DEF 14A 1 aegn20180312_def14a.htm FORM DEF 14A aegn20180312_def14a.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

___________________________

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN

PROXY STATEMENT

SCHEDULE 14A INFORMATION

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Exchange Act of 1934

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Soliciting Material Pursuant to Sec. 240.14a-12

Aegion Corporation

(Name of Registrant as Specified in its Charter)

_________________________________________________________

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

to be held on April 25, 2018

 

TO THE OWNERS OF COMMON STOCK

 

OF AEGION CORPORATION:

 

You are invited to attend Aegion Corporation’s 2018 Annual Meeting of Stockholders. The meeting will be held on April 25, 2018, at 8:30 a.m. local time at the DoubleTree by Hilton, located at 16625 Swingley Ridge Road, Chesterfield, Missouri 63017.

 

The purposes of this year’s meeting are:

 

 

(1)

to elect nine directors;

 

 

(2)

to consider and vote upon a proposal to approve an advisory resolution relating to executive compensation;

 

 

(3)

to approve the Second Amendment to the Aegion Corporation 2016 Employee Equity Incentive Plan;

 

 

(4)

to ratify the appointment of PricewaterhouseCoopers LLP as our independent auditors for the year ending December 31, 2018; and

 

 

(5)

to transact any other business that may properly come before the meeting or any adjournment(s) of the meeting.

 

The Board of Directors set March 2, 2018 as the record date for the meeting. This means that if you were an owner of our common stock at the close of business on that date, you are entitled to receive notice of the meeting and vote at the meeting and any adjournment(s) of the meeting.

 

Whether or not you expect to attend the meeting, please vote by following the instructions on the Notice Regarding Internet Availability of Proxy Materials that you received in the mail or, if you requested or received a hard copy of the Proxy Statement, on your enclosed proxy card.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE 2018 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 25, 2018:

 

Our Proxy Statement and 2017 Annual Report are available at

 

www.proxyvote.com

 

 

By Order of the Board of Directors,

David F. Morris

Secretary

 

Chesterfield, Missouri

March 16, 2018

 

 

 

 

PROXY STATEMENT

 

Aegion Corporation’s Board of Directors is mailing this Proxy Statement and the proxy card, or the Notice Regarding Internet Availability of Proxy Materials (the “E-Proxy Notice”), to you to solicit proxies on its behalf to be voted at our 2018 Annual Meeting of Stockholders, and at any adjournment(s) of the meeting. The meeting will be held on April 25, 2018 at 8:30 a.m. local time at the DoubleTree by Hilton, located at 16625 Swingley Ridge Road, Chesterfield, Missouri 63017 for the purposes listed in the E-Proxy Notice and the notice accompanying this Proxy Statement.

 

On or about March 16, 2018, we first mailed this Proxy Statement and the proxy card, or the E-Proxy Notice, to our stockholders as of the close of business on March 2, 2018. The E-Proxy Notice contains instructions on how to access an electronic copy of our proxy materials, including this Proxy Statement and our 2017 Annual Report. The E-Proxy Notice also contains instructions on how to request a paper copy of our 2017 Annual Report, this Proxy Statement as well as a proxy card.

 

We will bear all costs relating to the solicitation of proxies. Proxies may be solicited by our officers, directors and regular employees personally, by mail or by telephone. We may reimburse brokers and other persons holding shares of stock in their names, or the names of their nominees, for reasonable expenses incurred in sending soliciting material to their principals.

 

Our executive office is located at 17988 Edison Avenue, Chesterfield, Missouri 63005.

 

 

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE 2018 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 25, 2018:

 

Our Proxy Statement and 2017 Annual Report are available at:

 

www.proxyvote.com

 

 

 

 

TABLE OF CONTENTS 

 

PROXY STATEMENT SUMMARY

1

QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING

3

PROPOSAL 1:  ELECTION OF DIRECTORS

8

Certain Information Concerning Director Nominees

8

Vote Required for the Election of Directors

13

CORPORATE GOVERNANCE

14

Independent Directors

14

Board Leadership Structure

15

Role of Board in Risk Oversight

15

Board Meetings and Committees

16

Corporate Governance Documents

19

Report of the Audit Committee

20

Director Compensation

21

Additional Information about Director Compensation

21

Stock Ownership Policy with Respect to Non-Employee Directors

23

EXECUTIVE COMPENSATION

24

Compensation Discussion and Analysis

24

Overview

24

Say on Pay Results and Stockholder Outreach

25

Compensation Mix

26

Pay for Performance Analysis

26

Understanding the Pay of Our Chief Executive Officer and Other Named Executive Officers

28

Key 2017 Compensation Actions

30

Key 2018 Compensation Actions

31

How We Make Executive Compensation Decisions - Philosophy and Process

32

How We Made Compensation Decisions in 2017

34

Compensation Related Policies

42

COMPENSATION COMMITTEE REPORT

45

COMPENSATION IN LAST FISCAL YEAR

46

Summary Compensation Table

46

Grants of Plan-Based Awards

48

Outstanding Equity Awards at Fiscal Year End

49

Option Exercises and Stock Vested

50

Nonqualified Deferred Compensation

50

CEO Pay Ratio

51

Severance, Change in Control and Termination

52

 

i

 

 

Potential Post-Employment Payments as of December 31, 2017

54

INFORMATION CONCERNING CERTAIN STOCKHOLDERS

59

RELATED-PARTY TRANSACTIONS

62

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

62

PROPOSAL 2:  ADVISORY VOTE ON EXECUTIVE COMPENSATION

63

PROPOSAL 3: APPROVAL OF THE SECOND AMENDMENT TO THE AEGION CORPORATION 2016 EMPLOYEE EQUITY INCENTIVE PLAN

65

Description of the Existing 2016 Employee Plan

65

Annual Evaluation of Existing Plan

65

Description of the Second Amendment to the 2016 Employee Plan

65

Historic Use of Equity, Outstanding Awards and Dilution

66

Required Vote for Approval

66

PROPOSAL 4:  RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS

67

Independent Auditors’ Fees

67

Vote Required for Ratification of the Appointment of Independent Auditors

68

OTHER MATTERS

69

HOUSEHOLDING OF MATERIALS

69

STOCKHOLDER PROPOSALS

69

STOCKHOLDER COMMUNICATIONS WITH DIRECTORS

70

 

 

APPENDIX A

A-1

 

ii

 

 

PROXY STATEMENT SUMMARY

 

This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider. You should read the entire Proxy Statement carefully before voting.

 

Meeting Information and Mailing of Proxy Materials

 

 

Date and Time:

April 25, 2018 at 8:30 a.m. (local time)

 

Location:

DoubleTree by Hilton, located at 16625 Swingley Ridge Road, Chesterfield, Missouri 63017

 

Record Date:

March 2, 2018

 

Mailing Date:

On or about March 16, 2018, we mailed the E-Proxy Notice, or this Proxy Statement and the proxy card, to our stockholders.

 

Voting:

Stockholders of record are entitled to one vote per share on each matter to be voted upon at the 2018 Annual Meeting of Stockholders.

 

Voting Matters and Board Recommendations

 

Proposal

 

Board Voting Recommendation

Page Reference

Election of nine directors for a term of one year or until their successors are elected and qualified

 

FOR each nominee

Pages 8 to 13

Advisory vote to approve Named Executive Officer compensation

 

FOR

Pages 63 to 64

Approval of the Second Amendment to the Aegion Corporation 2016 Employee Equity Incentive Plan

 

FOR

Pages 65 to 66

Ratification of the appointment of PricewaterhouseCoopers LLP as our independent auditors for the year ending December 31, 2018

 

FOR

Pages 67 to 68

 

1

 

 

Board Nominees

 

Name/Occupation &

Experience

 

 

Age

Director Since

Independent

Audit

Committee

Compensation

Committee

Corporate

Governance &

Nominating

Committee

Strategic

Planning &

Finance

Committee

               

Stephen P. Cortinovis

Former President -

Europe, Emerson Electric Co.

68

1997

Yes

 

M

 

C

               

Stephanie A. Cuskley

CEO, The Leona M. and

Harry B. Helmsley

Charitable Trust

57

2005

Yes

M

C

   
               

Walter J. Galvin

Former CFO & Vice

Chairman, Emerson

Electric Co.

71

2014

Yes

C

 

M

 
               

Rhonda Germany

Ballintyn    

Former VP & Chief

Strategy and Marketing

Officer for Honeywell

International, Inc.

61

2017

Yes

   

M

M

               

Charles R. Gordon

President & CEO,

Aegion Corporation

60

2009

No

     

M

               

Juanita H. Hinshaw

President & CEO,

H&H Advisors

73

2000

Yes

M

M

   
               

M. Richard Smith

Former SVP of Bechtel

Corporation and

President of its Fossil

Power business unit

70

2009

Yes

   

C

M

         

Alfred L. Woods -

Chairman   

Former President & CEO, Woods Group, LLC

74

1997

Yes

Ex Officio Member of all Standing Committees

               

Phillip D. Wright

Former President &

CEO, Williams Energy

Services, Inc.

62

2011

Yes

 

M

 

M

               

C = Chair             

M = Member

             

 

2

 

 

QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING

 

Who may vote?

 

You may vote if you owned shares of our common stock at the close of business on March 2, 2018, the record date for our 2018 Annual Meeting of Stockholders. You are entitled to one vote for each share you owned on that date for each director to be elected and on each other matter presented at the meeting. As of March 2, 2018, we had 32,593,427 shares of common stock, $.01 par value, outstanding. We have no class or series of voting stock outstanding other than our common stock.

 

A list of stockholders entitled to vote at the meeting will be available for examination at our executive office located at 17988 Edison Avenue, Chesterfield, Missouri 63005 for ten days before the 2018 Annual Meeting of Stockholders and at the Annual Meeting.

 

 

What am I voting on?

 

 

First, you are voting to elect nine directors. Each director, if elected, will serve a term of one year or until his or her successor has been elected and qualified.

 

Our Board of Directors recommends a vote “FOR” the election of each of our nominees for director.

 

 

 

Second, you are voting to approve an advisory resolution relating to executive compensation.

 

Our Board of Directors recommends a vote “FOR” the advisory resolution relating to executive compensation.

 

 

 

Third, you are voting to approve the Second Amendment to the Aegion Corporation 2016 Employee Equity Incentive Plan.

 

Our Board of Directors recommends a vote “FOR” the approval of the Second Amendment to the Aegion Corporation 2016 Employee Equity Incentive Plan.

 

 

 

Fourth, you are voting to ratify the appointment of PricewaterhouseCoopers LLP as our independent auditors for the year ending December 31, 2018.

 

Our Board of Directors recommends a vote “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as our independent auditors for the year ending December 31, 2018.

 

 

 

In addition, you may vote on other business, if it properly comes before the meeting, or any adjournment(s) of the meeting.

 

3

 

 

How do I vote?

 

 

By Telephone or Internet: You can vote by telephone or Internet by following the instructions included on the E-Proxy Notice that you received in the mail or, if you requested or received a hard copy of this Proxy Statement, on the enclosed proxy card.

 

 

By Written Proxy: If you requested or received a hard copy of this Proxy Statement, you can vote by written proxy by signing, dating and returning the enclosed proxy card in the postage-paid envelope provided. If you sign and return the enclosed proxy card, the shares represented by the proxy will be voted in accordance with the terms of the proxy, unless you subsequently revoke your proxy.

 

 

In Person: If you are a record stockholder, you can vote in person at the meeting.

 

 

What is a record stockholder and what is the difference between a record stockholder and a stockholder who holds shares in street name?

 

 

If your shares are registered in your name, you are a record stockholder.

 

 

If your shares are in the name of your broker or bank, or their nominee, your shares are held in street name.

 

 

How many votes are required to elect directors?

 

Directors are elected by the majority of votes cast, unless the election is contested where the number of director nominees exceeds the number of directors to be elected. The election of directors at the 2018 Annual Meeting of Stockholders is not a contested election. That means that the affirmative vote of a majority of the shares of our common stock cast is required for the election of each director. A summary of our majority voting standard appears under the heading “Vote Required for the Election of Directors” beginning on page 13 of this Proxy Statement.

 

 

How many votes are needed to approve the advisory resolution relating to executive compensation?

 

Approval of the advisory resolution relating to executive compensation requires the affirmative vote of a majority of the shares of our common stock cast on the proposal.

 

 

How many votes are needed to approve the Second Amendment to the Aegion Corporation 2016 Employee Equity Incentive Plan?

 

Approval of the Second Amendment to the Aegion Corporation 2016 Employee Equity Incentive Plan requires the affirmative vote of a majority of the shares of our common stock cast on the proposal.

 

 

How many votes are required to ratify the appointment of PricewaterhouseCoopers LLP as our independent auditors for 2018?

 

Ratification of the appointment of PricewaterhouseCoopers LLP as our independent auditors for the fiscal year ending December 31, 2018 requires the affirmative vote of a majority of the shares of our common stock cast on the proposal.

 

4

 

 

What if other matters are voted on at the 2018 Annual Meeting of Stockholders?

 

If any other matters are properly presented at the 2018 Annual Meeting of Stockholders for consideration, the persons named as proxies in the enclosed proxy card (if you requested or received a hard copy of this Proxy Statement) will have the discretion to vote on those matters for you. Approval of any other matter requires the affirmative vote of a majority of the shares of our common stock cast on such matter. At the date we mailed the E-Proxy Notice or this Proxy Statement, our Board of Directors did not know of any other matter to be raised at the 2018 Annual Meeting of Stockholders.

 

 

What does it mean if I receive more than one E-Proxy Notice or proxy card?

 

If you hold your shares in more than one account name, you will receive an E-Proxy Notice or a proxy card for each account. To ensure that all of your shares are voted, please follow the instructions on each E-Proxy Notice or proxy card that you receive.

 

 

Can I revoke my proxy?

