORSHIPS:

None

 

  

 

Daniel L. Knotts has been the Chief Executive Officer of RRD since October 2016. Prior to that, Mr. Knotts was the Company’s Chief Operating Officer since 2013. He served as Group President from 2008 until 2012 and, from 2007 until 2008, he served as Chief Operating Officer of the Global Print Solutions business. From 1986 until 2007, Mr. Knotts held positions of increasing responsibility at RRD within finance, operations, sales management and business unit leadership at various locations in the United States including serving as Senior Vice President of Operations for the Magazine business, President of the Specialized Publishing Services business and President of the Magazine, Catalog and Retail businesses.

 

QUALIFICATIONS:

Mr. Knotts brings over 30 years of experience in the printing industry. He has served in various operational and leadership capacities throughout the Company and his deep knowledge of the industry and RRD give him unique strategic insights.

 

 

 

 

 

 

BOARD SKILLS KEY

Financial  

Global Business  

Leadership  

Sales & Marketing  

Strategy    

Governance 

 

 

 

 

2

RRD | 2020 NOTICE OF MEETING AND PROXY STATEMENT

 

 


PROPOSAL 1. ELECTION OF DIRECTORS

 

John C. Pope

 

 

 

 

AGE: 71

 

DIRECTOR

SINCE: 2004

 

CURRENT

DIRECTORSHIPS:

The Kraft Heinz Company,

Talgo SA, Waste Management, Inc.

 

FORMER

DIRECTORSHIPS:

Con-way, Inc.,

Dollar Thrifty Automotive Group, Inc.,

Navistar International

Corporation,

MotivePower Industries

 

  

 

John C. Pope has served as the Chairman of PFI Group, LLC, a private investment company, since 1994. From 1988 until 1994, Mr. Pope served in various capacities at United Airlines and its parent company UAL Corporation, including serving as President, Chief Operating Officer and a director.

 

Mr. Pope is the Chair of our Board and serves as a member our Audit Committee and Corporate Responsibility & Governance Committee.

 

QUALIFICATIONS:

Mr. Pope’s experience as chairman and senior executive of various public companies provides financial, strategic and operational leadership experience. He is an audit committee financial expert based on his experience as chief financial officer of a public company as well as his experience as a member and chairman of other public company audit committees. He has considerable corporate governance experience through years of service on other public company boards in a variety of industries.

 

 

 

 

BOARD SKILLS KEY

Financial  

Global Business  

Leadership  

Sales & Marketing  

Strategy    

Governance 


 

 

RRD | 2020 NOTICE OF MEETING AND PROXY STATEMENT

3

 


PROPOSAL 1. ELECTION OF DIRECTORS

 

 

Irene M. Esteves

 

 

 

 

AGE: 61

 

DIRECTOR

SINCE: 2017

 

CURRENT

DIRECTORSHIPS:

Aramark,
KKR Real Estate Finance Trust Inc.,
Spirit AeroSystems Holdings, Inc.

 

FORMER

DIRECTORSHIPS:

Level 3 Communications,

TW Telecom Inc.

 

  

 

Irene M. Esteves most recently served as Chief Financial Officer of Time Warner Cable Inc. from July 2011 to May 2013. She previously served as Executive Vice President and Chief Financial Officer of XL Group plc and prior to that position, Ms. Esteves was Senior Vice President and Chief Financial Officer of Regions Financial Corporation.

 

Ms. Esteves serves as a member of our Human Resources Committee and Audit Committee.

 

QUALIFICATIONS:

Ms. Esteves’ experience as chief financial officer of multiple companies brings deep financial expertise to the Board. She is an audit committee financial expert based on her experience as chief financial officer and brings deep knowledge of financial reporting, internal controls and procedures and risk management to our Board. Ms. Esteves also has considerable corporate governance experience gained through her years of experience on other public company boards.

 

Susan M. Gianinno

 

 

 

 

AGE: 71

 

DIRECTOR

SINCE: 2013

 

CURRENT

DIRECTORSHIPS:

None

 

FORMER

DIRECTORSHIPS:

A.T. Cross, Inc.

 

  

 

Ms. Gianinno previously served as the Chairman of Publicis Worldwide, North America, an advertising agency network, and, in 2017, also became the Chairman of Publicis Academy until 2018. She was the Chairman and CEO of Publicis USA from 2003 to 2014. In addition, from 2014 until 2015, Ms. Gianinno was an Advanced Leadership Fellow at Harvard University. Prior to joining Publicis, Ms. Gianinno was a member of the Executive Committee of BCom3 Group, Inc., an advertising agency, until 2002, and Chairman and President of D’Arcy Masius Benton & Bowles, Inc. from 1998 to 2012.

 

Ms. Gianinno serves as the Chair of our Corporate Responsibility & Governance Committee and a member of our Human Resources Committee.

 

QUALIFICATIONS:

Ms. Gianinno’s experience as chief executive officer and president of various companies in the advertising industry gives the Board a different perspective regarding the ways in which new media, the internet and e-commerce have affected the advertising industry and the broader strategies of the Company’s clients.

 

 

 

 

BOARD SKILLS KEY

Financial  

Global Business  

Leadership  

Sales & Marketing  

Strategy    

Governance 


 

4

RRD | 2020 NOTICE OF MEETING AND PROXY STATEMENT

 

 


PROPOSAL 1. ELECTION OF DIRECTORS

 

Timothy R. McLevish

 

 

 

 

AGE: 65

 

DIRECTOR

SINCE: 2016

 

CURRENT

DIRECTORSHIPS:

Kennametal, Inc.

 

FORMER

DIRECTORSHIPS:

ConAgra Foods, Inc.,

Lamb Weston Holdings, Inc.,

URS Corporation,

US Foods, Inc.

 

  

 

Timothy R. McLevish serves as Chief Financial Officer of Carrier Global Corp.  From 2015 until 2016, Mr. McLevish served as Senior Advisor to the Chief Executive Officer of Walgreens Boots Alliance, Inc., a retail drug store chain. Prior to this, he served as their Executive Vice President and Chief Financial Officer from 2014 until 2015. From 2007 to 2014, Mr. McLevish held various positions with Kraft Foods Group, Inc. and its predecessor company Kraft Foods, Inc., manufacturers and marketers of packaged food products, including serving as Executive Vice President and Chief Financial Officer of Kraft Foods Group from 2012 to 2013, Executive Vice President and advisor to the Chief Executive Officer of Kraft Foods, Inc. from 2011 until 2013 and as Chief Financial Officer of Kraft Foods, Inc. from 2007 to 2011. From 2002 until 2007, Mr. McLevish was the Senior Vice President and Chief Financial Officer of Ingersoll-Rand Company Limited, a diversified industrial company. Mr. McLevish was the Vice President and Chief Financial Officer of Mead Corporation, a manufacturer of wood products, from 1999 to 2002.

 

Mr. McLevish serves as the Chair of our Audit Committee and a member of our Human Resources Committee.

 

QUALIFICATIONS:

Mr. McLevish’s experience as chief financial officer of multiple multinational companies brings deep financial and global business experience to the Board. He is an audit committee financial expert based on his experience as chief financial officer of public companies and brings deep knowledge of financial reporting, internal controls and procedures and risk management to our Board. Mr. McLevish also has considerable corporate governance experience gained through his years of experience on other public company boards, including serving as the Executive Chairman of the Board of Lamb Weston Holdings, Inc.

 

 

 

 

BOARD SKILLS KEY

Financial  

Global Business  

Leadership  

Sales & Marketing  

Strategy    

Governance 

 

 

 

 

 

RRD | 2020 NOTICE OF MEETING AND PROXY STATEMENT

5

 


PROPOSAL 1. ELECTION OF DIRECTORS

 

Jamie Moldafsky

 

 

 

 

AGE: 58

 

DIRECTOR

SINCE: 2016

 

CURRENT

DIRECTORSHIPS:

None

 

FORMER

DIRECTORSHIPS:

None

 

  

 

Jamie Moldafsky has served as the Chief Marketing Officer of Wells Fargo & Company, a global banking and financial services company, since 2011 and Executive Vice President, Sales, Marketing, Strategy & Home Equity from 2005 to 2011. Prior to this, she held various marketing, general management and leadership positions at several companies including Whirlpool Corporation, Charles Schwab Corporation, Applause Enterprises, Inc. and American Express Company.

 

Ms. Moldafsky serves as a member of our Corporate Responsibility & Governance Committee.

 

QUALIFICATIONS:

Ms. Moldafsky’s extensive sales and marketing experience provides the Board with a combination of operational and strategic insights. Her experience in marketing and digital communications provides leadership and innovative thinking which will further the Company’s evolution as a global provider of integrated communications.

 

 

 

 

 

BOARD SKILLS KEY

Financial  

Global Business  

Leadership  

Sales & Marketing  

Strategy    

Governance 

 

 

6

RRD | 2020 NOTICE OF MEETING AND PROXY STATEMENT

 

 


PROPOSAL 1. ELECTION OF DIRECTORS

 

P. Cody Phipps

 

 

 

AGE: 58

 

DIRECTOR

SINCE: 2016

 

CURRENT

DIRECTORSHIPS:

None

 

FORMER

DIRECTORSHIPS:

Owens & Minor, Inc.,

Con-Way, Inc.,

Essendant, Inc.

 

 

   

 

P. Cody Phipps previously served as the President, Chief Executive Officer and a member of the board of directors of Owens & Minor, Inc., a medical device and supply company from 2015 to 2018. From 2003 until 2015, Mr. Phipps held various leadership positions at Essendant, Inc. (formerly United Stationers, Inc.), a wholesale distributor of workplace supplies, furniture and equipment, including serving as the President, Chief Executive Officer and member of the board of directors from 2011 to 2015. Previously, he was a Partner at McKinsey & Company, Inc., where he co-founded and led its service strategy and operations initiative, which focused on driving operational improvements in complex service and logistic environments.