 

Yes. You can revoke your proxy by:

 

 

writing to the attention of our Corporate Secretary at 17988 Edison Ave., Chesterfield, Missouri 63005 prior to the date of the 2018 Annual Meeting of Stockholders;

 

 

voting by telephone or internet on a later date, or delivering a later-dated proxy card, if you requested or received a hard copy of this Proxy Statement, prior to or at the 2018 Annual Meeting of Stockholders; or

 

 

voting in person at the 2018 Annual Meeting of Stockholders.

 

 

What is the record date and what does it mean?

 

The record date for the 2018 Annual Meeting of Stockholders is March 2, 2018. The record date is set by our Board of Directors, as required by Delaware law. Stockholders at the close of business on the record date are entitled to:

 

 

receive notice of the meeting; and

 

 

vote at the meeting, or at any adjournment(s) of the meeting.

 

 

What if I do not specify my vote when I return my proxy card?

 

If you received a hard copy of this Proxy Statement, you should specify your choice for each proposal on the enclosed proxy card. If no specific instructions are given, proxy cards that are signed and returned will be voted “FOR” the election of the director nominees named in this Proxy Statement, “FOR” the approval of the advisory resolution relating to executive compensation, “FOR” the approval of the Second Amendment to the Aegion Corporation 2016 Employee Equity Incentive Plan and “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as our independent auditors for the year ending December 31, 2018.

 

5

 

 

How are broker non-votes and abstentions counted?

 

Broker “non-votes” will not be counted as present for the purpose of determining the presence of a quorum unless these shares are voted on at least one matter presented at the 2018 Annual Meeting of Stockholders. A broker “non-vote” occurs when a broker or nominee holding shares for a beneficial owner does not vote on a particular proposal because the broker or nominee:

 

 

has not received voting instructions on a particular matter from the beneficial owner or persons entitled to vote; and

 

 

does not have discretionary voting power on the matter.

 

Brokers are subject to New York Stock Exchange (“NYSE”) rules with respect to their ability to vote shares held by them for the benefit of other persons. The NYSE rules direct that, if you are the beneficial owner of shares held in “street name” by a broker, the broker, as the record holder of the shares, is required to vote those shares in accordance with your instruction. If you do not give instructions to the broker, the broker will be entitled to vote the shares with respect to “discretionary” items but will not be permitted to vote the shares with respect to “non-discretionary” items (the latter are treated as “broker non-votes”). Proposal 4 is the only proposal that may be considered discretionary.

 

Broker non-votes will not be considered as either a vote cast for or against a director nominee and thus will have no effect on the vote for director nominees. Proposals 2 and 3 require the affirmative vote of the majority of shares cast on the proposal and, therefore, a broker non-vote will have no effect on the votes of these proposals.

 

Abstentions will be counted as present for the purpose of determining the presence of a quorum for transacting business at the 2018 Annual Meeting of Stockholders. Proposals 2, 3 and 4 require an affirmative vote of a majority of shares cast on the proposal and, pursuant to our By-Laws, an abstention will have no effect on the votes on these proposals.

 

 

How many votes must be present to conduct business at the 2018 Annual Meeting of Stockholders?

 

Our By-Laws require that a quorum must be present to conduct business at the 2018 Annual Meeting of Stockholders. To constitute a quorum, a majority of the outstanding shares of our common stock must be represented, in person or by proxy, at the 2018 Annual Meeting of Stockholders. The treatment of broker non-votes and abstentions with regard to determining a quorum is discussed above.

 

 

Why did I receive the E-Proxy Notice and not the printed proxy materials?

 

We are pleased to continue using the U.S. Securities and Exchange Commission rule that allows companies to furnish their proxy materials over the Internet. As a result, we are mailing to many of our stockholders an E-Proxy Notice about the Internet availability of the proxy materials instead of a paper copy of the proxy materials. All stockholders receiving the E-Proxy Notice will have the ability to access the proxy materials over the Internet and request to receive a paper copy of the proxy materials by mail. Instructions on how to access the proxy materials over the Internet or to request a paper copy may be found in the E-Proxy Notice. In addition, the E-Proxy Notice contains instructions on how you may request to access proxy materials in printed form by mail or electronically on an ongoing basis. Employing this distribution process will conserve natural resources and reduce the costs of printing and distributing our proxy materials.

 

6

 

 

Why did I not receive the E-Proxy Notice in the mail?

 

We are providing some of our stockholders, including stockholders who have previously requested to receive paper copies of the proxy materials, with paper copies of the proxy materials instead of the E-Proxy Notice. In addition, we are providing the E-Proxy Notice by e-mail to those stockholders who have previously elected delivery of the proxy materials electronically. Those stockholders should have received an e-mail containing a link to the website where those materials are available and a link to the proxy voting website.

 

 

How do I view the proxy materials online?

 

Go to www.proxyvote.com and follow the instructions to view the materials. It is necessary to provide the information printed in the box marked by the arrow located on your E-Proxy Notice.

 

 

What if I still prefer to receive a paper copy of the proxy materials?

 

You can easily request a paper copy at no cost by selecting from one of the three options below. You will need the information on the E-Proxy Notice that is printed in the box marked by the arrow.

 

 

By INTERNET at www.proxyvote.com;

 

 

By TELEPHONE, toll-free at 1-800-579-1639; or

 

 

By sending an E-MAIL to sendmaterial@proxyvote.com; simply enter the information in the box next to the arrow from your E-Proxy Notice in the subject line. No other information is necessary.

 

 

Can I request to receive my materials by e-mail rather than receive an E-Proxy Notice?

 

You may request to receive proxy materials for all future meetings either by e-mail or in paper form by mail. To request future copies by e-mail, go to www.proxyvote.com and follow the electronic delivery enrollment instructions. If you choose to access future proxy materials electronically, you will receive an e-mail with instructions containing a link to the website where those materials are available and a link to the proxy voting website. Your election to access proxy materials by e-mail will remain in effect until you terminate it.

 

 

Please note that you MAY NOT USE YOUR E-Proxy Notice to vote your shares; it is NOT a form for voting. If you send the E-Proxy Notice back, your vote will not count.

 

For more information about the E-Proxy Notice, please visit: www.sec.gov/spotlight/proxymatters/e-proxy.shtml.

 

7

 

 

PROPOSAL 1: ELECTION OF DIRECTORS

 

At our 2018 Annual Meeting of Stockholders, stockholders will elect nine directors, each to serve a term of one year or until his or her successor is elected and qualified. Our Board of Directors is currently comprised of nine directors. Our Board of Directors is not divided into classes of directors, meaning all of our directors are voted on every year at our Annual Meeting of Stockholders.

 

Unless otherwise instructed on the proxy card, each of the persons named as proxies on the proxy card intends to vote the shares represented thereby in favor of the nine nominees listed under “Certain Information Concerning Director Nominees” below, all of which have been recommended by our Board of Directors.

 

Each director nominee named below is presently serving as a director of our Company. All nominees have consented to being named in this Proxy Statement and to serve if elected. If, however, any nominee should become unable or unwilling to serve, the persons named as proxies on the proxy card will vote the shares represented by the proxy for another person duly nominated by our Board, based on the recommendation of our Corporate Governance and Nominating Committee, to stand for election in the nominee’s place. If no other person is so nominated, the shares will be voted only for the remaining nominees.

 

Certain Information Concerning Director Nominees

 

Certain information concerning the nominees for election as directors is set forth below. This information was furnished to us by the nominees. No family relationship exists between any of our directors or executive officers. 

 

 

STEPHEN P. CORTINOVIS

Director since 1997

Age 68

 

Mr. Cortinovis has been a co-owner of Lasco Foods, Inc., a privately-held food services industry manufacturer and distributor, since 2005. He was a partner in Bridley Capital Partners from 2001 until 2007. Previously, he was President - Europe of Emerson Electric Co. from 1995 until 2001 and held various other executive positions at Emerson Electric Co. from 1977 to 1995. Mr. Cortinovis also serves on the Boards of Directors of Plexus Corp., a publicly-held company, and Lasco Foods, Inc.

 

Chair of our Strategic Planning and Finance Committee and member of our Compensation Committee.

 

8

 

 

STEPHANIE A. CUSKLEY

Director since 2005

Age 57

 

Ms. Cuskley has served since late 2015 as the Chief Executive Officer of the Leona M. and Harry B. Helmsley Charitable Trust, which aspires to improve lives by supporting exceptional efforts in the U.S. and around the world in health and select place-based initiatives. Previously, from 2009 until late 2015, she was Chief Executive Officer of NPower, a national nonprofit mobilizing the tech community and providing individuals, nonprofits and schools opportunities to build tech skills and achieve their potential. Prior to NPower, Ms. Cuskley was an investment banker, most recently with JP Morgan Chase. Ms. Cuskley previously served on the Board of Directors of Avantair, Inc., a publicly-held company, until 2013.

 

Chair of our Compensation Committee and member of our Audit Committee.

 

 

 

 

WALTER J. GALVIN

Director since 2014

Age 71

 

Mr. Galvin retired from Emerson Electric Co. (“Emerson Electric”), an electrical and electronic manufacturer, in 2013 after having served as Vice Chairman from October 2009 to February 2013. He served as Emerson Electric’s Chief Financial Officer from 1993 until February 2010 and served as a management member of Emerson Electric’s Board of Directors from 2000 to February 2013. After retiring, Mr. Galvin served as a consultant to Emerson Electric, from February 2013 to September 2015. Mr. Galvin currently serves on the Board of Directors of Ameren Corporation, a publicly-held company, and as a senior advisor to Irving Place Capital, a private equity firm.

 

Chair of our Audit Committee and member of our Corporate Governance and Nominating Committee.

 

9

 

 

RHONDA GERMANY BALLINTYN

Director since 2017

Age 61

 

 

Ms. Germany Ballintyn retired from Honeywell International Inc. in 2017 after having served as Corporate Vice President, Chief Strategy and Marketing Officer since November 2002. Prior to Honeywell, Ms. Germany Ballintyn was with Booz, Allen & Hamilton, where she served as Vice President, Partner, Board Member and Member of the Board’s Personnel Committee. Prior to Booz, Allen & Hamilton, she ran an independent consulting firm specializing in strategic planning. She also has held management positions at Chem Systems Inc. and Union Carbide. Ms. Germany Ballintyn currently serves on the Board of Directors of Univar Inc., a publicly-held company. 

 

Member of our Corporate Governance and Nominating Committee and our Strategic Planning and Finance Committee.

 

 

 

 

CHARLES R. GORDON

Director since 2009

Age 60

 

Mr. Gordon has been our President and Chief Executive Officer since October 2014 and served as our interim Chief Executive Officer from May 2014 to October 2014. Previously, Mr. Gordon served as the Chief Executive Officer of Natural Systems Utilities, LLC, a distributed water infrastructure company, from February 2014 until being appointed our interim Chief Executive Officer in May 2014. Prior to Natural Systems Utilities, Mr. Gordon was President and Chief Operating Officer of Nuverra Environmental Solutions, Inc., a holding company formerly known as Heckmann Corporation that buys and builds companies in the water sector, from October 2010 until October 2013. Mr. Gordon was President and Chief Executive Officer of Siemens Water Technologies, a business unit of Siemens AG, a world leader in products, systems and services for water and wastewater treatment for industrial, institutional and municipal customers, from 2008 to 2010. Previously, Mr. Gordon served as Executive Vice President of the Siemens Water & Wastewater Systems Group from 2005 to 2008 and as Executive Vice President of the Siemens Water & Wastewater Services and Products Group from 2003 to 2005. His past experience also includes various management positions with US Filter Corporation and Arrowhead Industrial Water, prior to the acquisition of US Filter Corporation by the Siemens family of companies in 2004.

 

Member of our Strategic Planning and Finance Committee.

 

10

 

 

JUANITA H. HINSHAW

Director since 2000

Age 73

 

Ms. Hinshaw has been the President and Chief Executive Officer of H & H Advisors, a financial advisory company, since 2005. Previously, she was Senior Vice President and Chief Financial Officer of Graybar Electric Company, Inc., an electrical and communications distributor, from 2000 to 2005. Her past experience also includes various management positions with Monsanto Company, an agricultural company. Ms. Hinshaw serves on the Boards of Directors of The Society for the Blind and Visually Impaired, a nonprofit organization, and Nine Network of Public Media, a nonprofit public media organization. Ms. Hinshaw previously served on the Board of Directors of The Williams Companies, a publicly-held company, until 2016. Ms. Hinshaw also served on the Board of Directors of Synergetics USA, Inc., a publicly-held company, until 2015.

 

Member of our Compensation Committee and our Audit Committee.

 

 

 

 

M. RICHARD SMITH

Director since 2009

Age 70

 

Mr. Smith served as a Senior Vice President of Bechtel Corporation, a provider of engineering, construction and project management services in the energy, transportation, communications, mining and oil and gas industries, and President of its Fossil Power business unit from October 2005 until his retirement in December 2007. From 2008 until December 2016, Mr. Smith served as a consultant to, and on the Board of Directors of, Sithe Global Power, LLC, an international power development company. Mr. Smith served as the Interim Chief Executive Officer of SkyFuel, Inc., a solar thermal power technology and service provider, from February through June 2010 and as a member of its Board of Directors through December 2011. Mr. Smith also previously served as the Chief Executive Officer of Intergen NV, a global power generation firm, and in various management positions at affiliated Bechtel companies and at PG&E Corporation. Mr. Smith serves on the Board of Directors of McGrath Rentcorp, a publicly-held company, and previously served as a director of USEC Inc. (now known as Centrus Energy Corporation), a publicly-held company, from January 2011 to September 2014.

 

Chair of our Corporate Governance and Nominating Committee and member of our Strategic Planning and Finance Committee.

 

11

 

 

ALFRED L. WOODS

Director since 1997

Age 74

 

Mr. Woods has served as Chairman of our Board of Directors since 2003. Before he retired, he was the President and Chief Executive Officer of Woods Group, LLC, a management consulting company, since before 2001. Prior thereto, Mr. Woods served in various executive positions, including Chairman and Chief Executive Officer, at a number of public and private companies.

 

Ex officio member of all standing Board Committees.