 

Mr. Phipps serves as the Chair of our Human Resources Committee and a member of our Audit Committee.

 

QUALIFICATIONS:

Mr. Phipps’ experience as president and chief executive officer of multiple companies helps the Board further the Company’s role as a global provider of integrated communications and provides experience in strategic planning and leadership of evolving organizations. His extensive experience as a strategic consultant helps the Board supervise the Company’s ongoing drive for operational improvements.

 

 

 

 

BOARD SKILLS KEY

Financial  

Global Business  

Leadership  

Sales & Marketing  

Strategy    

Governance 

In 2019, the Board met ten times. Each director of the Company during 2019 attended at least 75% of the total number
of meetings of the Board and those committees of which the director was a member during the period he or she served as
a director.

If any nominee does not stand for election, proxies voting for that nominee may be voted for a substitute nominee selected by the Board. The Board may also choose to reduce the number of directors to be elected at the meeting.

Only directors that receive a majority of the votes cast “FOR” their election will be elected. In the event that an incumbent director is not re-elected, the Company’s Principles of Corporate Governance require that director to promptly tender his or her resignation. The Board will accept this resignation unless it determines that the best interests of the Company and its stockholders would not be best served by doing so.

The Board recommends that the stockholders vote FOR each of our nominees for director.

 

 

 

 

RRD | 2020 NOTICE OF MEETING AND PROXY STATEMENT

7

 


PROPOSAL 2. ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

 

2. ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

 

Our executive compensation program, and the 2019 compensation decisions made thereunder, are tailored to our business strategies, align pay with performance and take into account the feedback received from our investors, as discussed in the Compensation Discussion & Analysis beginning on page 21.

The Say-on-Pay proposal provides stockholders with an annual opportunity to cast an advisory (non-binding) vote to approve the compensation for our named executive officers (our “NEOs”). At the 2017 Annual Meeting, our stockholders indicated a preference for holding such a vote on an annual basis, instead of every two years or every three years.

 

The Company received an 86.9% vote in support of its executive compensation program in the 2019 Say-on-Pay proposal. During the course of 2019, the Company continued its practice of engaging with stockholders about various corporate governance topics including executive compensation. The feedback received from investors and the results of past advisory votes were taken into consideration by the Board’s Human Resources Committee (the “HR Committee”) in the review and administration of our program throughout the year and in the evaluation of executive compensation that was conducted in 2019.

As discussed in the Compensation Discussion & Analysis beginning on page 21, we believe the 2019 compensation decisions and the overall executive compensation program are tailored to our business strategies, align pay with performance and take into account the feedback received from our investors.

In 2019, compensation for the NEOs was comprised of three major components: base salary, annual incentive compensation and long-term incentive compensation. The NEOs were also eligible to participate in benefit programs generally available to other executives within the Company and other benefits provided to certain executives as further described under Benefit Programs beginning on page 31 of this proxy statement.

RRD’s compensation philosophy is guided by four principles:

 

Market Competitive—Provide target compensation levels that are competitive within the industries and markets in which RRD operates

 

Performance Driven—Structure compensation so that our executives share in our short- and long-term successes and challenges by varying compensation from target levels based upon business and individual performance

 

Balanced—Link pay to performance by making a substantial percentage of total executive compensation variable, or “at risk,” through an appropriate balance of annual incentive compensation and long-term incentive awards

 

Stockholder Focused—Align a significant portion of executive pay with stockholder interests through equity awards and stock ownership requirements


 

8

RRD | 2020 NOTICE OF MEETING AND PROXY STATEMENT

 

 


PROPOSAL 2. ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

 

Consistent with our compensation philosophy, RRD has adopted the following compensation best practices:

 

Clawback Policy

  

Awards granted under our time-based restricted stock units, cash incentive plans, stock option grants and performance shares or other performance-based awards are subject to forfeiture in the case of (i) fraud, or willing, knowing or intentional misconduct, (ii) the willful, knowing or intentional violation of RRD’s rules or applicable legal or regulatory requirements in the course of an executive officer’s employment, or (iii) conduct which results in the achievement of financial results that were subsequently restated due to RRD’s material noncompliance with any financial reporting requirement as a result of misconduct by any executive officer.

No Tax Gross-Ups

  

No NEO is entitled to receive gross-ups for excise taxes or gross-ups on any supplemental benefits or perquisites.

No Dividends or Dividend Equivalents

  

We do not pay or accrue for dividends on performance share units or restricted stock units.

Limited Perquisites

  

We provided limited perquisites to executive officers.

Stock Ownership Guidelines

  

We have meaningful stock ownership guidelines for the executive officers to further strengthen the alignment of management and stockholder interests.

No Repricing

  

Our equity plans do not permit option repricing or option grants below
fair market value.

Risk Management

  

Employees, directors and certain of their immediate family members are prohibited from pledging, short sales, trading in publicly traded options, puts or calls, hedging or similar transactions with respect to our stock.

Annual Compensation Review

  

The HR Committee conducts an annual review of the executive compensation program to determine how well actual compensation targets and levels align with overall philosophy and targeted objectives in comparison to both market data and, where available, peer group data.

For the reasons discussed above, we are asking our stockholders to indicate their support for our NEOs’ compensation by voting FOR the following resolution at the 2020 Annual Meeting:

“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion & Analysis, the 2019 Summary Compensation Table and the other related tables and disclosures in this Proxy Statement.”

This proposal gives our stockholders the opportunity to express their views on the overall compensation of our NEOs and the philosophy, policies and practices described in this proxy statement.

The Say-on-Pay vote is an advisory vote and, therefore, it will not bind the Company or our Board. However, the Board and the HR Committee will consider the voting results as appropriate when making future decisions regarding executive compensation.

The Board recommends that the stockholders vote FOR approval, on an advisory basis, of the compensation of our NEOs as disclosed in this proxy statement.

 

 

 

 

 

RRD | 2020 NOTICE OF MEETING AND PROXY STATEMENT

9

 


PROPOSAL 3. RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

3. Ratification of Independent Registered Public Accounting Firm

 

The Audit Committee has appointed Deloitte & Touche LLP (“Deloitte”), an independent registered public accounting firm, to audit and express an opinion on the Company’s financial statements and internal control over financial reporting for the fiscal year ending December 31, 2020. This appointment is being presented to the stockholders for ratification.

Deloitte has been conducting independent audits of RRD’s financial statement and internal control over financial reporting since 2003. Before selecting Deloitte as RRD’s independent registered public accounting firm for 2020, the Audit Committee carefully considered the firm’s qualifications and its past performance. This consideration included a review of the engagement team, the quality control procedures the firm has established, its reputation for integrity and competence in the fields of accounting and auditing, its experience with similarly-sized companies and similar industries, and its cost effectiveness. The Audit Committee’s review also included matters required to be considered under the SEC’s rules on auditor independence, including the nature and extent of non-audit services, to ensure that Deloitte’s independence will not be impaired. Deloitte likewise conducts periodic internal reviews of its audit work, assesses the adequacy of its partners and other personnel working on RRD’s audit and rotates the lead audit partner consistent with independence requirements. Representatives of Deloitte will attend the 2020 annual meeting of stockholders to answer appropriate questions from stockholders and will have the opportunity to make a statement if they desire to do so.

In the event the stockholders fail to ratify the appointment, the Audit Committee will reconsider this appointment. The Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the Audit Committee determines that such a change would be in the Company’s and its stockholders’ best interests.

The affirmative vote of the holders of a majority of the shares of the Company’s common stock present in person or by proxy at the 2020 Annual Meeting and entitled to vote on the ratification of the appointment of Deloitte as our independent registered public accounting firm for 2020 is required to approve the proposal.

The Board recommends that the stockholders vote FOR the ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for 2020.

 

 

 

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RRD | 2020 NOTICE OF MEETING AND PROXY STATEMENT

 

 


 

COMPANY INFORMATION

The Board’s Committees and Their Functions

The Board has three standing committees. The members of those committees and the committees’ responsibilities are described below. Each committee operates under a written charter that is reviewed annually and is posted on the Company’s website at the following address: www.rrd.com. A print copy of each charter is available upon request.

The table below reflects the membership of the committees and their primary responsibilities.

 

 

 

 

 

 

 

 

AUDIT COMMITTEE

 

Number of Meetings in 2019: 9

 

 

 

 

 

 

Members

 

Primary Responsibilities

 

Independence

Timothy R. McLevish (Chair)

Irene M. Esteves

John C. Pope

 

    Assists the Board in its oversight of:

(1)   the integrity of the Company’s financial statements and the Company’s accounting and financial reporting processes, internal controls and financial statement audits,

(2)   the Company’s compliance with legal and regulatory requirements,

(3)   the qualifications and independence of the Company’s independent registered public accounting firm, and

(4)   the performance of the Company’s internal audit department and the independent registered public accounting firm.

    The committee selects, determines fees for, evaluates and, when appropriate, replaces the Company’s independent registered public accounting firm.

 

As required by its charter, each member of the Audit Committee is independent of the Company, as such term is defined for purposes of the NYSE listing rules and the federal securities laws. The Board has determined that each of Ms. Esteves, Mr. McLevish and Mr. Pope is an “audit committee financial expert” as such term is defined under the federal securities laws and the NYSE listing rules.

Pursuant to its charter, the Audit Committee is authorized to obtain advice and assistance from internal or external legal, accounting or other advisors and to retain third-party consultants, and has the authority to engage independent auditors for special audits, reviews and other procedures.