 

 

 

 

PHILLIP D. WRIGHT

Director since 2011

Age 62

 

Mr. Wright’s career spanned 37 years in the oil, natural gas and petrochemical sectors. Key roles he held include: President and Chief Executive Officer, Williams Energy Services LLC, a production, midstream, refining, transportation & storage, and marketing enterprise, from October 2001 to November 2002; Senior Vice President and Chief Restructuring Officer, The Williams Companies, Inc., an integrated natural gas company, from November 2002 to January 2005; President, Williams Gas Pipeline Company, a gas pipeline subsidiary of The Williams Companies, Inc., from January 2005 to February 2011; and Senior Vice President - Corporate Development of The Williams Companies, Inc. from February 2011 until his retirement on April 1, 2012. Prior to joining Williams, Mr. Wright worked for 13 years for Conoco Inc., where he had roles in operations, engineering and commercial management. Mr. Wright is a former director and chairman of the Interstate Natural Gas Association of America and a former Chairman of the Association of Oil Pipelines of America. He also is the former First Vice Chairman of the Southern Gas Association. 

 

Member of our Compensation Committee and our Strategic Planning and Finance Committee.

 

12

 

 

Vote Required for the Election of Directors

 

Our By-Laws provide that for director nominees to be elected in an uncontested election, the number of shares voted “FOR” such director must exceed the aggregate number of votes “AGAINST” that director. Our Corporate Governance Guidelines provide that directors standing for re-election annually submit a contingent resignation in writing to the Chairman of the Corporate Governance and Nominating Committee to address majority voting in director elections. This resignation becomes effective only if the director fails to receive a sufficient number of votes for re-election at the 2018 Annual Meeting of Stockholders and our Board accepts the resignation. Our Corporate Governance and Nominating Committee will make a recommendation to the Board on whether to accept or reject the resignation, or whether other action should be taken. The Board will act on the Committee’s recommendation and publicly disclose its decision and the rationale behind it within 90 days from the date of the certification of the election results. A director whose resignation is being considered under this policy will not participate in the Corporate Governance and Nominating Committee’s consideration of its recommendation, if a member thereof, or in the Board’s decision, on whether to accept or reject the resignation or take such other actions.

 

Our Board of Directors recommends a vote “For” the election of

each of the nine nominees named herein as directors.

 

13

 

 

CORPORATE GOVERNANCE

 

Independent Directors

 

Based on the findings of our Board’s Corporate Governance and Nominating Committee, our Board has determined that the following directors are “independent directors” as defined by the rules applicable to companies listed on The Nasdaq Global Select Market:

 

Stephen P. Cortinovis

Juanita H. Hinshaw

   

Stephanie A. Cuskley

M. Richard Smith

   

Walter J. Galvin

Alfred L. Woods

   

Rhonda Germany Ballintyn

Phillip D. Wright

 

The Nasdaq Global Select Market sets forth independence guidelines that are aimed at determining whether a director has a relationship which, in the opinion of our Board of Directors, would interfere with the exercise of independence, such as a current or past employment relationship with us, the receipt by the director or one of his or her family members of compensation in excess of $120,000 from us other than for board or committee service and commercial relationships exceeding specified dollar thresholds. Independence determinations are made on an annual basis at the time the Board of Directors approves director nominees for inclusion in the annual Proxy Statement and, if a director joins the Board of Directors between annual meetings, at such time.

 

Our Board of Directors reviews various transactions, relationships and arrangements of individual directors in determining whether they are independent. With respect to Ms. Hinshaw, the Board considered Ms. Hinshaw’s prior service as a member on the Board of Directors of The Williams Companies, Inc. in connection with the commercial relationship between our Company and The Williams Companies, Inc. We provide services through our Corrosion Protection platform to The Williams Companies, Inc., an integrated natural gas company. The Board concluded this relationship did not impact the independence of Ms. Hinshaw.

 

With respect to Ms. Germany Ballintyn, the Board considered Ms. Germany Ballintyn’s prior employment with Honeywell International, Inc. in connection with the commercial relationship between our Company and Honeywell International, Inc. We have provided services through our Corrosion Protection and Energy Services platforms to Honeywell International, Inc., a manufacturing and technology company. The Board concluded this relationship did not impact the independence of Ms. Germany Ballintyn. The Board also considered Ms. Germany Ballintyn’s membership on the Univar, Inc. board of directors in connection with the commercial relationship between our Company and Univar, Inc. We have purchased products from Univar, Inc., a global distributor of industrial and specialty chemicals and products. The Board concluded this relationship did not impact the independence of Ms. Germany Ballintyn.

 

No other independent directors have had any personal, financial or business relationships with us either currently or during the three-year period ended December 31, 2017.

 

Our independent directors meet in executive session, without management, as appropriate.

 

14

 

 

Board Leadership Structure

 

Our Chairman of the Board position is a non-executive position. Our Board separated the positions of Chairman of the Board and Chief Executive Officer in July 2003. Alfred L. Woods has served as our Chairman since July 2003.

 

Separating these positions allows our Chief Executive Officer to focus on our day-to-day business, while allowing the Chairman of the Board to lead our Board in its fundamental role of providing advice to, and independent oversight of, management. Our Board recognizes the time, effort and energy that the Chief Executive Officer is required to devote to his position in the current business environment, as well as the commitment required to serve as our Chairman, particularly as the Board’s oversight responsibilities continue to grow. Our Board believes that having separate positions, with an independent non-executive director serving as Chairman, is the appropriate leadership structure for our Company at this time and demonstrates our commitment to good corporate governance.

 

Our Chairman is responsible for the smooth functioning of our Board, enhancing its effectiveness. Our Chairman guides the processes of our Board, setting the agenda for, and presiding at, Board meetings. Our Chairman also presides at stockholder meetings and ensures that directors receive appropriate information from our Company to fulfill their responsibilities.

 

Our Chairman is an ex officio member of each standing Board committee, providing guidance and, like all directors, taking an active role in evaluating our executive officers.

 

Our Chairman acts as a regular liaison between our Board and our executive management, consulting regularly with our executives over business matters and providing our executives with immediate consultation and advice on material business decisions that require prompt reflection or policy interpretation.

 

Pursuant to our Board’s delegation of authority policy, certain approval authorizations have been delegated to our Chairman. Any approvals made by the Chairman are then reported to our full Board at its next regularly scheduled meeting.

 

On June 27, 2013, the Board appointed Mr. Cortinovis to serve as Vice Chairman of the Board, a position he has served in since being appointed. As Vice Chairman, Mr. Cortinovis assists the Chairman in the performance of his duties.

 

Role of Board in Risk Oversight

 

Our Board of Directors has responsibility for the oversight of risk management. Our Board, either as a whole or through its Committees, regularly discusses with management our major risk exposures, their potential impact on our Company and the steps we take to manage them.

 

While our Board is ultimately responsible for risk oversight at our Company, our Board Committees assist the Board in fulfilling its oversight responsibilities in certain areas of risk. In particular, our Strategic Planning and Finance Committee reviews and approves risk management programs. Our Audit Committee focuses on financial risk, including internal controls, and receives an annual risk assessment report from our internal auditors. Our Corporate Governance and Nominating Committee focuses on the management of risks associated with Board organization, membership and structure, succession planning for our directors and executive officers, leadership development, corporate governance and compliance. Finally, our Compensation Committee assists the Board in fulfilling its oversight responsibilities with respect to the management of risks arising from our compensation policies and programs.

 

15

 

 

Board Meetings and Committees

 

Board of Directors. During 2017, our Board of Directors held seven meetings and did not act by unanimous written consent. No director attended fewer than 75% of the aggregate number of Board meetings and Board Committee meetings on which the director served during 2017. Our Board has four standing Committees, an Audit Committee, a Compensation Committee, a Corporate Governance and Nominating Committee and a Strategic Planning and Finance Committee. The Board may also, from time to time, establish such other Committees as it may deem necessary.

 

Audit Committee. The members of our Board’s Audit Committee are Walter J. Galvin (Chair), Stephanie A. Cuskley and Juanita H. Hinshaw. Mr. Galvin replaced Ms. Cuskley as Chair of the Audit Committee in April 2017. Mmes. Cuskley and Hinshaw and Mr. Galvin are independent directors as defined by the rules applicable to companies listed on The Nasdaq Global Select Market.

 

The primary functions of our Audit Committee are to oversee: (a) the integrity of our financial statements; (b) our compliance with legal and regulatory requirements; (c) our independent auditors’ qualifications and independence; and (d) the performance of our internal audit function and independent auditors. The Audit Committee also prepares the Report of the Audit Committee included in our Proxy Statement. The Audit Committee’s activities are intended to involve guidance and oversight and not to diminish the primary responsibility of management for our financial statements and internal controls. The Audit Committee’s primary responsibilities include:

 

 

the appointment, compensation, retention and termination of our independent auditors and of our internal auditors;

 

 

oversight of the work of independent auditors engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for us;

 

 

oversight of our internal auditors’ work;

 

 

review of the scope and results of our internal controls;

 

 

approval of the professional services provided by our independent auditors; and

 

 

review of the independence of our independent auditors.

 

Audit Committee Financial Expert. Based on the findings of the Audit Committee, our Board has determined that each of Mmes. Cuskley and Hinshaw and Mr. Galvin are “audit committee financial experts,” as defined in the rules promulgated by the Securities and Exchange Commission and as required of Nasdaq-listed companies.

 

During 2017, the Audit Committee held nine meetings and did not act by unanimous written consent. Our Board has adopted a written charter for the Audit Committee.

 

Compensation Committee. The members of our Board’s Compensation Committee are Stephanie A. Cuskley (Chair), Juanita H. Hinshaw, Stephen P. Cortinovis and Phillip D. Wright. Ms. Cuskley replaced Ms. Hinshaw as Chair of the Compensation Committee in April 2017. Mmes. Hinshaw and Cuskley and Messrs. Cortinovis and Wright are independent directors as defined by the rules applicable to companies listed on The Nasdaq Global Select Market.

 

16

 

 

Among other responsibilities, the Compensation Committee: (a) determines the compensation level of our Chief Executive Officer and other executive officers, as well as certain other highly compensated key employees; (b) reviews management’s Compensation Discussion and Analysis relating to our Company’s executive compensation programs and approves the inclusion of the same in our Proxy Statement and/or Annual Report on Form 10-K; (c) issues a report confirming the Compensation Committee’s review and approval of the Compensation Discussion and Analysis for inclusion in our Proxy Statement and/or Annual Report on Form 10-K; (d) administers, and makes recommendations with respect to, our incentive compensation plans and stock-based plans; and (e) reviews and oversees risks arising from or in connection with our compensation policies and programs for all employees. Our Board has adopted a written charter for the Compensation Committee under which there is no express authorization for the Compensation Committee to delegate its authority with respect to the determination of executive and director compensation, with the caveat that director compensation is recommended by the Compensation Committee to the Board for final approval.

 

During 2017, the Compensation Committee held eight meetings and acted by unanimous written consent on one occasion.

 

Compensation Committee Interlocks and Insider Participation. There were no compensation committee interlocks or insider participation on the part of the members of our Compensation Committee during 2017. The members of our Compensation Committee are set forth above under “Compensation Committee.”

 

Corporate Governance and Nominating Committee. The members of our Board’s Corporate Governance and Nominating Committee are M. Richard Smith (Chair), Rhonda Germany Ballintyn and Walter J. Galvin. Messrs. Galvin and Smith, and Ms. Germany Ballintyn, are independent directors as defined by the rules applicable to companies listed on The Nasdaq Global Select Market.

 

Among other responsibilities, the Corporate Governance and Nominating Committee: (a) advises the Board on corporate governance principles, including developing and recommending to our Board a set of corporate governance guidelines; (b) identifies qualified individuals to recommend as potential Board members to our stockholders; (c) oversees leadership development strategies; (d) oversees risks associated with the organization, membership and structure of our Board, succession planning for our directors and executive officers and corporate governance; and (e) oversees the Company’s compliance program.

 

When identifying nominees to serve as a director of our Company, our Corporate Governance and Nominating Committee considers candidates with diverse business and professional experience, skills, gender and ethnic background, as appropriate, in light of the current composition and needs of our Board. As part of its evaluation of a candidate’s business and professional experience, the Corporate Governance and Nominating Committee considers a variety of characteristics including, but not limited to: certain core competencies, including knowledge of accounting and finance, sound business judgment, knowledge of management trends, crisis response ability, industry knowledge and strategy and vision; experience in the industries in which we operate; independence; level of commitment; and personal characteristics. The Corporate Governance and Nominating Committee may engage a third party to assist it in identifying potential director nominees. The Corporate Governance and Nominating Committee assesses the effectiveness of this practice annually in connection with the nomination of directors for election at the annual meeting of stockholders.

 

The composition of our current Board reflects diversity in business and professional experience, skills, gender and ethnic background. When considering whether our current directors have the experience, qualifications, attributes and skills, taken as a whole, to enable our Board to satisfy its oversight responsibilities effectively in light of our Company’s business and structure, our Corporate Governance and Nominating Committee and Board focused primarily on the information discussed in each of the directors’ individual biographies set forth on pages 8 through 12 of this Proxy Statement. In particular:

 

 

With regard to Mr. Cortinovis, our Board considered his strong background in the global manufacturing and technology sector, as well as his expertise with large multinational corporations.

 

17

 

 

 

With regard to Ms. Cuskley, our Board considered her strong financial and investment banking background.

 

 

With regard to Mr. Galvin, our Board considered his wealth of senior management, leadership and financial experience with well-respected public companies.

 

 

With regard to Ms. Germany Ballintyn, our Board considered her extensive strategy and marketing background as well as her senior leadership experience, especially in the manufacturing sector.

 

 

With regard to Mr. Gordon, our Board considered his extensive senior management experience in the water and wastewater industries as well as his in-depth knowledge of our Company and its operations as President and CEO.

 

 

With regard to Ms. Hinshaw, our Board considered her global experience in finance and investments, financial planning and risk management.

 

 

With regard to Mr. Smith, our Board considered his global business experience in the energy industry, including the mining and oil and gas sectors.