 

 

 

 

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11

 


COMPANY INFORMATION THE BOARD’S COMMITTEES AND THEIR FUNCTIONS

 

 

 

 

 

 

 

CORPORATE RESPONSIBILITY &
GOVERNANCE COMMITTEE

 

Number of Meetings in 2019: 4

 

 

 

 

 

 

Members

 

Primary Responsibilities

 

Independence

Susan M. Gianinno (Chair)

Jamie Moldafsky

Jack C. Pope

 

    Makes recommendations to the Board regarding nominees for election to the Board
and recommends policies governing matters affecting the Board and its committees

    Develops and implements governance
principles for the Company, the Board
and its committees

    Conducts the regular review of the
performance of the Board, its committees
and its members

    Oversees the Company’s responsibilities
to its employees

    Oversees the Company’s responsibilities
to the environment

 

As required by its charter, each
member of the Corporate Responsibility & Governance Committee is independent of the Company, as such term is defined for purposes of the NYSE listing rules and the federal securities laws.

Pursuant to its charter, the Corporate Responsibility & Governance Committee is authorized to obtain advice and assistance from outside advisors and to retain third-party consultants. In addition, it has the sole authority to approve the terms and conditions under which it engages director search firms.

 

HUMAN RESOURCES COMMITTEE

 

Number of Meetings in 2019: 7

 

 

 

 

 

 

Members

 

Primary Responsibilities

 

Independence

P. Cody Phipps (Chair)

Irene M. Esteves

Susan M. Gianinno

Timothy R. McLevish

 

    Establishes the Company’s overall
compensation strategy

    Establishes the compensation of the
Company’s chief executive officer, other senior officers and key management employees

    Adopts amendments to, and approves terminations of, certain Company
employee benefit plans

    Reviews and recommends to the Board the compensation of outside directors

 

As required by its charter, each member of the HR Committee is independent of the Company, as such term is defined for purposes of the NYSE listing rules and the federal securities laws.

In addition, in accordance with NYSE listing rules, the Board considered all factors specifically relevant to determining whether a director has a relationship to the Company which is material to that director’s ability to be independent from management in connection with the duties of a HR Committee member to affirmatively determine each member of the HR Committee is independent.

Pursuant to its charter, the HR Committee is authorized to obtain advice and assistance from internal or external legal or other advisors and has the sole authority to engage counsel, experts or consultants in matters related to the compensation of the chief executive officer and other executive officers of
the Company (with sole authority to approve any such firm’s fees and other retention terms).

 

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COMPANY INFORMATION THE BOARD’S COMMITTEES AND THEIR FUNCTIONS

 

Prior to selecting or receiving any advice from any committee advisor (other than in-house legal counsel) and on an annual basis thereafter, the HR Committee must assess the independence of such committee advisors in compliance with any applicable NYSE listing rules and the federal securities laws. The HR Committee must also review and approve, in advance, any engagement of any compensation consultant by the Company for any services other than providing advice to the Committee regarding executive officer compensation. The HR Committee engaged Willis Towers Watson (“WTW”) in 2019 as its executive compensation consultant to provide objective analysis, advice and recommendations on executive pay in connection with the HR Committee’s decision-making process.

In 2019, in addition the HR Committee’s engagement of WTW for executive compensation consulting services, management engaged WTW to provide health and welfare consulting, international pension consulting and compensation survey services.

While WTW provides additional services to the Company under the direction of management, these services have all been approved by the HR Committee. The HR Committee reviewed the work and services provided by WTW and it has determined that (1) these services were provided on an independent basis and (2) no conflicts of interest exist. Factors considered by the HR Committee in its assessment include:

 

other services provided to the Company by WTW;

 

fees paid by the Company as a percentage of WTW’s total revenue;

 

WTW’s policies and procedures that are designed to prevent a conflict of interest and maintain independence between the personnel who provide HR services and those who provide other services;

 

WTW reported directly to the HR Committee and not to management on executive officer and director compensation matters, and furthermore, the WTW teams that provide health and welfare and international pension consulting services to RRD are separate from the WTW team that provides executive and director compensation consulting services;

 

any business or personal relationships between individual consultants involved in the engagement and HR Committee members;

 

whether any Company stock is owned by individual consultants involved in the engagement; and

 

any business or personal relationships between our executive officers and WTW or the individual consultants involved in the engagement.

Management, including the Company’s executive officers, develops preliminary recommendations regarding compensation matters with respect to the executive officers, other than the chief executive officer, for HR Committee review. The HR Committee then reviews management’s preliminary recommendations and makes final compensation decisions. WTW advised the HR Committee on the compensation levels of the Company’s executive officers and provided advice related to proposed compensation.

For 2019, the Chair of the HR Committee, along with the Board, worked with WTW to develop preliminary recommendations regarding compensation with respect to our chief executive officer. The HR Committee then reviewed these recommendations and made the final compensation decisions with respect to the CEO. All compensation decisions approved by the HR Committee are shared with the Board.

The HR Committee, with the assistance of its consultants, has reviewed and evaluated the Company’s executive and employee compensation practices and has concluded, based on that review, that any risks associated with such practices are not likely to have a material adverse effect on the Company. The determination primarily took into account the balance of cash and equity payouts, the balance of annual and long-term incentives, the type of performance metrics used, incentive plan payout leverage, avoidance of uncapped rewards, multi-year vesting for equity awards, use of stock ownership requirements for senior management and the HR Committee’s oversight of all executive compensation programs. See Compensation Discussion & Analysis beginning on page 21 of this proxy statement for further information regarding executive compensation decisions.

 

 

 

 

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13

 


COMPANY INFORMATION POLICY ON ATTENDANCE AT STOCKHOLER MEETINGS

 

POLICY ON ATTENDANCE AT
STOCKHOLDER MEETINGS

Directors are expected to attend in person regularly scheduled meetings of stockholders, except when circumstances prevent such attendance. All of the members of the Board attended the Company’s 2019 Annual Meeting in person.

 

 

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COMPANY INFORMATION CORPORATE GOVERNANCE

 

 

CORPORATE GOVERNANCE

Governance Highlights

The Company has a practice of engaging in dialogue with our stockholders about various corporate governance topics. Insights we have gained from these discussions over the years have been helpful to the Board and its committees as they consider and adopt policies and other governance initiatives. In recent years the Company has undertaken a number of governance initiatives including:

 

Elimination of a classified board

 

Adoption of majority voting

 

Elimination of super majority voting

 

Amendment of bylaws to allow 10% or greater stockholders to call a special meeting

 

Adoption of a policy regarding the independence of compensation consultants (which is now a part of the
HR Committee charter)

 

Adoption of a clawback policy

 

Term limits for Board and Committee Chairs (further description on page 16 of this proxy statement)

 

Adoption of Political Activities Disclosure Policy

 

Independent Board leadership—Non-executive Chairman and Chief Executive Officer

 

All independent directors except for the CEO

 

Board compensation heavily weighted toward equity

 

Stock ownership guidelines for senior officers and directors

As described in Compensation Discussion & Analysis beginning on page 21 of this proxy statement, during 2019 the Company continued its practice of engaging with stockholders about various corporate governance topics, including executive compensation. The Company takes into account such feedback when reviewing and revising aspects of its governance structure and the executive compensation program.  

In August 2019, the Board adopted a Stockholder’s Rights Plan (the “Plan”).  This Plan is intended to ensure that no one person or group acquires undue influence or control of the Company through stock purchases.  Pursuant to the Rights Plan, the Rights generally will be exercisable only if a person or group acquires beneficial ownership (including through derivatives) of 10% (or 20% for certain passive institutional investors) or more of the Company’s common stock or commences a tender or exchange offer upon consummation of which such person or group would beneficially own 10% or more of the Company’s common stock.  The Plan will terminate on August 28, 2020, unless amended.

Principles of Corporate Governance

The Board has adopted a set of Principles of Corporate Governance to provide guidelines for the Company and the Board to ensure effective corporate governance. The Principles of Corporate Governance cover topics including, but not limited to, director qualification standards, Board and committee composition, director access to management and independent advisors, director orientation and continuing education, director retirement age, succession planning and the annual evaluations of the Board and its committees.

The Corporate Responsibility & Governance Committee is responsible for overseeing and reviewing the Principles of Corporate Governance and recommending to the Board any changes to those principles. The full text of the Principles of Corporate Governance is available through the Corporate Governance link on the Investors page of the Company’s web site at the following address: www.rrd.com and a print copy is available upon request.

 

 

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15

 


COMPANY INFORMATION CORPORATE GOVERNANCE

 

Code of Ethics

The Company maintains its Principles of Ethical Business Conduct and the policies referred to therein which are applicable to all directors and employees of the Company. In addition, the Company has adopted a Code of Ethics that applies to the chief executive officer and senior financial officers. The Principles of Ethical Business Conduct and the Code of Ethics cover all areas of professional conduct, including, but not limited to, conflicts of interest, disclosure obligations, insider trading and confidential information, as well as compliance with all laws, rules and regulations applicable to our business. The Company strongly encourages all employees, officers and directors to promptly report any violations of any of the Company’s policies. In the event that an amendment to, or a waiver from, a provision of the Code of Ethics is necessary, the Company intends to post such information on its website. The full text of each of the Principles of Ethical Business Conduct and our Code of Ethics is available through the Corporate Governance link on the Investors page of the Company’s web site at the following address: www.rrd.com and a print copy is available upon request.

Independence of Directors

The Company’s Principles of Corporate Governance provide that the Board must be composed of a majority of independent directors. No director qualifies as independent unless the Board affirmatively determines that the director has no relationship which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Board has determined that each of Mr. McLevish, Mr. Phipps, Mr. Pope, Ms. Esteves, Ms. Gianinno and Ms. Moldafsky are independent in accordance with NYSE requirements and SEC standards. The Board took into account all relevant facts and circumstances in making this determination.

Executive Sessions

The Company’s non-management directors meet regularly in executive sessions without management. Executive sessions are led by the Chair of the Board. An executive session is held in conjunction with each regularly scheduled Board meeting. Each committee of the Board also meets in executive session without management in conjunction with each regularly scheduled committee meeting and such sessions are led by the committee Chair.