 

 

With regard to Mr. Woods, our Board considered his extensive managerial expertise, including as Chairman or Chief Executive Officer at a number of public and private companies, and experience in financial operations, as well as his diverse industry experience and entrepreneurial know-how.

 

 

With regard to Mr. Wright, our Board considered his extensive managerial experience in the energy industry, including numerous executive positions, as well as his in-depth knowledge of the oil and gas sectors.

 

In addition, our Corporate Governance and Nominating Committee has actively sought directors that allow our Board to benefit from potentially different perspectives arising from gender and ethnic diversity on the Board.

 

Stockholders also may make nominations for directors. Stockholders wishing to propose nominees for consideration at our 2019 Annual Meeting of Stockholders must comply with the provisions of our By-Laws dealing with nominations. For a discussion of the nominating procedures, see “Stockholder Proposals” on page 69 in this Proxy Statement. All director candidates, including those recommended by stockholders, are evaluated on the same basis.

 

The Corporate Governance and Nominating Committee held four meetings in 2017 and did not act by unanimous written consent. Our Board has adopted a written charter for the Corporate Governance and Nominating Committee.

 

Strategic Planning and Finance Committee. The members of our Board’s Strategic Planning and Finance Committee are Stephen P. Cortinovis (Chair), Rhonda Germany Ballintyn, Charles R. Gordon, M. Richard Smith and Phillip D. Wright. Messrs. Cortinovis, Smith and Wright, and Ms. Germany Ballintyn, are independent directors as defined by the rules applicable to companies listed on The Nasdaq Global Select Market.

 

The role of this Committee is to oversee the development of the ongoing strategic planning process and initiatives and financial affairs of our Company, including: (a) assisting management with strategic and annual business plans; (b) reviewing and discussing with management large projects, bids and other contractual arrangements; and (c) reviewing and making recommendations regarding financial matters, mergers and acquisitions, risk management, capital structure and investor relations.

 

The Strategic Planning and Finance Committee held eight meetings in 2017 and did not act by unanimous written consent. Our Board has adopted a written charter for the Strategic Planning and Finance Committee.

 

18

 

 

Corporate Governance Documents

 

Corporate Governance Guidelines. Based on the recommendation of the Corporate Governance and Nominating Committee, our Board has adopted a set of corporate governance guidelines. These corporate governance guidelines, which are subject to annual review by the Corporate Governance and Nominating Committee, provide a framework within which our Board and executive officers fulfill their respective responsibilities and reflect our Board’s commitment to monitor the effectiveness of decision-making, both at the Board and senior executive management level.

 

Board Committee Charters. As described above, our Board has adopted a charter for each of its standing Committees: the Audit, Compensation, Corporate Governance and Nominating, and Strategic Planning and Finance Committees.

 

Code of Ethics for our CEO, CFO and Senior Financial Employees. Our Audit Committee has adopted a written code of ethics that applies to our Chief Executive Officer, our Chief Financial Officer and senior financial employees. The purposes of the code of ethics, among other things, are to deter wrongdoing, to promote ethical conduct and to ensure that information that we provide in our public reports, including those filed with the Securities and Exchange Commission, is full, fair, accurate, timely and understandable.

 

Code of Conduct. Based on the recommendation of the Corporate Governance and Nominating Committee, our Board has adopted a code of conduct that applies to all of our employees, including our officers, and our directors.

 

Availability of Corporate Governance Documents. Each of our corporate governance guidelines, our By-Laws, Board committee charters, code of ethics and code of conduct are available, free of charge, on our website, www.aegion.com, under “Investors” and then “Corporate Governance.” We also will provide these documents, free of charge, to any stockholder who requests them by writing to the following address:

 

Investor Relations

c/o Aegion Corporation

17988 Edison Avenue

Chesterfield, Missouri 63005

 

 

If we amend our code of ethics or grant a waiver of our code of ethics or code of conduct to any of our officers or directors, we will disclose the amendment or waiver on our website or as required by law or regulation.

 

19

 

 

Report of the Audit Committee

 

Our Board’s Audit Committee operates under a written charter, which was adopted by our Board of Directors. A copy of this charter is available, free of charge, on our website, www.aegion.com. Our Audit Committee consists of three independent directors: Walter J. Galvin (Chair), Stephanie A. Cuskley and Juanita H. Hinshaw.

 

Our Audit Committee reviews the Company’s financial reporting process on behalf of our Board of Directors. In fulfilling its responsibilities, our Audit Committee has reviewed and discussed the audited financial statements to be included in our 2017 Annual Report on Form 10-K with management and PricewaterhouseCoopers LLP, our Company’s independent registered public accounting firm. Management is responsible for the financial statements and the reporting process, as well as maintaining effective internal control over financial reporting and assessing such effectiveness. Our independent registered public accounting firm is responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States, as well as expressing an opinion on whether the Company maintained effective internal control over financial reporting.

 

Our Audit Committee has discussed with PricewaterhouseCoopers LLP the matters required to be discussed by the statement on Auditing Standards No. 61, as amended, as adopted by the Public Company Accounting Oversight Board (“PCAOB”) in Rule 3200T, which is now codified as PCAOB Auditing Standard No. 1301. In addition, our Audit Committee has discussed with PricewaterhouseCoopers LLP the accounting firm’s independence with respect to our Company and its management, including the matters in the written disclosures and the letter required by the applicable requirements of the PCAOB regarding PricewaterhouseCoopers LLP’s communications with our Audit Committee concerning independence, received from PricewaterhouseCoopers LLP. Based upon the above reviews and discussions, our Audit Committee recommended to our Board that our audited consolidated financial statements for 2017 be included in our 2017 Annual Report on Form 10-K.

 

Our Board and our Audit Committee believe that our Audit Committee’s current member composition satisfies the rules that govern audit committee composition, including the requirement that all audit committee members are “independent” directors, as that term is defined in the listing standards of The Nasdaq Stock Market LLC.

 

Based on the findings of our Audit Committee, our Board has determined that our Audit Committee has three “audit committee financial experts,” as defined in the rules promulgated by the Securities and Exchange Commission. They are Walter J. Galvin, Stephanie A. Cuskley and Juanita H. Hinshaw.

 

 

Walter J. Galvin, Chair   Stephanie A. Cuskley

Juanita H. Hinshaw

 

Notwithstanding anything set forth in any of our previous filings under the Securities Act of 1933, as amended,

or the Securities Exchange Act of 1934, as amended, that might incorporate future filings,

including this Proxy Statement, in whole or in part, the preceding report shall not be deemed

incorporated by reference in any such filings.

 

20

 

 

Director Compensation

 

The following table sets forth information concerning compensation earned by our non-employee directors in fiscal year 2017:

 

 

Name

Year

 

Fees Earned

or Paid in

Cash

($)

   

Stock

Awards

($)(1)

 

Option

Awards

($)

   

Non-Equity

Incentive Plan

Compensation

($)

   

Change in

Pension Value

and

Nonqualified

Deferred

Compensation Earnings
($)

   

All Other Compensation

($)

   

Total

($)

Stephen P. Cortinovis

2017

    $102,000     $102,000                             $204,000  

Stephanie A. Cuskley

2017

    102,000     102,000                             204,000  

Walter J. Galvin (2)

2017

        198,000                             198,000  

Rhonda Germany Ballintyn

2017

    91,000     102,000                                     193,000  

Juanita H. Hinshaw

2017

    97,000     102,000                             199,000  

M. Richard Smith

2017

    97,000     102,000                             199,000  

Alfred L. Woods

2017

    143,000     176,400                             319,400  

Phillip D. Wright (3)

2017

    -     199,000                             199,000  

_________________________

 

(1)

Represents the aggregate grant date fair value, computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, “Compensation–Stock Compensation,” with respect to deferred stock units awarded on: (a) January 1, 2017, in the amount of 854 to Mr. Galvin; (b) January 1, 2017, in the amount of 918 to Mr. Wright; (c) January 4, 2017, in the amount of 1,254 to Ms. Germany Ballintyn; (d) March 31, 2017, in the amount of 884 to Mr. Galvin; (e) March 31 2017 in the amount of 950 to Mr. Wright; (f) April 26, 2017, in the following amounts: 4,324 to each of Messrs. Cortinovis and Smith and Mmes. Cuskley, Germany Ballintyn and Hinshaw; 4,483 to Mr. Galvin; 4,430 to Mr. Wright and 7,478 to Mr. Woods; (g) July 1, 2017, in the amount of 1,080 to Mr. Galvin; (h) July 1, 2017, in the amount of 1,091 to Mr. Wright; (i) October 2, 2017, in the amount of 1,019 to Mr. Galvin; and (j) October 2, 2017, in the amount of 1,030 to Mr. Wright. See footnotes (2) and (3) below for additional information regarding the awards of deferred stock units to Messrs. Galvin and Wright, respectively. Please refer to Note 9, “Equity-Based Compensation,” in the Notes to Consolidated Financial Statements contained in our Annual Report on Form 10-K filed on March 1, 2018, for a discussion regarding the valuation of our stock awards. The aggregate number of deferred stock unit awards outstanding at December 31, 2017 was as follows: Mr. Cortinovis, 31,639; Ms. Cuskley, 50,720; Mr. Galvin, 33,236; Ms. Germany Ballintyn, 5,578; Ms. Hinshaw, 36,870; Mr. Smith, 18,140; Mr. Woods, 55,647; and Mr. Wright, 26,210.

 

(2)

As described in more detail below, our directors are permitted to receive deferred stock units in lieu of cash fees. Pursuant to this option, Mr. Galvin elected to receive deferred stock units in lieu of all cash fees payable to Mr. Galvin in 2017. As a result, Mr. Galvin received 854 deferred stock units on January 1, 2017, 884 deferred stock units on March 31, 2017, 159 deferred stock units on April 26, 2017, 1,080 deferred stock units on July 1, 2017 and 1,019 deferred stock units on October 2, 2017, each in lieu of the cash fee that would have otherwise been payable to Mr. Galvin for board and committee service during each of the first, second, third and fourth quarters of 2017, respectively.

 

(3)

As described in more detail below, our directors are permitted to receive deferred stock units in lieu of cash fees. Pursuant to this option, Mr. Wright elected to receive deferred stock units in lieu of all cash fees payable to Mr. Wright in 2017. As a result, Mr. Wright received 918 deferred stock units on January 1, 2017, 950 deferred stock units on March 31, 2017, 106 deferred stock units on April 26, 2017, 1,091 deferred stock units on July 1, 2017 and 1,030 deferred stock units on October 2, 2017, each in lieu of the cash fee that would have otherwise been payable to Mr. Wright for board and committee service during each of the first, second, third and fourth quarters of 2017, respectively.

 

 

Additional Information about Director Compensation 

 

The Corporate Governance and Nominating Committee is responsible for reviewing and recommending to the Board of Directors the general guidelines for determining the form of director compensation. Based on these guidelines, the Compensation Committee then reviews and recommends to the Board of Directors any changes in the amount of director compensation that will enhance the Company’s ability to attract and retain qualified directors.

 

21

 

 

During 2017, the Board approved an increase with respect to annual cash fees paid to non-employee directors. Each non-employee director, other than Mr. Woods, was compensated at a rate of $67,000 per year (an increase from $57,000 paid in years 2010 through 2016), plus reimbursed for related business travel expenses. Mr. Woods, our Chairman, was compensated at a rate of $143,000 per year (an increase from $131,000 paid in years 2010 through 2016), plus reimbursed for related business travel expenses. Directors were not paid meeting fees in 2017.

 

Non-employee directors, other than Mr. Woods, received the following additional annual compensation for serving on Board committees:

 

Board Committee     Chair Compensation    

Member

Compensation

Audit Committee

    $20,000       $15,000  

Compensation Committee

    20,000       15,000  

Corporate Governance and Nominating Committee

    15,000       9,000  

Strategic Planning and Finance Committee

    20,000       15,000  

 

The foregoing annual compensation for serving on Board committees was not increased in 2017, and has not increased since 2011.

 

Non-employee directors are eligible to receive grants of stock options and/or awards of deferred stock units under our Non-Employee Director Equity Plan from time to time. Since 2013, our non-employee directors, other than our Chairman, have received an annual equity grant of $102,000, and our Chairman has received an annual equity grant of $176,400, in each case payable in deferred stock units. Each award is based on the closing price of our common stock on the Nasdaq Global Select Market on the date of the award. For 2017, the annual equity grant resulted in an award on April 26, 2017 of 4,324 deferred stock units to each of Messrs. Cortinovis, Galvin, Smith and Wright and Mmes. Cuskley, Germany Ballintyn and Hinshaw and 7,478 deferred stock units to Mr. Woods.

 

In order to facilitate compliance with our stock ownership requirements as well as further align the interests of our directors with those of our stockholders, we permit our non-employee directors to elect to receive deferred stock units in lieu of the cash fees payable for board and committee service. In 2017, Messrs. Galvin and Wright elected to receive all cash fees for board and committee service in the form of deferred stock units. As a result, Mr. Galvin received 3,996 deferred stock units in lieu of the $96,000 cash fee that would have otherwise been payable to Mr. Galvin for board and committee service during 2017. Mr. Wright received 4,095 deferred stock units in lieu of the $97,000 cash fee that would have otherwise been payable to Mr. Wright for board and committee service during 2017.

 

Each deferred stock unit represents our obligation to transfer one share of our common stock to the director in the future, and is fully vested at award. Following termination of the director’s service on our Board or on any other distribution date after a mandatory deferral period as the director may elect, shares of our common stock equal to the number of deferred stock units reflected in the director’s account will be distributed to the director. Currently, pursuant to the Non-Employee Director Equity Plan, directors are required to defer the distribution of annual awards of deferred stock units for at least three years and the distribution of deferred stock units awarded in lieu of the payment of cash fees for at least one year, in each case unless there is a termination of a director’s service on our Board and such director has elected to have deferred stock units distributed on termination.