Board Leadership Structure

The Board has determined that having an independent director serve as Chair of the Board is in the best interest of stockholders at this time. The structure ensures a greater role for the independent directors in the oversight of the Company and active participation of the independent directors in setting agendas and establishing priorities and procedures for the work of the Board. Based on these factors, the Board believes this is the right model for the Company at this time. The Board periodically reviews its leadership structure. The Board’s Principles of Corporate Governance provide that, generally, no director may serve as Chair of the Board or any committee for more than three years, provided that the Corporate Responsibility & Governance Committee may recommend to the Board, and the Board may approve, a single extension of the term of a Chair of the Board or any committee for an additional three years once the Chair’s initial three-year term has ended and the Corporate Responsibility & Governance Committee may recommend to the Board, and the Board may approve, extending the term of the Chair of the Board or any committee beyond six years if it deems such an extension to be in the best interest of the stockholders and the Company. In addition, service as a Chair of the Board or any committee prior to the 2014 Annual Meeting shall not be considered for purposes of this limitation.

Board and Committee Evaluations

The Board undertakes a three-part annual evaluation process that is coordinated by the Chair of the Corporate Responsibility & Governance Committee which includes: (1) Board and committee self-evaluations; (2) evaluations completed by applicable members of management of the Board and its committees; and (3) interviews of each director conducted by a third-party governance expert. Results of the individual written evaluations are shared with the Chair of the Corporate Responsibility & Governance Committee, the Chair of the Board and the Chief Executive Officer, after which it is determined whether discussions with any individual director concerning performance are necessary. Results are then shared with the Chairs

 

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RRD | 2020 NOTICE OF MEETING AND PROXY STATEMENT

 

 


COMPANY INFORMATION CORPORATE GOVERNANCE

 

of the applicable committees before being sent to the Board and each committee for their review. The Board has used information provided through the evaluation process to continuously improve its functioning.

Board’s Role in Risk Oversight

The Board is actively involved in oversight of risks inherent in the operation of the Company’s businesses and the implementation of its strategic plan. The Board performs this oversight role by using several different levels of review. In connection with its reviews of the operations of the Company’s business units and corporate functions, the Board addresses the primary risks associated with those units and functions, including IT and cybersecurity risks. In addition, the Board reviews the key risks associated with the Company’s strategic plan annually and regularly throughout the year as part of its consideration of the strategic direction of the Company as well as reviewing the output of the Company’s risk management process each year.

The Board has delegated to the Audit Committee oversight of the Company’s risk management process. Among its duties, the Audit Committee reviews with management (a) Company policies with respect to risk assessment and management of risks that may be material to the Company, (b) the Company’s system of disclosure controls and system of internal controls over financial reporting, and (c) the Company’s compliance with legal and regulatory requirements, provided that the Board overseas IT and cyber security risks.

Each of the other Board committees also oversees the management of Company risks that fall within such committee’s areas of responsibility. In performing this function, each committee has full access to management, as well as the ability to engage advisors, and each committee reports back to the full Board. The Audit Committee oversees risks related to the Company’s financial statements, the financial reporting process, other financial matters, certain compliance issues and accounting and legal matters. The Audit Committee, along with the Corporate Responsibility & Governance Committee, is also responsible for reviewing certain major legislative and regulatory developments that could materially impact the Company’s contingent liabilities and risks. The Corporate Responsibility & Governance Committee also oversees risks related to the Company’s governance structure and processes, related person transactions, certain compliance issues and Board and committee structure to ensure appropriate oversight of risk. The HR Committee considers risks related to the attraction and retention of key management and employees and risks relating to the design of compensation programs and arrangements, as well as developmental and succession planning for possible successors to the position of chief executive officer and planning for other key senior management positions.

 Nomination of Directors

It is the policy of the Corporate Responsibility & Governance Committee to consider candidates for director recommended by stockholders. In order to recommend a candidate, stockholders must submit the individual’s name and qualifications in writing to the committee (in care of the Secretary at the Company’s principal executive offices at 35 West Wacker Drive, 36th Floor, Chicago, Illinois 60601) and otherwise in accordance with the procedures outlined under Submitting Stockholder Proposals and Nominations for 2021 Annual Meeting on page 61 of this proxy statement. The committee evaluates candidates recommended for director by stockholders in the same way that it evaluates any other candidate. The committee also considers candidates recommended by management and members of the Board as well as nominees recommended by stockholders.

In identifying and evaluating nominees for director, the committee takes into account the applicable requirements for directors under the listing rules of the NYSE. In addition, the committee considers other criteria as it deems appropriate and which may vary over time depending on the Board’s needs, including certain core competencies and other criteria such as the personal and professional qualities, experience and education of the nominees, as well as the mix of skills and experience on the Board prior to and after the addition of the nominees. Although not part of any formal policy, the goal of the committee is a balanced and diverse Board, with members whose skills, viewpoint, background and experience complement each other and, together, contribute to the Board’s effectiveness as a whole.

 

 

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17

 


COMPANY INFORMATION CORPORATE GOVERNANCE

 

The Corporate Responsibility & Governance Committee from time to time has engaged third-party search firms to identify candidates for director, and has used search firms to do preliminary interviews and background and reference reviews of prospective candidates.

Communications with the Board of Directors

The Board has established procedures for stockholders and other interested parties to communicate with the Board. A stockholder or other interested party may contact the Board by writing to the Chair of the Corporate Responsibility & Governance Committee or the other non-management members of the Board to their attention at the Company’s principal executive offices at 35 West Wacker Drive, 36th Floor, Chicago, Illinois 60601. Any stockholder must include the number of shares of the Company’s common stock he or she holds and any interested party must detail his or her relationship with the Company in any communication to the Board. Communications received in writing are distributed to the Chair of the Corporate Responsibility & Governance Committee or non-management directors of the Board as a group, as appropriate, unless such communications are considered, in the reasonable judgment of the Company’s Secretary, improper for submission to the intended recipient(s). Examples of communications that would be considered improper for submission include, without limitation, customer complaints, solicitations, communications that do not relate directly or indirectly to the Company or the Company’s business or communications that relate to improper or irrelevant topics.

 

 

 

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Stock Ownership

Except as noted below, the table below lists the beneficial ownership of common stock as of March 29, 2020 by all directors and nominees, each of the persons named in the tables in the Executive Compensation section of this proxy statement, and the directors and executive officers as a group. The table also lists all institutions and individuals known to hold more than 5% of the Company’s common stock, which information has been obtained from filings pursuant to Sections 13(d) and (g) of the Securities and Exchange Act of 1934, as amended. Except as otherwise indicated below, each of the entities or persons named in the table has sole voting and investment power with respect to all common stock beneficially owned set forth opposite their name. Unless otherwise indicated, the percentages shown are based on outstanding shares of common stock as of March 29, 2020.

Beneficial Stock Ownership of Directors, Executives and Large Stockholders

 

Name

 

Shares

 

Restricted

Stock

Units(1)

 

Stock

Options

Exercisable

on or

Prior to

5/31/20

 

Total

Shares

(including

Director

Restricted

Stock

Units)

 

Total

Shares(2)

 

% of Total

Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Irene M. Esteves

 

 

 

 

 

 

 

 

78,361

 

 

 

 

 

 

 

 

 

 

78,361

 

 

 

 

 

 

 

 

 

*

 

Susan M. Gianinno

 

 

 

25,841

 

 

 

 

 

80,980

 

 

 

 

 

 

 

 

 

 

106,821

 

 

 

 

 

25,841

 

 

 

 

*

 

Timothy R. McLevish

 

 

 

21,877

 

 

 

 

 

80,980

 

 

 

 

 

 

 

 

 

 

102,857

 

 

 

 

 

21,877

 

 

 

 

*

 

Jamie Moldafsky

 

 

 

1,861

 

 

 

 

 

80,980

 

 

 

 

 

 

 

 

 

 

82,841

 

 

 

 

 

1,861

 

 

 

 

*

 

P. Cody Phipps

 

 

 

1,861

 

 

 

 

 

80,980

 

 

 

 

 

 

 

 

 

 

82,841

 

 

 

 

 

1,861

 

 

 

 

*

 

John C. Pope(3)

 

 

 

48,318

 

 

 

 

 

182,783

 

 

 

 

 

 

 

 

 

 

231,101

 

 

 

 

 

48,318

 

 

 

 

*

 

Daniel L. Knotts

 

 

 

613,765

 

 

 

 

 

 

 

 

 

 

51,166

 

 

 

 

 

613,765

 

 

 

 

 

664,931

 

 

 

 

*

 

John P. Pecaric

 

 

 

90,510

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

90,510

 

 

 

 

 

90,510

 

 

 

 

*

 

Terry D. Peterson

 

 

 

146,313

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

146,313

 

 

 

 

 

146,313

 

 

 

 

*

 

Douglas D. Ryan

 

 

 

31,037

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31,037

 

 

 

 

 

31,037

 

 

 

 

*

 

Deborah L. Steiner

 

 

 

47,130

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

47,130

 

 

 

 

 

47,130

 

 

 

 

*

 

All directors and executive officers as a group (15 persons)

 

 

 

1,237,619

 

 

 

 

 

557,275

 

 

 

 

 

51,166

 

 

 

 

 

1,794,894

 

 

 

 

 

1,288,785

 

 

 

 

*

 

BlackRock Inc.(4)

 

 

 

11,942,732

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,942,732

 

 

 

 

 

11,942,732

 

 

 

 

16.7

%

The Vanguard Group(5)

 

 

 

4,834,833

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,834,833

 

 

 

 

 

4,834,833

 

 

 

 

6.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*

Less than one percent.

 

 

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19

 


STOCK OWNERSHIP BENEFICIAL STOCK OWNERSHIP OF DIRECTORS, EXECUTIVES AND LARGE STOCKHOLDERS

 

(1)

Includes all outside director restricted stock units as such restricted stock units are payable in shares of common stock or cash, as determined by the Company, upon termination from the Board of Directors. Includes only those executive officer restricted stock units that will vest prior to May 31, 2020.