 

In December 2017, we amended our Voluntary Deferred Compensation Plan, effective January 1, 2018, to open the plan to our non-employee directors. Our non-employee directors may elect to defer between 1% and 100% of their cash compensation pursuant to the terms of the Voluntary Deferred Compensation Plan. Non-employee directors are not eligible for matching contributions or discretionary contributions under the Voluntary Deferred Compensation Plan.

 

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Stock Ownership Policy with Respect to Non-Employee Directors

 

We have a policy with respect to required levels of stock ownership for our non-employee directors. Under the policy, each current non-employee director is required to beneficially own (and retain thereafter) the greater of: (a) 10,000 shares of our common stock; and (b) the number of shares of our common stock having a value equal to five times the amount of the non-employee director’s annual cash retainer, excluding any cash retainer paid for service on a Committee of the Board (where the number of shares is determined by dividing such value by the average closing price of our common stock for the ten trading days prior to December 31); provided, however, that for the Chairman, the amount of the annual cash retainer shall be the amount paid to our other non-employee directors. This ensures that the stock ownership requirement for our directors is proportional to the price of our common stock as well as our directors’ compensation for service on our Board. The required ownership amount is recalculated annually as of January 1, based on the director’s annual cash retainer as of December 31 of the immediately preceding year.

 

Each non-employee director is required to beneficially own (and retain thereafter) the requisite number of shares of our common stock no later than the third anniversary of his or her election or appointment. In the event there is a significant decline in the price of our common stock that causes a director’s holdings to fall below the applicable threshold, such director is not required to purchase additional shares to meet the threshold but our policy provides that such director shall not sell or transfer any shares until the threshold has again been achieved.

 

As of January 1, 2018, the required ownership of each of our non-employee directors was as follows:

 

Non-Employee Director

Date Subject

to Policy

 

Retainer

Multiplied by 5

 

10-Day Average

Closing Price

 

Required Share

Ownership as of

January 1, 2018

 

Actual Share

Ownership as of

January 1, 2018

Stephen P. Cortinovis

 July 25, 2006

   

$335,000

     

$25.50

       

13,137

       

81,971

   

Stephanie A. Cuskley

 July 25, 2006

   

335,000

     

25.50

       

13,137

       

54,879

   

Walter J. Galvin

       October 10, 2014

   

335,000

     

25.50

       

13,137

       

46,181

   

Rhonda Germany Ballintyn (1)

     January 4, 2017

   

   335,000

     

     25.50

       

 n/a

       

5,578

   

Juanita H. Hinshaw

 July 25, 2006

   

335,000

     

25.50

       

13,137

       

62,645

   

M. Richard Smith

          December 15, 2009

   

335,000

     

25.50

       

13,137

       

48,315

   

Alfred L. Woods

 July 25, 2006

   

335,000

  (2)

   

25.50

       

13,137

       

137,343

   

Phillip D. Wright

           November 10, 2011

   

335,000

     

25.50

       

13,137

       

48,858

   

_________________________

 

(1)

Ms. Germany Ballintyn was appointed to our Board on January 4, 2017. Ms. Germany Ballintyn will have three years from that date to become in compliance with the stock ownership policy.

 

(2)

For purposes of determining the required ownership of our Chairman, the annual cash retainer used is the amount paid to our other non-employee directors.

 

As of January 1, 2018, each non-employee director was in compliance with the stock ownership requirements of this policy, except for Ms. Germany Ballintyn, who joined the Board on January 4, 2017 and is still in the three-year window to achieve compliance. Ms. Germany Ballintyn will be required to be in compliance by January 4, 2020.

 

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EXECUTIVE COMPENSATION

 

COMPENSATION DISCUSSION AND ANALYSIS

 

This Compensation Discussion and Analysis provides information about our 2017 compensation program for the following current and former executive officers (collectively, our “Named Executive Officers”):

 

Named Executive Officer

Position

Charles R. Gordon

President and Chief Executive Officer

David F. Morris

Executive Vice President, General Counsel and Interim Chief Financial Officer

Stephen P. Callahan

Senior Vice President – Human Resources

Michael D. White

Senior Vice President, Corporate Controller and Chief Accounting Officer

David A. Martin

Former Executive Vice President and Chief Financial Officer

John D. Huhn

Former Senior Vice President and Chief Strategy Officer

 

This discussion also contains forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs.

 

Overview

 

We emphasize a total compensation approach in establishing individual executive compensation levels, with each element of compensation serving a specific purpose. In this context, the foundation of all decisions regarding our executive compensation program is a pay for performance philosophy. Our pay for performance philosophy requires the achievement of financial goals designed to drive profitable growth coupled with service requirements to encourage retention of executive talent. We believe that the continuation of this philosophy will in turn drive stockholder value over time.

 

We also believe that our executive compensation decisions should be consistent with, and designed to facilitate, good corporate governance practices. Accordingly, we:

 

 

utilize independent compensation consultants that do not perform any other work for the Company or our management team;

 

 

devote significant time to succession planning efforts;

 

 

adopt and maintain compensation programs that do not encourage imprudent risk;

 

 

do not enter into employment agreements with our executive officers;

 

 

include double-trigger change in control provisions for accelerated vesting of our long-term incentive awards;

 

 

target all components of compensation at the 50th percentile of our peer group companies;

 

 

maintain appropriate stock ownership guidelines, which prohibit the sale of shares (other than shares used to pay applicable taxes and/or the exercise price for stock options) until compliance is achieved;

 

 

consider benchmarking and market data in making compensation decisions;

 

 

do not permit or include problematic pay practices such as the repricing of “underwater” stock options without stockholder approval, excessive perquisites or tax gross-up payments (including in the event of a change in control);

 

 

maintain anti-hedging, anti-pledging and incentive compensation clawback policies;

 

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maintain a robust stockholder outreach program;

 

 

elect directors annually by a majority vote standard (except in contested elections);

 

 

separate the roles of Chairman of the Board and Chief Executive Officer;

 

 

ensure that all of our directors are independent other than our Chief Executive Officer; and

 

 

mitigate the potential dilutive effect of equity awards through share repurchase programs.

 

Say on Pay Results and Stockholder Outreach

 

We conduct a stockholder outreach program through which we interact with stockholders on a number of matters throughout the year, including executive compensation. The compensation disclosed in our 2017 Proxy Statement was approved by our stockholders at the 2017 Annual Meeting of Stockholders by a 97.46% vote, which reflects, in the view of our Compensation Committee of our Board of Directors (the “Committee”), the efficacy of that outreach. The Committee considered this favorable outcome and believes it conveyed our stockholders’ support of the Committee’s decisions and the existing executive compensation programs. Consistent with this support, the Committee decided to retain the design and structure of our executive compensation programs in the remainder of 2017 and in 2018, with minor modifications. The Committee believes that the existing compensation programs continue to attract, retain and appropriately incent senior management.

 

As part of our long-standing stockholder outreach program, in 2017, we: (i) attended nine conferences that included approximately fifty individual and group meetings with current and prospective stockholders; (ii) conducted over twenty stockholder meetings in eight different cities; (iii) met with stockholders owning over nearly 20% or our outstanding shares; and (iv) had regular and periodic calls and other correspondence with stockholders, including with respect to corporate governance and executive compensation matters.

 

The Committee carefully considers the feedback received as a result of our stockholder outreach program and also routinely reviews executive compensation practices.

 

25

 

 

Compensation Mix

 

In 2017, our executive compensation program consisted primarily of three elements: (i) short-term cash compensation in the form of a base salary; (ii) performance-based, short-term cash compensation in the form of annual cash incentives; and (iii) long-term equity incentive compensation in the form of performance-based stock units and time-based restricted stock units. The objective and alignment with stockholder value creation for each of these elements are set forth in the table below.

 

Component

Key Features

Objectives

Total Direct Compensation

Base Salary

 Provides a base wage that is competitive to attract and retain highly qualified leaders

 Reflects individual performance, experience and scope of responsibility

 Only pay element that is independent of Company financial performance and service requirements

Annual Cash Incentive

 Provides additional cash compensation opportunity for executives

 Motivates executives to achieve annual business goals

 At risk based on Company performance

 Focused on Company income growth

Long-Term Incentives

Performance Units

 Provides opportunity for stock acquisition

 Motivates executives to make decisions that focus on long-term stockholder value

 Promotes retention of highly qualified leaders

 Equity-based

 At risk based on Company TSR and ROIC goal achievement

 Payout based on sustained growth

Restricted Stock Units

 Same key features as “Performance Units”

 Equity-based

 Service requirements aid long-term retention

 

Pay for Performance Analysis

 

We target a mix of the compensation elements set forth in the table above in order to create a strong correlation between corporate performance and each executive’s actual total compensation, aligning the interests of our executives with the interests of our Company and its stockholders. Specifically, a significant portion of each executive’s total compensation is dependent upon our Company’s achievement of measurable annual and multi-year financial performance goals, rewarding our executives on both an annual and long-term basis if the Company attains specified targets. In addition, long-term compensation of our executives, if earned, is paid in Company stock, further aligning our executives’ incentives with increasing the value of our stock. As a result, we give substantial weight in total target compensation to long-term compensation.

 

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The following graph illustrates the allocation in 2017 of our total target direct compensation opportunity for our Chief Executive Officer, Mr. Gordon, and the weighted average of our other Named Executive Officers between short- and long-term elements and cash- and equity-based elements.

 


_________________________

 

(1)

Long-Term Equity-Based Compensation consists of performance units (at target) and time-based restricted stock units.

(2)

Performance-Based Compensation consists of target annual cash incentives and performance units (at target).

 

We believe the mix of compensation above appropriately provides rewards only upon strong financial and operational performance, especially over the long-term. Specifically, in 2017:

 

 

50% of total target compensation of our CEO was performance-based and 56.6% was long-term and equity-based;

 

 

42% of total target compensation of our Named Executive Officers other than the CEO was performance-based and 45.4% was long-term and equity-based; and

 

 

a substantial portion of target pay is delivered through long-term equity awards, 50% of which is based on the achievement of objective performance goals and 100% of which is based on a multi-year vesting schedule and continued service requirements.

 

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The Committee, based on recommendations from our CEO with respect to executive officers other than the CEO, made the following compensation decisions in 2017, which backed up our commitment to a pay for performance philosophy:

 

 

There were modest base salary increases awarded to our Named Executive Officers for 2017 (between 2.5% and 8.0%) based on improving market conditions, individual performance and an analysis of executive compensation market data;

 

 

Equity award values awarded to our Named Executive Officers (excluding Mr. Gordon) under our long-term equity incentive program were returned in 2017 to 2015 levels based on improving market conditions and an analysis of executive compensation market data;

 

 

Based on 2017’s actual net income (calculated in accordance with the 2017 Annual Incentive Plan) being below the threshold net income amount in the 2017 Annual Incentive Plan, no cash incentive payments under our 2017 Annual Incentive Plan were made to our Named Executive Officers;

 

 

For our Named Executive Officers, the performance units from the 2015-2017 performance awards vested at 150% of target value as a result of (1) the return on invested capital (“ROIC”) metric (25%) not being achieved (actual ROIC performance for the three-year period was 7.31% compared to the ROIC threshold goal of 8.0% for the 2015-2017 performance period, which resulted in none of the performance units tied to the ROIC goal being earned); and (2) the total stockholder return (“TSR”) metric (75%) exceeding target over the three year cumulative period (for the three-year performance period (January 1, 2015 – December 31, 2017). Our TSR was 45.97% compared to negative 19.90% for our TSR peer group at the 50th percentile, which resulted in the performance units tied to the TSR metric paying out at 200% of target.

 

 

Understanding the Pay of Our Chief Executive Officer and Other Named Executive Officers

 

This section provides additional detail on the rationale for the pay of our Chief Executive Officer as well as the pay of our other Named Executive Officers.

 

28

 

 

2017 Total Reported Compensation v. Realizable Pay

 

The 2017 realizable pay of our Named Executive Officers is set forth in the table below as compared to the total reported compensation of these executives as set forth in the Summary Compensation Table on page 46 (the “SCT”). We define realizable pay for these purposes as the sum of the following: (1) base salary and cash incentives earned for 2017; (2) the fair market value of the shares of our common stock payable in respect of non-forfeited performance units outstanding as of the end of 2017 (but excluding the value of shares underlying any unvested performance units that may be earned based on Company performance in a later year or the value of shares paid during 2017 in respect of performance units that were earned and vested based upon performance during a prior year); and (3) the fair market value of any restricted stock unit awards granted during 2017. For purposes of the table, the value of shares subject to awards was based on the year-end 2017 closing price of our common stock (i.e., $25.43). Although the Committee did not rely on the information in the below table to make compensation decisions for 2017, the information in the table is made available to the Committee as part of the compensation process.

 

           

2017 Realizable Pay

 
Name (1)  

2017 Total

Reported

Compensation
  Salary  

Annual Cash

Incentive
 

Performance

Units (2)
 

Service-Based

Restricted

Stock Units

(3)
 

Other

Compensation

(4)
 

Total

Realizable

Pay
 

Realizable Pay

as a % of Total

Reported

Compensation

Charles R. Gordon

    $2,633,099       $664,625       $0       $2,215,156       $965,755       $23,371       $3,868,907     146.9 %

David F. Morris

    1,138,472       399,520       0       719,923       358,716       16,485       1,494,644     131.3  

Stephen P. Callahan

    502,195       265,000       0       n/a       126,921       11,553       403,474     80.3  

Michael D. White

    423,328       243,500       0       166,134       82,775       13,105       505,514     119.4  

 

_______________________

 

(1)

Messrs. Martin (former Chief Financial Officer) and Huhn (former Chief Strategy Officer) have been excluded from this table as they were not executive officers as of December 31, 2017.

 

(2)

For Messrs. Gordon, Morris and White, performance units from the 2015-2017 awards vested at 150% of target value as a result of the ROIC metric (25%) not being achieved and the TSR metric (75%) exceeding target over the three year cumulative period. The dollar values represent the fair market value as of December 31, 2017 ($25.43) of the vested performance stock units from the 2015-2017 grant. Mr. Callahan did not receive a 2015 performance unit award.