(2)

Does not include outside director restricted stock units because ownership of the units does not confer any right to ownership of the underlying shares.

(3)

Includes 21,318 shares held in trust for Mr. Pope pursuant to a deferred compensation plan.

(4)

Represents shares of RRD’s common stock beneficially owned as of December 31, 2019 based on the Schedule 13G/A filed on February 4, 2020 by BlackRock Inc. (“BlackRock”). In such filing, BlackRock lists its principal business address at 55 East 52nd Street, New York, New York 10055 and indicates that it has sole investment authority over all shares and sole voting authority over 11,942,732 shares.

(5)

Represents shares of RRD’s common stock beneficially owned as of December 31, 2019 based on the Schedule 13G/A filed on February 12, 2020 by The Vanguard Group (“Vanguard”). In such filing, Vanguard lists its principal business address as 100 Vanguard Blvd., Malvern, Pennsylvania 19355 and indicates that it has sole investment authority over 4,740,514 shares, shared investment authority over 94,319 shares, sole voting authority over 79,795 shares and shared voting authority over 36,188 shares. Beneficial ownership includes 58,131 shares for which Vanguard Fiduciary Trust Company (“VFTC”), a wholly-owned subsidiary of Vanguard, is the beneficial owner as a result of serving as investment manager of collective trust accounts. VFTC directs voting of these shares. Beneficial ownership also includes 57,852 shares for which Vanguard Investments Australia, a wholly-owned subsidiary of Vanguard, is the beneficial owner as a result of its serving as investment manager of Australian investment offerings.

 

 

 

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Compensation
Discu
ssion & Analysis

This Compensation Discussion & Analysis (this “CD&A”) will describe the material components of the executive compensation program applicable to our named executive officers (our “NEOs”). While the discussion in the CD&A is focused on our NEOs, many of our executive compensation programs apply broadly across our executive ranks.

Our NEOs for the fiscal year ended December 31, 2019 were:

 

Daniel L. Knotts, our President and Chief Executive Officer and a member of the Board of Directors;

 

Terry D. Peterson, our Executive Vice President, Chief Financial Officer;

 

John P. Pecaric, our President, RRD Business Services;

 

Douglas D. Ryan, our President, RRD Marketing Solutions; and

 

Deborah L. Steiner, our Executive Vice President, General Counsel.

Executive Summary

2019 Performance Overview

2019 marked our third complete fiscal year as a new RRD. Following the spin-off of Donnelley Financial Solutions and LSC Communications in October 2016, we became a new company, with a new board of directors, a new management team, a new strategy and, significantly, a new capital structure.  

Operational Highlights

In 2019, we measured our success by the speed of our transformation, with an emphasis on strengthening our core operations and reducing our debt burden.  Key operational highlights included our:

 

Continued shift to a more flexible and focused operating model, realizing opportunities to monetize assets and stabilize earnings through:

 

o

The wind-down of operations in Brazil

 

o

The sale of our Research and Development Center in Grand Island, New York

 

o

The sale of our Global Document Solutions business in Europe and entry into a strategic alliance with Paragon Customer Communications to provide a broader set of services in Europe

 

o

The entry into strategic sales alliances to expand our Marketing Solutions capabilities with

 

ActionIQ, a leading marketing activation platform

 

Doxo, an innovative web and mobile bill payment solution provider

 

Targeted investment to extend our capabilities as a multichannel business services and marketing solutions provider with the introduction of new offerings such as:

 

 

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21

 


COMPENSATION DISCUSSION & ANALYSIS EXECUTIVE SUMMARY

 

 

o

Cloud Direct by RRDTM, a custom add-on to the Salesforce Marketing Cloud that enables marketers to integrate digital and direct mail channels

 

o

DigicomTM, an e-commerce solution that converts catalogs, circulars and flyers into an interactive, shoppable digital format

Financial Highlights

RRD continues to face significant headwinds from ongoing secular pressure in several of our businesses, as well as labor and materials inflation. It also continues to bear the adverse impact of the 2017 Tax Cuts and Jobs Act, which created one-time tax charges, additional 2019 tax payments, and significantly reduced the deductibility of our interest payments and our resulting net income and operating cash flows. In the face of such challenges, the Board believes focusing on debt reduction and aggressive cost take-out is critical and are key indicators of the success of RRD’s long term strategy priorities to reshape and strengthen its core, drive revenue, and improve financial flexibility.  RRD’s continued efforts to achieve operational excellence, as reflected in the operational highlights above, and its continued focus on cost take-out activities and strategic capital management practices, supported a third consecutive year of strong operating cash flow.  These efforts also enabled a further reduction in RRD’s total debt by $273 million in 2019, bringing the cumulative reduction since the end of 2016 to $569 million or 24%.

Pay for Performance

While RRD’s financial performance, relative to its peers in the business communications and printing industry, has been superior, industry headwinds and RRD’s substantial indebtedness coming out of the 2016 spin continue to burden its stock price.  Importantly, the total compensation of RRD leadership has declined substantially in alignment with the company’s declining stock price.  For example, as of December 31, 2019, as shown in the chart below, RRD’s CEO, Dan Knotts’ realized pay for fiscal year 2019 was 53.6% of his target compensation.

 

 

(1)

For purposes of determining realized compensation, the chart above includes base pay, annual incentive payments, the value of RSUs if they had vested on December 31, 2019, and the value of PSUs earned as of December 31, 2019.

 

 

(2)

Target Compensation represents 2019 base salary, 2019 target annual incentive plan (AIP) paid in March 2020, and: (i) the prorated grant date target value of RSU awards which vested in March 2020 and (ii) the grant date target value of the 2017-2019 PSU award which vested in March 2020.

 

 

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COMPENSATION DISCUSSION & ANALYSIS EXECUTIVE SUMMARY

 

 

(3)

Actual Compensation represents 2019 base salary, 2019 actual annual incentive plan (AIP) paid in March 2020, and: (i) the value realized upon vesting of the RSU awards as of December 31, 2019 and (ii) the value of the 2017-2019 PSU award based on the final performance factor of .566 as of December 31, 2019.

 

Notably, in addition to the decline in 2019, the realized pay of all senior leadership has declined substantially in prior periods because a substantial portion of compensation is equity-based.  Compensation reported in prior periods is based on the grant date value of equity awards assuming full vesting, not the current market value or their likely vesting amount of such awards.  The HR Committee believes this realized pay is appropriate for RRD’s performance, strongly incentivizes Mr. Knotts and RRD leadership to continue advancing RRD’s strategy and growing shareholder value, and is a key indicator of the effectiveness of RRD’s compensation program.

2019 Compensation Highlights

The table below sets forth the key decisions that impacted the compensation of our NEOs in 2019. These decisions were made by our HR Committee and were guided by our compensation philosophy, our actual performance, market pay practices and advice from the HR Committee’s independent compensation consultant. These decisions and payments were made before the full global extent of COVID-19 became apparent. The HR Committee will consider the business and financial impact to RRD and its stockholders and employees in evaluating 2020 performance in 2021.

 

Key 2019 Compensation Decisions

  

Base Salary

Mr. Pecaric and Ms. Steiner are the only NEOs who received base salary adjustments in 2019. Mr. Pecaric received a 5% increase and Ms. Steiner received a 12% increase to better align their compensation with executives at peer companies with similar responsibilities. See page 28 for details.

Annual Incentive Plan (“AIP”)

Payouts under our AIP were driven by three components — corporate financial targets of achieving (1) non-GAAP Adjusted Income from Operations of $253 million, (2) non-GAAP Adjusted Net Sales of $6,650.0 million and (3) individual personal performance goals. For 2019, the Company achieved Adjusted Income from Operations (“IFO”) of $245.2 million and Adjusted Net Sales of $6,380.4 million(1).  Based on RRD’s performance against the corporate financial targets, the AIP plan was funded at 79.6% of target.  With the funding percentage as a baseline payout of each NEO’s target AIP payment (e.g., 79.6% of target AIP opportunity), the following AIP decisions were made: Mr. Knotts received an AIP payout at the 79.6% baseline.  Mr. Ryan received an AIP payout slightly above the baseline at 79.7% based on above-target sales and IFO within his Marketing Solutions segment. Mr. Pecaric received an AIP payout below the baseline at 75.9% based on below-target sales and IFO below within his Business Services segment.  Mr. Peterson and Ms. Steiner each received AIP payouts slightly above the baseline, each at 82.0%, based primarily on the above-target performance against individual cost reduction targets.  

Long-Term Incentive Plan

For equity grants made under our long-term incentive plan in 2019, continuing to more closely align NEO compensation with the interests of our stockholders, the HR Committee issued long-term incentive awards of which 50% were granted as performance stock units (“PSUs”) and the remaining 50% were granted as restricted stock units (“RSUs”). The RSUs issued in March 2019 vest ratably over a three-year period while the PSUs have a three-year performance period which measures the Company’s performance against pre-determined non-GAAP adjusted cumulative free cash flow.  Due to grant limitations in our Performance Incentive Plan of 2017, only Mr. Knotts, Mr. Peterson and Mr. Pecaric received PSU and RSUs that settle in RRD stock. Awards to all other executive officers, including a portion of Mr. Pecaric’s awards, were made with phantom PSUs and phantom RSUs that may be settled in RRD stock or a cash payment equal to the stock price of units vesting.  Except where a portion of this CD&A speaks specifically to stock-vesting RSUs and PSUs, all references to RSUs and PSU awards in this CD&A include and describe such phantom awards.

 

 

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COMPENSATION DISCUSSION & ANALYSIS EXECUTIVE SUMMARY

 

Stockholder Feedback on Pay Programs

In 2019, we continued our practice of engaging with stockholders about various corporate governance topics including executive compensation. Telephonic meetings were held or offered with significant institutional investors to, among other things, gather additional feedback on our compensation programs. In general, the feedback received from stockholders during these meetings with regard to executive compensation was positive and RRD received 86.9% vote in support of its executive compensation programs in the 2019 Say-on-Pay advisory vote.

Based on our stockholder engagement feedback, as well as our Say-on-Pay advisory vote results, we believe our overall executive compensation program was well received by our stockholders as it is tailored to our business strategies, aligned with our pay for performance philosophy and designed to create long-term value for stockholders.

 

(1)

Our financial performance targets and results under our incentive plans are sometimes based on non-GAAP financial measures which may be further adjusted as permitted by those plans and approved by the HR Committee. These metrics and the related performance targets are relevant only to our executive compensation program and should not be used or applied in other contexts. Please see Appendix A for a reconciliation of GAAP to non-GAAP amounts.

 

 

 

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COMPENSATION DISCUSSION & ANALYSIS COMPENSATION PROGRAM DESIGN

 

COMPENSATION PROGRAM DESIGN

Compensation Philosophy

Our executive compensation program is designed to align the interests of our stockholders and executive officers while providing a total compensation package that enables us to attract talent, reward existing talent for past performance and motivate future performance. The HR Committee seeks to ensure that the compensation of our executive officers is tied to the achievement of both short-term and long-term performance objectives intended to drive stockholder value.

As a result, our compensation philosophy is guided by four principles:

 

Market Competitive—Provide target compensation levels that are competitive within the industries and markets in which we compete for executive talent

 

Performance Driven—Structure incentive plans so that executives share in successes and challenges by varying compensation from target levels based on achievement of performance objectives aligned with our annual and
multi-year strategy

 

Balanced—Link pay to performance by making a substantial percentage of total executive compensation variable, or “at risk” through an appropriate balance of annual and long-term incentive awards

 

Stockholder Focused—Align a significant portion of executive pay with long-term stockholder interests through equity awards and stock ownership requirements

Best Practices

Our compensation philosophy and the resulting compensation programs incorporate the following best practices:

 

Clawback Policy

 

  

      Awards granted under our time-based restricted stock units, cash incentive plans, stock option grants and performance shares or other performance-based awards are subject to forfeiture in the case of (i) fraud, or willing, knowing or intentional misconduct, (ii) the willful, knowing or intentional violation of RRD’s rules or applicable legal or regulatory requirements in the course of an executive officer’s employment, or (iii) conduct which results in the achievement of financial results that were subsequently restated due to RRD’s material noncompliance with any financial reporting requirement as a result of misconduct by any executive officer.

 

 

 

No Tax Gross-Ups

 

  

      No NEO is entitled to receive gross-ups for excise taxes or gross-ups on any supplemental benefits or perquisites. 

 

 

 

No Dividends or Dividend Equivalents

 

  

      We do not pay or accrue for dividends on performance share units or restricted stock units. 

 

 

 

Limited Perquisites 

  

      We provide limited perquisites to executive officers. 

 

 

 

Stock Ownership Guidelines

 

  

      We have meaningful stock ownership guidelines for the executive officers to further strengthen the alignment of management and stockholder interests. 

 

 

 

No Repricing

 

  

      Our equity plans do not permit option re-pricing or option grants below fair market value. 

 

 

 

 

 

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COMPENSATION DISCUSSION & ANALYSIS COMPENSATION PROGRAM DESIGN

 

Risk Management

 

  

      Employees, directors and certain members of their immediate family members are prohibited from pledging, short sales, trading in publicly traded options, puts or calls, hedging or similar transactions with respect to our stock. 

 

 

 

Annual Compensation Review

 

  

      The HR Committee conducts an annual review of the executive compensation program to determine how well actual compensation targets and levels meet our overall philosophy and targeted objectives in comparison to both market data and, where available, peer group data. 

Peer Group

On an annual basis, the HR Committee directs Willis Towers Watson to review the Company’s compensation peer group. Our 2019 peer group consists of the following 21 companies:

 

Alliance Data Systems Corporation

  

Automatic Data Processing, Inc.

  

Avery Dennison Corporation

Bemis Company, Inc.

  

Domtar Corporation

  

Expeditors International of

Washington, Inc.

Fidelity National Information Services, Inc.

First Data Corporation

Graphic Packaging Holding Company

  

Hub Group Inc.

  

Fiserv, Inc.

Packaging Corporation of America

  

Pitney Bowes Inc.

  

News Corporation

Sealed Air Corporation

  

Sonoco Products Co.

  

Quad/Graphics, Inc.

Thomson Reuters Corporation

  

Veritiv Corporation

  

The Interpublic Group of
Companies, Inc.

 

 

 

  

 

  

Xerox Corporation

 

  

 

  

 

For 2019, Essendant, Inc. was removed from our peer group following its acquisition by a private company.

Based on the assessment of both our peer group and market data, each year the HR Committee determines whether the overall executive compensation program is consistent with our business strategy and objectives and promotes RRD’s compensation philosophy. In general, compensation levels for our NEOs are targeted at the 50th percentile of target market and peer group data, but the HR Committee also takes into account the performance, experience, skills, level of responsibility and future potential of each NEO rather than adhering to a specific benchmarked percentage for any of our NEOs.

 

 

 

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COMPENSATION DISCUSSION & ANALYSIS 2019 COMPENSATION DETAIL

 

2019 Compensation Detail

The table below sets forth the elements of our 2019 compensation program for our NEOs.

 

Component

 

 

Description/Rationale

 

 

Key Characteristics

 

  Base Salary

  (See “Base Salary” on page 28)

 

      Fixed component of pay

 

      Stable compensation element

 

      Level of responsibility

 

      Role, responsibilities, experience and individual performance

 

      Skills and future potential

 

      Median of market and peer group data

 

 

  Annual Incentive Plan

  (See “Annual Incentive Plan” on page 29)

 

 

      Variable and at-risk cash bonus plan

 

      Target amount of bonus is determined as a percentage of the individual’s base salary

 

      Rewards achievement against specific, pre-set annual corporate financial and individual performance goals

 

      Subject to a payout which ranges from 0% to 200% of target, with no payout for performance below 80% of the corporate income from operations financial target or 90% of the corporate sales financial target

 

 

      Corporate financial targets are set by the HR Committee at the start of the year

 

      Individual performance goals are set by each NEO in conjunction with his or her manager and are approved by the HR Committee

 

 

  Long-Term Incentive Plan

  (See “Long-Term Incentive Plan” on page 30)

 

 

     Variable and at-risk compensation which link awards to RRD’s performance to increase alignment with stockholders through the use of PSUs and RSUs

 

     Key component to attract and retain executive officers

 

     Annual value intended to be a substantial component of overall compensation package for each NEO

 

 

      Award values are determined based on

 

oLevel of responsibility

 

oIndividual skills, experience and performance

 

oMedian of peer group and market survey data

 

     PSUs are tied to achievement of selected financial measures over a three-year performance period and payout can range from 0% to 150%

 

     RSUs are time-vested over a three-year vesting period

 

 

 

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COMPENSATION DISCUSSION & ANALYSIS 2019 COMPENSATION DETAIL

 

The compensation program for our NEOs is primarily focused on incentive compensation, putting a significant portion of total compensation at risk. Consistent with our philosophy of aligning the compensation of our executive officers with creating long-term value for our stockholders, heaviest weighting is on long-term incentive compensation. The mix of fixed versus variable compensation at target for our NEOs for 2019 was as follows:

 

 

Base Salary

The base salaries of our NEOs were adjusted, effective April 1, 2019, as set forth below. In determining such increases the HR Committee, with guidance from our compensation consultant, considered each NEO’s then-current base salary against the base salaries of executives in similar positions in our peer group, market data, and each NEO’s individual performance, experience, skills, levels of responsibility and future potential.

 

Name

 

Dec. 31, 2018

 

Dec. 31, 2019

 

% Change

 

 

 

 

 

 

 

 

 

 

 

Daniel L. Knotts

 

 

$978,500

 

 

 

$978,500

 

 

0%

Terry D. Peterson

 

 

$575,000

 

 

 

$575,000

 

 

0%

John P. Pecaric

 

 

$500,000

 

 

 

$525,000

 

 

5%

Douglas D. Ryan

 

 

$550,000

 

 

 

$550,000

 

 

0%

Deborah L. Steiner

 

 

$425,000

 

 

 

$475,000

 

 

12%

 

 

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COMPENSATION DISCUSSION & ANALYSIS 2019 COMPENSATION DETAIL

 

Annual Incentive Plan

Consistent with our compensation philosophy, the HR Committee sets the corporate financial targets under the AIP for 2019 with the goal of motivating our executive team to meet operational and financial targets to enhance long-term stockholder value. The targets, along with individual performance goals, are set by the HR Committee at the beginning of the year following the presentation of the annual operating budget.  The corporate financial targets determine the funding level of the AIP.

The corporate financial targets under the AIP for 2019 were Adjusted Net Sales and Adjusted Income from Operations.  The minimum and maximum payout levels range from 0% to 200% of target, with no payout for performance below 90% of the corporate financial target for Adjusted Net Sales and below 80% of the corporate financial target for Adjusted Income from Operations. NEOs do not receive a payout for achievement of individual performance goals unless the threshold corporate financial target is achieved. Thereafter, individual performance goals can modify an NEO’s AIP payout upward or downward based on achievement of such goals.

The HR Committee added Adjusted Net Sales as a corporate financial target in 2019 to drive top line growth, while retaining Adjusted Income from Operations as an appropriate measure of operating profitability. Sixty percent of AIP funding was determined by Adjusted Income from Operations and forty percent of AIP funding was determined from Adjusted Net Sales.  Adjusted Income from Operations is defined as Income from Operations adjusted for specified items including, for example, restructuring and impairment charges, business acquisitions and divestitures and the adoption of new accounting principles.  This initial performance level was set by the HR Committee at the beginning of the year after thorough discussion with management regarding the Company’s forecasted performance, and was a challenging goal.