 

(3)

Represents the fair market value as of December 31, 2017 of the restricted stock units granted in 2017. Such units are subject to a cliff vesting requirement ending on February 22, 2020.

 

(4)

Computed consistent with the “All Other Compensation” column of the Summary Compensation Table.

 

 

As demonstrated by the above table, the actual compensation realizable in 2017 by our Named Executive Officers was 80.3% to 146.9% of the compensation set forth on the SCT. (Mr. Callahan’s percentage would have been more in line with the other Named Executive Officers had he been granted a 2015 performance unit award.) The Committee believes this is an appropriate result in light of the Company’s financial performance in 2017 (and, with respect to the performance units with a performance period from 2015-2017, the Company’s financial performance for that period) and demonstrates that our compensation program is working as designed to achieve pay for performance.

 

Our adherence to a pay for performance philosophy is evident beyond 2017. The correlation between total stockholder return (“TSR”) and our Named Executive Officers’ realizable pay in the chart below illustrates the relationship at the Company between pay and performance over the past five years.

 

29

 

 

Realizable pay of our Named Executive Officers (as they existed in each of the prior five years) is calculated in the chart below in the same manner as the table above.

 

 

 

Total Compensation

Total Realizable

Total Stockholder Return

2013

$9,044,896

$3,773,435

  -1.35%

2014

 7,022,070

 5,211,285

-14.98

2015

 7,007,658

 5,407,419

  3.76

2016

 5,768,292

 5,482,139

22.73

2017

 4,697,094

 6,272,539

 7.30 

 

 

 

Key 2017 Compensation Actions

 

As is our ongoing practice, in 2017, we analyzed our executive compensation program in order to strengthen the correlation between pay and performance. As part of this analysis, we also considered the views of our stockholders as detailed above. In response, we took the following key actions regarding 2017 executive compensation:

 

 

Base Salary: Due to improving market conditions, an updated executive compensation analysis and individual performance considerations, there were modest base salary increases awarded to our Named Executive Officers in early 2017 (between 2.5% and 8.0%).

 

 

Annual Incentive Plan: No cash incentive payments under our 2017 Annual Incentive Plan were paid to our Named Executive Officers based on the Company’s 2017 actual net income being below the threshold net income amount in the 2017 Annual Incentive Plan.

 

 

Long-Term Equity Incentive Program: After the annual equity award values were significantly reduced in 2016, annual equity award values (excluding Mr. Gordon) were returned in 2017 to 2015 levels based on improving market conditions and an analysis of executive compensation market data. Specifically, we increased the 2017 award values compared to 2016 award values, as follows: Messrs. Gordon, Morris and Martin’s award values were increased by 25%; Messrs. Callahan and Huhn’s award values were increased by 15%. Mr. White’s award value was increased by 11%.

 

30

 

 

We continued the use of total stockholder return (“TSR”) as a key component of our long-term performance units. The TSR metric stayed at 75%. We believe that relative TSR is a very effective metric to align the interests of our executives with the interests of our stockholders and, therefore, believe this metric should account for a substantial portion of our long-term performance-based compensation. We continued the use of the return on invested capital (“ROIC”) metric as a 25% component of our long-term performance units.

 

The Committee engaged an independent advisor to work on its behalf to review the overall competitiveness of our executive compensation program and to review our pay practices in light of our pay for performance philosophy. We analyzed our compensation programs and believe that our programs and policies are designed so as to discourage our employees from taking unnecessary or excessive risks that could harm the long-term value of the Company.

 

 

Key 2018 Compensation Actions

 

We believe that the structure and form of our compensation program in 2017 struck the appropriate balance between attraction and retention, on the one hand, and pay for performance, on the other hand. We further believe that our compensation program in 2017 appropriately aligned the interests of our Named Executive Officers with those of our stockholders and rewarded the most relevant financial metrics (without over-rewarding any particular metric). As such, we have kept the structure and form of our compensation program for our Named Executive Officers intact and relatively unaltered for 2018, with the exception of certain changes we have made to our performance unit equity awards. Namely, those changes include a one year post-vesting holding period, a 400% cap on the payout value of performance units tied to TSR (versus grant date value) and a 100% cap on the payout value of performance units tied to TSR in the event we fail to achieve positive total shareholder return during the three-year performance period.

 

There were modest base salary increases awarded to our Named Executive Officers in early 2018 (2.5% for Messrs. Gordon, Morris and White and 9.3% for Mr. Callahan), and annual equity award values were held flat for Messrs. Morris and White and increased for Messrs. Gordon and Callahan by 14.3% and 8.7%, respectively. No cash incentive payments were awarded to our Named Executive Officers under our 2017 Annual Incentive Plan based on account of our actual 2017 net income being less than the threshold net income in our 2017 Annual Incentive Plan.

 

As a result of recent tax law changes, our 2018 Annual Incentive Plan has been amended such that Company performance is measured based on the actual consolidated Company EBT (defined in the 2018 Annual Incentive Plan as “income before taxes on income and before extraordinary items less income/(loss) before taxes of non-controlling interests”) as compared against targeted consolidated Company EBT. Due to the recent timing of the tax law changes under the 2017 Tax Cuts and Jobs Act, we deemed it prudent to remove taxes on income from our Annual Incentive Plan performance metric until the impact of the tax law changes is fully understood in 2018.

 

31

 

 

How We Make Executive Compensation Decisions - Philosophy and Process

 

Compensation Philosophy

 

The Committee is responsible for establishing our compensation philosophy and for establishing individual executive compensation. In doing so, the Committee has developed a compensation philosophy that strives to ensure that:

 

 

our executive compensation aligns the interests of our executives with those of our stockholders by rewarding the achievement of specific annual, long-term and strategic goals, with the ultimate objective of increasing stockholder value;

 

 

our executive compensation attracts, retains and incentivizes top talent by providing a competitive and equitable compensation package relative to the compensation paid to similarly-situated executives of our peer group;

 

 

our executive compensation includes performance and/or service requirements for vesting or retention of equity awards;

 

 

our executive compensation is based on the executive’s combined and individual commitment, experience, level of responsibility and contribution to our business goals; and

 

 

our executive compensation policies enhance our business interests by encouraging innovation on the part of our executives and other key employees balanced by appropriate levels of risk taking.

 

The Committee also considers:

 

 

the tax and accounting effects of compensation when determining the elements, structure and amounts of our executives’ total compensation packages; and

 

 

whether our compensation policies and practices create risks that are reasonably likely to have a material adverse effect on our Company. The Committee has determined that the Company’s current compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company.

 

Compensation Process

 

Independent Compensation Consultants. In determining the total compensation of our executive officers and other high-level employees, the Committee is assisted by independent compensation consultants. In 2017, the Committee engaged the services of Exequity, which performed services at the request of the Committee and did not perform any other services that were not related to executive compensation for the Company through requests from management. Exequity provided the Committee with advice and recommendations with respect to our Company’s executive compensation program including a review of the overall competitiveness of the program and its consistency with our pay for performance philosophy.

 

Role of Chief Executive Officer. The Committee also seeks the input of Mr. Gordon in determining the total compensation of our executive officers (other than with respect to Mr. Gordon’s compensation) and other high-level employees. Mr. Gordon’s input includes his review of the performance of each executive officer, including our Named Executive Officers, and his recommendations to the Committee regarding the specific compensation levels of those executives. Mr. Gordon tracks each executive’s performance throughout the year, detailing accomplishments and areas of strength and improvement. Then, Mr. Gordon bases his evaluation and recommendation on his knowledge of each executive’s performance. Mr. Gordon and executive management then typically work together to develop performance target recommendations for presentation to, and consideration by, the Committee in connection with incentive compensation determinations for the coming year. In addition, executive management also recommends the management annual incentive compensation plan to the Committee for review and consideration by the Committee.

 

32

 

 

Benchmarking Target Executive Compensation. As noted above, in making decisions regarding the target total compensation of our executives, the Committee continuously reviews information provided by outside compensation consultants and considers, among other factors discussed herein, the relative compensation of similarly-situated employees of our peer group of companies. In selecting a peer group, the Committee reviews companies that the Committee believes, based on certain data and recommendations of Aon Hewitt and Exequity, compete most with our Company for executive talent. The Committee periodically reviews and updates our peer group.

 

The peer group of companies used for purposes of 2017 compensation, as set forth immediately below, was the same group that is included in our 2017 Annual Report on Form 10-K.

 

●   Actuant Corporation

●   Barnes Group Inc.

●   CIRCOR International, Inc.

●   Dril-Quip, Inc.

●   Forum Energy Technologies, Inc.

●   Granite Construction Incorporated

●   Helix Energy Solutions Group, Inc.

●   Kennametal Inc.

●   Mas Tec, Inc.

●   Matrix Service Company

●   McDermott International Inc.

●   Mistras Group, Inc.

●   Newpark Resources, Inc.

●   Oil States International Inc.

●   Team, Inc.

●   Tetra Tech, Inc.

●   Valmont Industries, Inc.

●   Willbros Group, Inc.

 

The Committee also considers pay data of similarly situated executives from publicly filed proxy statements and compensation surveys. The data the Committee reviewed may include base salary, annual cash incentive payments and long-term incentive components of pay or selected market survey data where peer group data for a like-position is not available. In considering total compensation for 2017, the Committee specifically considered pay data from Aon Hewitt’s Executive Compensation Benchmark Analysis, which included data from our peer group (as set forth above) as well as a broader group of 24 companies1. For compensation paid to our executives, in 2017, the Committee targeted annual cash compensation opportunity (base salaries and incentive compensation) and targeted total long-term incentive compensation opportunity at the 50% range of the peer group for similarly-situated executives. The Committee believes that total compensation opportunity should be targeted at the median levels and that base salaries establish the minimum compensation upon which an executive can rely. Actual annual cash and long-term incentive compensation, and therefore, total compensation, can meet, fall short of or exceed the target based on the level of achievement of applicable corporate and individual performance requirements. The target compensation levels are only one factor in the Committee’s determination of executive compensation levels. Actual compensation levels for executives may be more or less than the targeted levels based upon other factors that the Committee may consider in its discretion as discussed herein.

 

 


1

The 24 companies consist of: American Axle & Manufacturing Holdings, Inc.; A.O. Smith Corporation; Armstrong World Industries, Inc.; Brady Corp.; Chart Industries Inc.; ESCO Technologies, Inc.; H.B. Fuller Company; Helix Energy Solutions Group, Inc.; IDEX Corporation; Leggett & Platt Inc.; Martin Marietta Materials, Inc.; Mueller Water Products, Inc.; Nordson Corporation; Oil States International, Inc.; Olin Corporation; Packaging Corp of America; Polaris Industries Inc.; Polyone Corporation; SPX Corporation; Steelcase Inc.; Valmont Industries, Inc.; Waters Corporation; WGL Holdings Inc.; and Woodward, Inc.

 

33

 

 

How We Made Compensation Decisions in 2017

 

The following recap of 2017 financial performance provides important context to the pay decisions made in 2017 and 2018, and to the incentive pay results for 2017.

 

2017 Financial Performance

 

We operated in 2017 facing continued, but lessened, headwinds due to the significant decline in the price of oil in 2015, which adversely impacted spending in industry sectors in which we historically generated a substantial portion of our revenue and operating income. Specifically, in 2017:

 

 

our total stockholder return was 7.30%;

 

 

we had revenue of $1.359 billion;

 

 

our Non-GAAP EPS was $1.03, compared to $1.10 in 2016;

 

 

cash flow from operations in 2017 reached $66.3 million and, as of December 31, 2017, we had a cash balance of $105.7 million; and

 

 

we returned $35,335,279 to our stockholders pursuant to board-authorized share repurchase programs, reducing our outstanding shares by 1,599,093 shares.

 

Our financial performance in 2017 was below our expectations, which is reflected in our 2017 and 2018 compensation decisions discussed throughout this Compensation Discussion and Analysis.

 

2017 Compensation Decisions

 

In the context of our Company’s 2016 and 2017 financial performance, set forth below is a more detailed description of each element of our compensation and benefits programs for our Named Executive Officers, including the compensation decision in 2017 for each element.

 

Base Salary. Generally, in determining the base salary of each Named Executive Officer, the Committee considers, among other things, the level of responsibility and duties of the executive, individual performance, tenure, experience, Company performance, competition for the respective positions in the industry, and the applicable market data. In 2017, effective April 1, 2017, our Named Executive Officers received increases between 2.5% and 8% in base salary based on our financial results in 2016, individual performance, an updated market analysis and overall conditions in our markets. The 2017 adjusted annual base salary for each Named Executive Officer, and the increase from the 2016 base salary (as of April 1, 2016) for each individual that was a Named Executive Officer in 2016, are set forth in the table below.

 

Named Executive Officer*

 

2017 Base Salary

 

Increase from 2016

Charles R. Gordon

  $669,500     3.0 %

David F. Morris

  402,000     2.5  

Stephen P. Callahan

  270,000     8.0  
Michael D. White   247,000      6.0 *

David A. Martin

  376,900     3.0  

John D. Huhn

  307,500     2.5  

__________________________

*Mr. White was not a Named Executive Officer in 2016.

 

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Annual Cash Incentive Compensation. We maintain a Management Annual Incentive Plan (the “AIP”), as reviewed and approved by the Committee, pursuant to which our executives and other key employees are eligible to receive annual cash incentive awards.

 

Each participant in the AIP is assigned a target incentive award goal that is expressed as a percentage of his or her base salary. For 2017, the Committee assigned the following target annual incentive awards as a percentage of the Named Executive Officers’ respective base salaries, which percentages are consistent with 2016:

 

Named Executive Officer

 

2017 AIP Target % of Base Salary

 

Charles R. Gordon

    100%

 

David F. Morris

    60   

Stephen P. Callahan

    50   
Michael D. White     50   

David A. Martin

    60   

John D. Huhn

    50   

 

In determining the annual target incentive award as a percentage of individual base salary for these executives, the Committee reviewed peer group data and other survey market data and trends and considered the mix of total compensation of individuals in positions similarly situated to our executives. Based on its review and analysis, the Committee determined that a significant portion of the total annual cash compensation opportunity of our executives (i.e., base salary and annual incentive compensation) should be tied to our Company’s annual operating results. Target incentive award goals are “mid-point” targets, and the executives’ annual incentive cash compensation could be higher (subject to the cap discussed below) or lower than the target award goals based upon the level of achievement against the pre-established performance goals.