The table below sets forth a description of these targets, as well as 2019 achievement levels.

 

 Target

 

 

Metric and Weighting

 

 

Achievement

 

Corporate Financial Targets

 

 

 

      Adjusted Net Sales of $6,650 billion at target (40%)

 

 

 

      Adjusted Net Sales was $6,380.4 billion(1)

 

      Resulted in an achievement level of 95.9% of target

 

 

 

      Adjusted Income from Operations of $253.0 million at target (60%)

 

 

 

      Adjusted Income from Operations was $245.2 million(1)

 

      Resulted in an achievement level of 96.9% of target

 

 

 

 

Individual Performance Goals

 

 

      Individual performance goals for our NEOs included achievement of working capital targets, productivity and safety targets, and completion of key strategic initiatives

 

 

      Most of the NEOs met or exceeded their individual performance goals under the AIP, resulting in little change from the baseline funding percentage of 79.6% of target based on achievement of corporate financial targets.  Mr. Knotts achieved his individual performance goals, resulting in an AIP payout of 79.6% (the funding percentage). For the other NEOs the baseline payout was slightly increased or decreased based upon their individual performance, resulting in AIP payouts ranging from 75.9% to 82.0% of their individual AIP target opportunity 

 

 

 

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COMPENSATION DISCUSSION & ANALYSIS 2019 COMPENSATION DETAIL

 

(1) Our financial performance targets and results under our incentive plans are sometimes based on non-GAAP financial measures which may be further adjusted as permitted by those plans and approved by the HR Committee. These metrics and the related performance targets are relevant only to our executive compensation program and should not be used or applied in other contexts. Please see Appendix A for a reconciliation of GAAP to non-GAAP amounts.

The AIP target percentages and actual 2019 payouts based on the performance described above are shown in the table below:

 

Name

 

AIP Target

(%)

 

AIP Payout

at Target

($)

Actual

Payout as

% of Target

(%)

 

 

Actual

Payout

($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Daniel L. Knotts

 

 

125%

 

 

 

$1,223,125

 

 

79.6%

 

 

 

973,608

 

Terry D. Peterson

 

 

80%

 

 

 

$460,000

 

 

82.0%

 

 

 

377,145

 

John P. Pecaric

 

 

80%

 

 

 

$420,000

 

 

75.9%

 

 

 

318,941

 

Douglas D. Ryan

 

 

80%

 

 

 

$440,000

 

 

79.7%

 

 

 

350,590

 

Deborah L. Steiner

 

 

80%

 

 

 

$380,000

 

 

82.0%

 

 

 

311,554

 

 

Long-Term Incentive Plan

In 2019, fifty percent of our annual grants were PSUs and fifty percent of our annual grants were RSUs.  Our PSUs were designed to more closely align the interests of our NEOs with our stockholders, while our RSUs were designed to promote retention of our key executives.  The HR Committee determines long-term incentive awards to our NEOs based on a review of grants to executives in similar positions in RRD’s peer group, market data, and each NEO’s individual performance, experience, skills, level of responsibility and future potential. RSUs and PSUs are settled in shares.

To limit usage of shares available for grant under our Performance Incentive Plan of 2017, except for awards to Mr. Knotts and Mr. Peterson, a portion or all of the awards of RSUs and PSUs in 2019 to the other NEOs were phantom awards (phantom RSUs and phantom PSUs) that may be settled in cash or shares in the HR Committee’s discretion. Such phantom awards were granted in the same proportion and with the same vesting terms as the RSU and PSU grants.  Except as provided herein, all references to RSUs and PSU awards in this section include and describe such phantom awards.

The PSUs have a three-year performance period which measures the Company’s performance against pre-determined cumulative free cash flow targets. Cumulative free cash flow is a non-GAAP metric defined as cash flow from continuing operations less capital expenditures and certain other adjustments. We continue to use cumulative free cash flow as a metric because we believe it appropriately aligns our executive’s focus on improving our balance sheet flexibility with investing in our business to drive profitable growth. PSUs can pay out at a range from 0% to 150% of target with no shares earned for performance below 75% of target. The RSUs issued vest ratably over a three-year period.

PSUs granted in 2017 completed their three-year performance period in 2019.  The Company achieved adjusted cumulative free cash flow of 78.3% of target during the performance period, resulting in vesting of 56.6% of the target award amount.

 

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COMPENSATION DISCUSSION & ANALYSIS 2019 COMPENSATION DETAIL

 

In 2019, the HR Committee approved the following grants to our NEOs under our long-term incentive program:

 

Name

 

Grant

(# of PSUs)

 

Grant

(# of RSUs)

 

 

 

 

 

 

 

 

 

Daniel L. Knotts

 

 

453,752

 

 

 

453,752

 

Terry D. Peterson

 

 

107,875

 

 

 

107,875

 

John P. Pecaric

 

 

75,588

 

 

 

75,590

 

Douglas D. Ryan

 

 

64,790

 

 

 

64,791

 

Deborah L. Steiner

 

 

74,607

 

 

 

74,607

 

 

Benefit Programs

The Company’s benefit programs were established based upon an assessment of competitive market factors and a determination of what was needed to retain high-caliber executives. For 2019, our primary benefits for executives included participation in broad-based plans at the same benefit levels as other employees. These plans included: savings plans, health and dental programs and various insurance programs, including disability and life insurance. In addition, certain executives, including certain of our NEOs, are provided with the following benefits:

 

Supplemental Insurance: Additional life and disability insurance is provided to enhance the value of our overall compensation program. The premium cost for these additional benefits is included as taxable income for the NEOs and there is no tax gross-up on this benefit.

 

Financial Counseling: Reimbursement of expenses for financial counseling to provide executives with access to an independent financial advisor of their choice. The cost of these services, if utilized, was included as taxable income for the NEO and there was no tax gross-up on this benefit.

 

Automobile Program: A monthly automobile allowance which provided eligible executives with an opportunity to use their car for both business and personal use in an efficient manner. This allowance was included as taxable income to the respective NEOs and there was no tax gross-up on this benefit.

 

Executive Physical: A medical physical examination once per year, including consultations with specialists, dieticians and physiologists, as needed.  The cost of these services, if utilized, was included as taxable income for the NEO and there was no tax gross-up on this benefit.

Additionally, certain of our executives, including our NEOs, participated in the following retirement programs, which have been terminated or frozen as described below:

 

Pension Plan: Qualified Retirement Plans (pension plans), which are described under Pension Benefits beginning on page 42 of this proxy statement, were available to employees until December 31, 2011.  Because RRD froze its Qualified Retirement Plans as of December 31, 2011, generally no additional benefits will accrue under such plans or the related supplemental retirement plan.

 

Supplemental Retirement Plan: A supplemental retirement plan available to all highly paid executives within RRD, including our NEOs, which is described under Pension Benefits beginning on page 42 of this proxy statement, was available until December 31, 2011. This supplemental retirement plan no longer provides benefit accruals because the underlying pension plan described above was frozen as of December 31, 2011. Prior to that, the supplemental retirement plan took into account compensation above limits imposed by the tax laws.

 

Deferred Compensation Plan:  Nonqualified Deferred Compensation Plans were available until December 2019.  RRD ceased providing this benefit when it terminated these plans in December 2019.

 

 

 

 

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COMPENSATION DISCUSSION & ANALYSIS EMPLOYMENT ARRANGEMENTS

 

EMPLOYMENT ARRANGEMENTS

Each of our NEOs entered into an employment agreement with RRD in connection with the assumption of his or her position. In 2019, the Company entered into restated employment letters and change in control agreements with each of its executive officers, including each of the NEOs (other than Mr. Knotts).  Each employment agreement sets forth, among other things, the NEO’s base salary, target annual bonus opportunity, entitlement to participate in the Company’s benefit plans, equity awards, certain perquisites and provisions with respect to certain payments and other benefits upon termination of employment under certain circumstances (such as an involuntary separation from service, as set forth in the respective employment agreement). Mr. Knotts is also entitled to enhanced benefits in the event he is terminated without “cause” or terminates employment for “good reason” in connection with a “change in control” (each as defined in the applicable employment agreement).  Please see Potential Payments Upon a Termination or Change in Control beginning on page 44 of this proxy statement for a description of the foregoing provisions.

 

 

 

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COMPENSATION DISCUSSION & ANALYSIS CERTAIN OTHER POLICIES

 

CERTAIN OTHER POLICIES

Operation of the Human Resources Committee

The HR Committee establishes and monitors RRD’s overall compensation strategy to ensure that our executive compensation program supports our business objectives and specifically establishes the compensation of the CEO, other senior officers and key management employees.

The HR Committee, with the assistance of Willis Towers Watson (“WTW”), works to analyze competitive market data to determine appropriate base salary levels, annual incentive target levels, and long-term incentive target levels for our executives. In conducting market comparisons, the HR Committee seeks to establish compensation levels that approximate the median of the applicable surveys and peer group. The CEO is not a member of the HR Committee and does not vote on matters concerning executive pay.

With respect to our CEO’s pay, the HR Committee conducts an annual performance assessment of the CEO and determines appropriate adjustments to all elements of his pay based on his individual performance and the Company’s performance.

For the other executive officers, the CEO makes recommendations to the HR Committee for all elements of pay based on individual performance, market data from our peer group and published survey data. The HR Committee reviews, discusses, modifies, and approves, as appropriate, these recommendations.

The diagram below summarizes the HR Committee’s annual process for setting executive pay, which begins in July and concludes the following February.

 

 

July

 

 

 

Review and discuss timeline for setting executive pay

 

 

October

 

 

Review market competitive data including applicable compensation surveys and peer comparisons

 

 

December

 

 

Evaluate overall executive pay program

 

      Approve proposed annual incentive plan design

 

      Review proposed long-term incentive designs

 

 

February

 

 

Finalize executive pay

 

      Review performance results for prior year and approve payouts of prior long-term incentive grants

 

      Approve the Company’s annual operating plan

 

      Approve executive base salaries and annual incentive targets and designs

 

      Approve long-term incentive target and designs

 

At each of its regularly scheduled meetings throughout the year, the HR Committee reviews the Company’s performance under outstanding annual and long-term incentive plans.