 

The AIP is intended to compensate employees for the Company’s achievement of annual financial performance goals at corporate or business unit levels, as appropriate. The financial performance targets are intended to be consistent with our internal budgets. Payments under the AIP may be made if and to the extent that certain minimum, target and maximum goals were actually achieved. For 2017, the potential payout for each Named Executive Officer was 75% of the target award upon the Company achieving the threshold net income metric (85% of the target net income goal in 2017) and the potential payout upon the Company achieving the maximum net income metric (120% of target net income goal) is 200% of the target award. Performance results that fall between the goals are calculated from those points on a straight-line sliding scale to determine the potential payout.

 

The Committee strives to establish financial performance objectives that are difficult to achieve but are attainable in order to reinforce our pay for performance commitment. In 2014, our financial performance was above the threshold net income goal, but less than the target net income goal. As a result, AIP payments were made at the threshold level. In 2015, our financial performance was above the threshold net income goal, but less than the target net income goal. As a result, 2015 AIP payments were made at 92% of target. In 2016, our financial performance was above the threshold net income goal, but less than the target net income goal set forth in the 2016 AIP. As a result, AIP payments were made to our Named Executive Officers at 50% of target. In 2017, our financial performance was below the threshold net income goal set forth in the 2017 AIP. As a result, no AIP payments were made to our Named Executive Officers.

 

Objective Financial Performance Goals. In 2017, the AIP financial performance objective for all Named Executive Officers was based on the achievement of consolidated threshold, target and maximum net income goals, subject to objective adjustment in accordance with the AIP. Net income was chosen as the applicable financial metric because it reflects the Company’s financial performance, is easy to track, and is communicated on a quarterly basis through the Company’s quarterly earnings press releases and conference calls.

 

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For purposes of the AIP in 2017, consolidated net income was determined from our audited financial statements for the year and was adjusted to exclude the following:

 

 

operating results and/or losses associated with the write-down of assets of a subsidiary, business unit or division that has been designated by the Board of Directors as a discontinued business operation or to be liquidated;

 

 

gains or losses on the sale of any subsidiary, business unit or division, or the assets or business thereof;

 

 

gains or losses from the disposition of material capital assets (other than in a transaction described in the immediately preceding bullet) or the refinancing of indebtedness, including, among other things, any make-whole payments and prepayment fees;

 

 

losses associated with the write-down of goodwill or other intangible assets of the Company due to the determination under applicable accounting standards that the assets have been impaired;

 

 

gains or losses from material property casualty occurrences or condemnation awards taking into account the proceeds paid by insurance companies and other third parties in connection with the casualty or condemnation;

 

 

any income statement effect resulting from a change in tax laws, accounting principles (including, without limitation, generally accepted accounting principles), regulations, or other laws regulations affecting reported results, except, in each case, to the extent the effect of such a change is already reflected in the target Net Income amount;

 

 

reorganization or restructuring charges and acquisition- or divestiture-related transaction expenses and costs;

 

 

any gains or losses from unusual nonrecurring or extraordinary items;

 

 

operating results of any entity or business acquired or disposed of during the Plan Year, except, in the case of an acquisition, to the extent such entity or business was included in the Company’s operating business plan for the Plan Year or, in the case of a disposition, to the extent such entity or business was not included in the Company’s operating business plan for the Plan Year;

 

 

any gain or loss resulting from currency fluctuations or translations as set forth in the Aegion Corporation Foreign Exchange Rate Policy for Annual Incentive Plan and Long Term Incentive Plan;

 

 

any other material income or loss item the realization of which is not directly attributable to the actions of current senior management of the Company; and

 

 

the income taxes (benefits) of any of the above-designated gains or losses.

 

If the threshold net income goal is not achieved, the Company’s Chief Executive Officer may make awards under the 2017 AIP of up to $1,000,000 in the aggregate for extraordinary performance, subject to review and approval of the Committee with respect to any such awards to executive officers of the Company (including each of the Named Executive Officers). No cash incentive payments were awarded to our Named Executive Officers under our 2017 Annual Incentive Plan.     

 

Negative Discretion of Compensation Committee. Notwithstanding the achievement of the threshold, target or maximum net income target, in 2017 the Committee retained negative discretion to reduce payments to an individual participant or participants under the AIP.

 

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Establishing and Achievement of 2017 Goals. In establishing the net income target for the 2017 AIP, the Committee considered the recommendations of executive management regarding current industry and market conditions and projections based on management’s internal market analysis and various market surveys, our 2017 business plan as approved by our Board of Directors and prior year operating results. The net income target for the 2017 AIP was $48.0 million, subject to the adjustments in accordance with the AIP described above. Considering our 2016 performance, our internal budgets and the prevailing conditions in the Company’s energy markets, the 2017 AIP net income target was believed to be set at a level that was aggressive and promoted our compensation objectives.

 

In determining the amount of the 2017 annual incentive compensation, the Committee reviewed our operating results for 2017 against the net income target, including any adjustments to net income as described above and concluded that the Company achieved net income which fell below the AIP threshold. As a result, AIP payments were awarded as follows:   

 

Named Executive Officer

  2017 AIP Award  

Charles R. Gordon

    $0    

David F. Morris

    0    

Stephen P. Callahan

    0    
Michael D. White     0    

David A. Martin

    0    

John D. Huhn

    0    

 

For 2017, each of our Named Executive Officers were participants under our Executive Performance Plan. Annual cash incentives payable under the Executive Performance Plan for 2017 were intended to qualify as “performance-based” under Section 162(m) of the Internal Revenue Code (the “Code”) - see “Section 162(m) Performance-Based Compensation” below. Beginning in 2018, except for payments made pursuant to agreements in place as of November 2, 2017, any compensation payments in excess of $1 million to any named executive officer will not be tax deductible by Aegion.

 

Long-Term Incentive Compensation. In order to reward executive actions that enhance long-term stockholder returns, the Committee provides certain long-term equity-based incentives to our executives and other key employees. We believe that the value of long-term equity awards with continued service requirements, as is the case with our restricted stock unit awards, encourages executives to remain with the Company as leaving the Company results in the forfeiture of the unvested portion of previously earned long-term equity awards. To that end, all of our long-term incentive compensation awards include a continued service requirement.

 

Each year, the Committee considers a number of factors when deciding on the amount and allocation of long-term compensation, including, among other things, recommendations by the Committee’s independent compensation consultants, peer group and other survey market data regarding similarly situated executives, the historical compensation for responsibilities of each Named Executive Officer, business objectives, historic Company performance, current market conditions, risks associated with compensation principally linked to stock price, and other factors that may be relevant at that point in time. Further, the Committee decides on a mix of long-term incentive compensation with the goal to provide the appropriate balance of stock price appreciation, performance and retention elements of long-term incentive compensation. Generally, annual awards of equity-based incentives are made during the Committee’s regularly scheduled first quarter meetings after financial results for the prior year as well as updated compensation data for our peer group are known.

 

In 2017, the Committee determined that the Named Executive Officers would continue to receive the following mix of long-term incentive compensation: 50% performance-based stock units and 50% time-based restricted stock units. Each type of award is described in more detail below. The Committee believes that the mix of long-term incentive compensation set forth above are appropriate for each of our Named Executive Officers in order to successfully balance the attributes of each form of long-term incentive compensation, which are set forth in this Compensation Discussion and Analysis.

 

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In 2017, we increased award amounts to our Named Executive Officers under our long-term equity incentive program to 2015 levels (with the exception of Mr. Gordon) due to improved market conditions, individual performance and a market analysis of executive compensation. Specifically, we increased the awards (as compared to 2016 award amounts), as follows: Messrs. Gordon, Morris and Martin’s awards were increased by 25%; Messrs. Callahan and Huhn’s awards were increased by 15%; and Mr. White’s award was increased by 11%.

 

Performance Units. Performance-based stock units support achievement of the Company’s longer term financial goals, while the three-year vesting period also simultaneously supports retention and succession planning. The performance units are denominated in restricted stock units.

 

Employees who receive performance units shall have no rights as stockholders with respect to such performance units until the performance units vest, although the awards are subject to adjustment due to stock dividends, split-ups, mergers, etc.

 

2015-2017 Performance Period

 

For performance awards granted in 2015 for the 2015-2017 performance period (the “2015 awards”) to all of our Named Executive Officers (with the exception of Mr. Callahan who was not employed by the Company at the time of the awards), the Committee adjusted the terms of our performance units such that: (i) EPS was removed as a metric; (ii) the weight of the relative TSR component was increased from 25% to 75%; and (iii) ROIC was introduced as a metric, weighted at 25%. The 2015 awards are based on cumulative three-year performance metrics with no potential for vesting on an annual basis.

 

The following table generally illustrates the three-year performance goals and vesting for the 2015 awards:

 

TSR Performance Goal

Threshold

Target

Maximum

Percentile of Company TSR vs. Comparator Group

(37.5% of Target Performance Units Vest)

Percentile of Company TSR vs. Comparator Group

(75% of Target Performance Units Vest)

Percentile of Company TSR vs. Comparator Group

(150% of Target Performance Units Vest)

 

ROIC Performance Goal

Threshold

Target

Maximum

96.9% of ROIC target

(12.5% of Target Performance Units Vest)

100% of ROIC target

(25% of Target Performance Units Vest)

106% of ROIC target

(50% of Target Performance Units Vest)

 

The Company did not achieve the threshold ROIC goal, which was 8.0% for the 2015-2017 performance period. As a result, the 25% of the 2015 performance awards tied to the ROIC goal did not vest and were forfeited. With respect to the 75% of the 2015 performance awards tied to the TSR goal, the Company achieved a TSR of 45.97% for the period from January 1, 2015 through December 31, 2017, which was at the 80th percentile compared to the Company’s TSR peer group. Based on the Company’s TSR performance as compared to the Company’s TSR peer group, the 75% of the 2015-2017 performance awards tied to the TSR goal vested and paid out at 200% of target with respect to Messrs. Gordon, Morris, White and Martin. Mr. Callahan did not receive a 2015-2017 performance award, and Mr. Huhn forfeited his 2015-2017 performance award due to his resignation in 2017.

 

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2016-2018 Performance Period

 

For performance awards granted in 2016 for the 2016-2018 performance period (the “2016 awards”) to all of our Named Executive Officers, the Committee used the same metrics as the 2015-2017 performance period: (i) the weight of the relative TSR component remained at 75%; and (ii) ROIC continued to be weighted at 25%. Like the 2015 awards, vesting of the 2016 awards is based on cumulative three-year performance metrics with no potential for vesting on an annual basis.

 

The following table generally illustrates the three-year performance goals and vesting for the 2016 awards:

 

TSR Performance Goal

Threshold

Target

Maximum

Percentile of Company TSR vs. Comparator Group

(37.5% of Target Performance Units Vest)

Percentile of Company TSR vs. Comparator Group

(75% of Target Performance Units Vest)

Percentile of Company TSR vs. Comparator Group

(150% of Target Performance Units Vest)

 

ROIC Performance Goal

Threshold

Target

Maximum

96.9% of ROIC target

(12.5% of Target Performance Units Vest)

100% of ROIC target

(25% of Target Performance Units Vest)

106% of ROIC target

(50% of Target Performance Units Vest)

 

2017-2019 Performance Period

 

For performance awards granted in 2017 for the 2017-2019 performance period (the “2017 awards”) to all of our Named Executive Officers, the Committee used the same metrics as the 2016-2018 performance period: (i) the weight of the relative TSR component remained at 75%; and (ii) ROIC continued to be weighted at 25%. Like the 2016 awards, vesting of the 2017 awards is based on cumulative three-year performance metrics with no potential for vesting on an annual basis.

 

The following table generally illustrates the three-year performance goals and vesting for the 2017 awards:

 

TSR Performance Goal

Threshold

Target

Maximum

Percentile of Company TSR vs. Comparator Group

(37.5% of Target Performance Units Vest)

Percentile of Company TSR vs. Comparator Group

(75% of Target Performance Units Vest)

Percentile of Company TSR vs. Comparator Group

(150% of Target Performance Units Vest)

 

ROIC Performance Goal

Threshold

Target

Maximum

96.9% of ROIC target

(12.5% of Target Performance Units Vest)

100% of ROIC target

(25% of Target Performance Units Vest)

106% of ROIC target

(50% of Target Performance Units Vest)

 

For performance awards granted in 2017 for the 2017-2019 performance period, we increased award amounts to our Named Executive Officers based upon improved market conditions, individual performance and an updated executive compensation analysis. Specifically, we increased the awards, as follows: Messrs. Gordon, Morris and Martin’s awards were increased by 25%; Messrs. Callahan and Huhn’s awards were increased by 15%; and Mr. White’s award was increased by 11%.

 

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In 2017, as part of the annual compensation program offered to the Named Executive Officers, the Committee awarded performance units as follows:

 

Performance Units Awarded     

 

Named Executive Officer

 

Threshold (#)

 

Target (#)

 

Maximum (#)

 

Target Award

Date Value ($)

(1)

 

Charles R. Gordon

    18,989       37,977       75,954       $875,000    

David F. Morris

    7,053       14,106       28,212       325,000    

Stephen P. Callahan

    2,496       4,991       9,982       115,000    

Michael D. White

    1,628       3,255       6,510       75,000    

David A. Martin (2)

    7,053       14,106       28,212       325,000    

John D. Huhn (2)

    2,496       4,991       9,982       115,000    

 _______________________

 

 

(1)

“Target Award Date Value” is based on the closing stock price on the Nasdaq Global Stock Market on the date of the award. The Committee based the number of award shares on the market price rather than the Monte Carlo valuation method used to determine “Grant Date Fair Value” for purposes of our financial accounting in accordance with ASC Topic 718, “Compensation – Stock Compensation”.