Role of the Compensation Consultant

Compensation of executive officers was overseen by the HR Committee, which engaged WTW as its executive compensation consultant to provide objective analysis, advice and recommendations on executive officer compensation and related matters

 

 

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COMPENSATION DISCUSSION & ANALYSIS CERTAIN OTHER POLICIES

 

in connection with the HR Committee’s decision-making process. WTW regularly attended HR Committee meetings, and reported directly to the HR Committee, not to management, on matters relating to compensation for the executive officers.

WTW provided additional services to RRD not under the direction of the HR Committee, which services were pre-approved by the HR Committee. The HR Committee reviewed the work and services provided by WTW and it determined that (a) such services were provided on an independent basis and (b) no conflicts of interest existed. Factors considered by the HR Committee in its assessment include:

 

1.

Other services provided to the Company by WTW;

 

2.

Fees paid by the Company as a percentage of WTW’s total revenue;

 

3.

WTW’s policies and procedures that are designed to prevent a conflict of interest and maintain independence between the personnel who provide HR services and those who provide these other services;

 

4.

Any business or personal relationships between individual consultants involved in the engagement and HR Committee members;

 

5.

Whether any stock of RRD is owned by individual consultants involved in the engagement; and

 

6.

Any business or personal relationships between the Company’s executive officers and WTW or the individual consultants involved in the engagement.

Role of Management

Management, including the CEO and other executive officers, developed preliminary recommendations regarding compensation matters with respect to all executive officers other than the CEO, and provided these recommendations to the HR Committee. The HR Committee then reviewed management’s preliminary recommendations and made final compensation decisions, with advice from WTW, as appropriate. The management team was responsible for the administration of the compensation programs once the HR Committee’s decisions were finalized.

Risk Assessment

In 2019, the HR Committee, with the assistance of WTW, reviewed and evaluated our executive and employee compensation practices and concluded, based on this review, that any risks associated with such practices are not reasonably likely to have a material adverse effect on the Company. The determination primarily took into account the balance of cash and equity payouts, the balance of annual and long-term incentives, the type of performance metrics used, incentive plan payout leverage, possibility that the plan designs could be structured in ways that might encourage gamesmanship, avoidance of uncapped rewards, multi-year vesting for equity awards, use of stock ownership requirements for senior management and the HR Committee’s oversight of all executive compensation programs.

Tax Deductibility Policy

Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) generally limits to $1 million annually the federal income tax deduction that that a publicly held corporation like RRD may claim for compensation payable to certain of its respective current and former executive officers, but that deduction limitation historically did not apply to performance-based compensation that met certain requirements. As part of Tax Cuts and Jobs Act of 2017, Section 162(m) of the Code was amended, effective for taxable years beginning after December 31, 2017, to expand the scope of executive officers subject to the deduction limitation and also to eliminate the performance-based compensation exception, though the exception generally continues to be available on a “grandfathered” basis to compensation payable under a written binding contract in effect on November 2, 2017 (which has not been subsequently materially amended).

The HR Committee considered the deductibility of compensation for the Company’s federal income tax purposes in the design of our programs. In determining compensation for our executive officers, the HR Committee generally considers the extent to which the compensation is deductible, including the effect of Section 162(m) of the Code. In prior years, the HR Committee generally sought to structure some of our executive compensation awards and payments so that they qualified as

 

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RRD | 2020 NOTICE OF MEETING AND PROXY STATEMENT

 

 


COMPENSATION DISCUSSION & ANALYSIS CERTAIN OTHER POLICIES

 

performance-based compensation exempt from the Section 162(m) of the Code deduction limitation where doing so was consistent with RRD’s compensation objectives, but, at the same time, it reserved the right to award nondeductible compensation. The HR Committee will continue to focus on and prioritize its primary goals of structuring compensation programs to attract, motivate and retain executives as well as ensuring that pay aligns with performance and is in the best interests of RRD and its stockholders. Accordingly, achieving these goals may have resulted (and may continue to result, in light of the recent changes in law) in compensation that, in certain cases, is not deductible for federal income tax purposes. The HR Committee has not made significant changes to RRD’s executive compensation program for 2019 in response to the changes to Section 162(m) of the Code.

Stock Ownership Guidelines

The HR Committee has established stock ownership guidelines for all NEOs and certain other executives. Consistent with our compensation philosophy, these guidelines are designed to require the Company’s executives to have a meaningful equity ownership in RRD, and thereby link their interests with those of our stockholders. These stock ownership guidelines provide that within three years of hire or promotion, all of our NEOs, other than our CEO, must own and retain Company capital stock having a fair market value of 3x their salary and that our CEO must own and retain Company stock having a fair market value of 5x his salary. In the event a NEO does not achieve or make progress toward the required stock ownership level, the HR Committee has the discretion to take appropriate action.  As a result of the Company’s low stock price, no NEO has achieved their required stock ownership level.

Hedging

The Board of Directors believes that hedging transactions that allow holders to own the Company’s securities without the full risks and rewards of ownership separate the holder’s interest from those of other stockholders. Accordingly, with respect to RRD securities, the Board adopted a policy forbidding directors, officers, and employees of the Company or its subsidiaries from pledging, holding in a “margin account” at a broker-dealer, short sales, trading in publicly traded options, puts or calls, hedging or any similar transactions or arrangements.

Changes to the Company Compensation Program
Following Fiscal Year-End

To ensure continued availability of shares for grant under the Amended and Restated Performance Incentive Plan of 2017, the HR Committee determined to ration the use of equity-based awards.  A fixed amount RSUs and PSUs that vest solely in shares of stock of the Company were allocated among the Company’s executive leadership team, including the NEOs, in proportion to the intended aggregate economic value of their annual long term incentive awards.  To the extent members of the Company’s executive leadership team were not able to receive RSUs and PSUs in fulfillment of the full economic value of their annual long term incentive award, such executives received phantom awards of RSUs and PSUs that vest in either cash or Company common stock.  Additionally, to further reduce potential equity grants under the Company’s Amended and Restated Performance Incentive Plan of 2017, PSUs awarded will pay out upon vesting partially in cash to the extent such payments are in excess of the target award amount.

 

Human Resources Committee Report

The HR Committee of the Board of Directors of R. R. Donnelley & Sons Company, on behalf of the Board, establishes and monitors the Company’s overall compensation strategy to ensure that executive compensation supports the business objectives. In fulfilling its oversight responsibilities, the HR Committee reviewed and discussed with management the Compensation Discussion & Analysis set forth in this proxy statement.

In reliance on the review and discussions referred to above, the HR Committee recommended to the Board that the Compensation Discussion & Analysis be incorporated in the Company’s Annual Report on Form 10-K for the fiscal year ended

 

 

RRD | 2020 NOTICE OF MEETING AND PROXY STATEMENT

35

 


COMPENSATION DISCUSSION & ANALYSIS CERTAIN OTHER POLICIES

 

December 31, 2019 and the Company’s proxy statement to be filed in connection with the Company’s 2020 Annual Meeting of Stockholders.

The HR Committee of R. R. Donnelley & Sons Company

P. Cody Phipps, Chairman

Irene M. Esteves

Susan M. Gianinno

Timothy R. McLevish

 

 

 

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RRD | 2020 NOTICE OF MEETING AND PROXY STATEMENT

 

 


 

Executive Compensation

The Summary Compensation Table provides compensation information about our principal executive officer, principal financial officer, and the three most highly compensated executive officers other than the principal executive officer and principal financial officer as of December 31, 2019.

2019 Summary Compensation Table

 

Name and Principal Position

 

Year

 

Salary

($)

 

Bonus

($)(1)

 

Stock

Awards

($)(2)

 

 

Non-Equity

Incentive

Plan

Compensation

($)(3)

 

Change in

Pension

Value

($)(4)

 

All Other

Compensation

($)(5)

 

Total

($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Daniel L. Knotts

 

 

2019

 

 

 

978,500

 

 

 

 

 

 

4,328,794

 

 

 

973,608

 

 

 

229,200

 

 

 

37,806

 

 

6,547,908

President and

 

 

2018

 

 

 

971,375

 

 

 

 

 

 

4,061,026

 

 

 

750,999

 

 

 

 

 

 

39,482

 

 

5,822,882

Chief Executive Officer

 

 

2017

 

 

 

950,000

 

 

 

1,300,000

 

 

 

4,169,980

 

 

 

501,125

 

 

 

157,306

 

 

 

25,300

 

 

7,103,711

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Terry D. Peterson

 

 

2019

 

 

 

575,000

 

 

 

 

 

 

1,029,128

 

 

 

377,145

 

 

 

 

 

 

35,777

 

 

2,017,050

Executive Vice President

 

 

2018

 

 

 

568,750

 

 

 

 

 

 

972,950

 

 

 

282,440

 

 

 

 

 

 

36,067

 

 

1,860,207

and Chief Financial Officer

 

 

2017

 

 

 

550,000

 

 

 

900,000

 

 

 

1,019,321

 

 

 

185,680

 

 

 

 

 

 

51,648

 

 

2,706,648

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

John P. Pecaric

 

 

2019

 

 

 

518,750

 

 

 

 

 

 

684,302

 

 

 

318,941

 

 

 

73,546

 

 

 

39,637

 

 

1,635,176

President—RRD Business

 

 

2018

 

 

 

493,750

 

 

 

 

 

 

676,832

 

 

 

235,285

 

 

 

 

 

 

39,112

 

 

1,444,979

Services

 

 

2017

 

 

 

475,000

 

 

 

425,000

 

 

 

741,324

 

 

 

160,360

 

 

 

75,722

 

 

 

38,842

 

 

1,916,248

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Douglas D. Ryan