 

 

(2)

Mr. Martin forfeited his 2017 grant of performance units, upon entering into his November 18, 2017 Transition Agreement and Full Release with the Company. Mr. Huhn forfeited his 2017 grant of performance units upon his resignation in 2017.

 

For all Named Executive Officers, the target number of performance units awarded was calculated by dividing the target award date value of each Named Executive Officer’s respective award by $23.04, the closing price of our common stock on the Nasdaq Global Select Market on February 22, 2017, the date of the award.

 

For all Named Executive Officers, threshold award levels are one-half of the target award levels and maximum award levels are two times the target award levels.

 

Restricted Stock Units. In 2017, the granting of shares of time-based restricted stock units was specifically targeted toward the retention of our executives and key employees. Grants of restricted stock units have enabled us to attract and retain key employees by encouraging their ownership in our common stock. The award of restricted stock units is also designed to assist executives in satisfying our Company’s ownership guidelines with respect to our common stock. The number of restricted stock units awarded to an executive is based on the target dollar value of the amount of such executive’s long-term incentive compensation allocated to restricted stock units (i.e., 50% for all of our Named Executive Officers). That target dollar value is translated into a number of restricted stock units based on the fair value of the award, which is determined to be the closing price of our common stock on the Nasdaq Global Select Market on the date of the award.

 

In 2017, restricted stock units awarded to our executive officers and all key employees contained a three-year service restriction. The entire restricted stock unit award remains subject to forfeiture until the third anniversary of the award. Upon the third anniversary of the award, the service restriction lifts, provided the recipient was an employee of our Company or any majority-owned subsidiary from the date of grant until the third anniversary of such date. As set forth in more detail below, there are certain instances in which time-based service restrictions will lapse prior to the third anniversary. The restricted stock units will vest immediately upon the occurrence of the recipient’s death, termination of employment as a result of disability or upon a change in control of our Company followed by an impermissible termination of employment. In addition, if we terminate a recipient’s employment without cause, provided the restricted stock unit was awarded more than 18 months prior to termination of employment, such restricted stock units will pro-rata vest as to a percentage of the award determined by dividing the number of whole months of the recipient’s employment beginning on the date of grant by 36. If a recipient retires from our Company after: (i) the age of 55 and with at least 10 years of full-time service; (ii) after age 60 with at least 5 years of full-time service; or (iii) the age of 65 with no minimum full-time service requirement, the time-based service restrictions will lapse and the restricted stock units will pro-rata vest as to a percentage of the grant determined by dividing the number of months of his or her employment since the date of the award by 36. If a recipient is terminated for cause or voluntarily terminates his employment prior to the third anniversary of the date of award, the entire restricted stock unit award is forfeited regardless of when the termination of employment occurs in the three-year service period. The Committee believes that allowing for the lapse of time-based service restrictions prior to the third anniversary of the award is appropriate in the instances set forth above as such instances are largely life events outside of the control of the participants and, as such, do not conflict with the retention goals provided with the three-year service requirement.

 

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In 2017, the Committee awarded restricted stock to all Named Executive Officers as follows:

 

Restricted Stock Awarded

 

Named Executive Officer

 

Restricted

Stock Awarded (#)

 

Award

Date Value ($)

 

Charles R. Gordon

    37,977       $875,000    

David F. Morris

    14,106       325,000    

Stephen P. Callahan

    4,991       115,000    

Michael D. White

    3,255       75,000    

David A. Martin (1)

    14,106       325,000    

John D. Huhn (1)

    4,991       115,000    

 

_______________________

 

 

(1)

Mr. Martin forfeited his 2017 grant of restricted stock, upon entering into his November 18, 2017 Transition Agreement and Full Release with the Company. Mr. Huhn forfeited his 2017 grant of restricted stock upon his resignation in 2017.

 

 

All the above grants were made on February 22, 2017. For all Named Executive Officers, the number of restricted stock units awarded was calculated by dividing the target award date value of each Named Executive Officer’s respective award by $23.04, the closing price of our common stock on the Nasdaq Global Select Market on February 22, 2017, the date of the award.

 

Stock Options. Historically, the Company has at times granted some portion of the long-term equity incentives in stock options or provided Named Executive Officers with the opportunity to elect that a portion of their long-term equity incentive be in the form of stock options. In 2017, no stock options were granted nor were our Named Executive Officers provided the opportunity to elect to receive a portion of their annual equity compensation in stock options as we had done in past years.

 

Other Benefits: Supplemental Benefits for Certain Executives. In order to provide a competitively attractive package to secure and retain executives, we supplement our standard benefit packages offered to all employees with the executive benefits listed below. The executives’ benefits packages are designed to assist the executives in providing for their own financial security in a manner that recognizes individual needs and preferences.

 

Deferred Compensation Plan. Executives may choose to defer up to specified maximum amounts of compensation by contributing those amounts to our nonqualified deferred compensation plan for key employees. The plan allows for base salary deferral up to 75% of base salary and bonus deferral of up to 100% of bonus amounts. Under the plan, we will match contributions equal to the first 3% of compensation at a 100% rate, and contributions equal to the next 2% of compensation at a 50% rate, when aggregated with any matching contributions made under our 401(k) Profit Sharing Plan (Company-matching payments were limited to a maximum aggregate amount of $10,800 per employee for 2017). Deferred account balances in the nonqualified deferred compensation plan are adjusted to match the performance of participant-selected indices, which mirror fund choices available under our 401(k) Profit Sharing Plan.

 

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Account balances will accrue for each participant based on the amount of the participant’s deferrals into his or her account, the Company’s matching payments, if any, and the investment performance of his or her selected indices. Participants are at all times 100% vested in their deferrals, Company-matching payments and investment earnings. Participants generally will be paid their account balances after termination of their employment with our Company or on such other distribution date as they may elect. For our Named Executive Officers, however, no payments may be made from his or her account balance until the date that is six months following the date of termination of the Named Executive Officer’s employment.

 

During 2017, Messrs. Morris, Callahan and Martin deferred $29,406, $42,125 and $13,800 of their compensation, respectively, under our nonqualified deferred compensation plan. We credited an additional $1,800 in Company-matching payments to Mr. Callahan’s and Mr. Martin’s accounts, respectively, in 2017. No Company-matching payments were made under the plan to Mr. Morris’ account during 2017.

 

Executive Disability Insurance. The Company provides a supplemental policy for executives pursuant to which the maximum monthly benefit under long-term disability is increased from $12,500 to 60% of the executive’s monthly cash compensation, inclusive of target annual incentive compensation.

 

Other Benefits. While we provide all employees with life insurance benefits in an amount equal to two times the employee’s salary up to $500,000, we provide our Chief Executive Officer with $1.0 million in life insurance benefits.

 

Compensation Related Policies

 

Underpinning our executive compensation philosophy are certain policies relating to compensation and equity ownership.

 

Policies Relating to Compensation

 

Section 162(m) Performance-Based Compensation. For 2017, we generally structured incentive compensation to be deductible under Section 162(m) of the Code. However, we reserved the right to grant or pay amounts that are not deductible. For example, the Committee has in the past granted incentive stock options, which generally do not result in deductible compensation at the time of exercise, and has made time-vested restricted stock and restricted stock unit grants, which may not qualify as performance-based compensation for purposes of Section 162(m) of the Code. Beginning in 2018, except for payments made pursuant to agreements in place as of November 2, 2017, any compensation payments in excess of $1 million to any Named Executive Officer will not be tax deductible by Aegion.

 

Policy on Recoupment of Incentive Compensation. Our Board of Directors has adopted a policy on recoupment of incentive compensation providing that if during any fiscal year there occurs a material misstatement or omission of financial information in our financial statements, our Board or the Committee may, in its discretion, recoup or cancel all or part of the incentive compensation provided to a responsible executive officer or key employee. For the purposes of the policy, incentive compensation includes any bonus, incentive payment, equity award or other compensation, including the amount of any annual salary increase or any gains realized on the exercise of stock options or sale of shares of our common stock received as incentive compensation. In addition to the recoupment of incentive compensation, our Board or the Committee may take such other actions as it deems necessary or appropriate to address the events that gave rise to the material misstatement or omission and to

 

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prevent its recurrence. Such actions may include, to the extent permitted by applicable law:

 

 

adjusting the future compensation of the executive officer or key employee;

 

 

terminating the employment of the executive officer or key employee; and

 

 

pursuing other legal remedies against the executive officer or key employee.

 

Each executive officer or key employee who receives incentive compensation pursuant to any of our incentive compensation plans is required to acknowledge in writing his or her agreement with the policy and understanding that any incentive compensation made to him or her is conditioned upon and subject to the policy.

 

We believe that by providing the Company with the appropriate power to recover incentive compensation paid to an executive officer, the Company demonstrates its commitment to strong corporate governance. This recoupment policy is in addition to any policies or recovery rights that are provided under applicable laws, including the Sarbanes-Oxley Act and the Dodd-Frank Act.

 

Policies Relating to Equity

 

In light of the significant portion of our executive compensation program that consists of equity-based compensation, we have adopted certain policies that help encourage stock ownership by our executives as well as protect the advantages, and mitigate against the risk, of equity holdings by our executives.

 

Stock Ownership Policy with Respect to Named Executive Officers. We have a policy with respect to the required stock ownership levels of certain highly compensated key employees, including our Named Executive Officers. The purpose of this policy is to ensure that the required stock ownership of these employees is commensurate with his or her duties and responsibilities, as measured on an annual basis. Under the policy, each of our Named Executive Officers is required to beneficially own, by no later than the third anniversary of the date he or she became subject to the policy (and to retain thereafter, until he or she is no longer subject to the policy), a minimum number of shares of our common stock that is equal in value to a multiple of his or her annual base salary. The minimum share ownership amount is recalculated annually as of January 1 based on the Named Executive Officer’s current annual base salary as of December 31 of the immediately preceding year. The following forms of equity interest count towards the achievement of the required stock ownership: (i) shares of common stock purchased on the open market; (ii) shares of common stock owned jointly with or separately by spouses and/or children; (iii) shares of common stock purchased through our employee stock purchase program; (iv) shares of stock acquired upon stock option exercises; (v) deferred stock units; and (vi) shares of restricted common stock or restricted stock units (but not performance stock units).

 

In February 2016, we revised our stock ownership policy to prohibit the sale or transfer of shares, other than shares used to pay applicable taxes and/or exercise price for stock options, until compliance with the minimum share ownership requirement is met. This prohibition applies during the three-year period provided to individuals to achieve compliance after becoming subject to the policy as well as any time after such three-year period in which an individual falls out of compliance (e.g., as a result of a decline in stock price).

 

The minimum number of shares is determined by dividing the base salary multiple by the average of the closing price of our common stock for the ten trading days prior to the applicable valuation date. The multiplier used in calculating the base salary multiple is assigned to each Named Executive Officer based on his or her responsibilities and duties and ranges from one to three times the Named Executive Officer’s annual base salary.

 

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As of January 1, 2018, the required share ownership of each of our Named Executive Officers was as follows:

 

Named

Executive Officer(1)

 

 

Date Subject

   to Policy

Salary at

December 31, 2017

Salary

Multiplier

 

10-Day

Average

Closing Price

 

Required Share

Ownership as of

January 1, 2018

 

Actual Share

Ownership as of

January 1, 2018

Charles R. Gordon

 

Oct. 6, 2014

    $669,500  

3x

    $25.50       78,765       367,856  

David F. Morris

 

July 25, 2006

    402,000  

2x

    25.50       31,529       214,854  

Stephen A. Callahan

 

Nov. 9, 2015

    270,000  

1x

    25.50       10,588       15,186  

Michael D. White

 

Oct. 28, 2013

    247,000  

1x

    25.50       9,686       19,354  

_____________________________

 

(1)

Messrs. Martin and Huhn are not subject to the stock ownership policy, as neither individual was an executive officer as of January 1, 2018.

 

To date, each of the Named Executive Officers has fulfilled the stock ownership requirements of this policy.

 

Anti-Hedging Policy. In February 2012, our Board of Directors adopted an anti-hedging policy that prohibits officers, directors and employees from entering into hedging or monetization transactions involving our common stock. Prohibited transactions include, without limitation, zero-cost collars, forward sale contracts, purchase or sale of options, puts, calls, margin accounts, or other derivatives that are directly linked to our Company’s stock or transactions involving short sales of the Company’s stock. The Board adopted this policy to require officers, directors and employees to continue to own Company stock with the full risks and rewards of ownership, thereby ensuring continued alignment of their objectives with the Company’s other stockholders.

 

Anti-Pledging Policy. In July 2015, our Board of Directors amended the previously-adopted anti-pledging policy. The amended policy prohibits any officer or director from pledging our common stock owned by such director or officer; provided that any pledges existing as of the amendment must be unwound and terminated prior to July 22, 2020. One executive officer has an existing pledge of shares of our common stock, as described in more detail in the footnotes of the table set forth under the heading “Information Concerning Certain Stockholders” beginning on page 59 below.

 

44

 

 

COMPENSATION COMMITTEE REPORT

 

The responsibilities of our Compensation Committee are provided in its charter, which has been approved by our Board of Directors.

 

In fulfilling its oversight responsibilities with respect to the Compensation Discussion and Analysis included in this Report, the Compensation Committee, among other things, has:

 

 

reviewed and discussed the Compensation Discussion and Analysis with management, and

 

 

in reliance on such review and discussions, approved the inclusion of such Compensation Discussion and Analysis in this Proxy Statement.

 

SUBMITTED BY THE COMPENSATION COMMITTEE

 

Stephanie A. Cuskley, Chair           Stephen P. Cortinovis

Juanita H. Hinshaw     Phillip D. Wright

 

Notwithstanding anything set forth in any of our previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate future filings, including this Proxy Statement, in whole or in part, the preceding report shall not be deemed incorporated by reference in any such filings.

 

45

 

 

COMPENSATION IN LAST FISCAL YEAR

 

Summary Compensation Table

 

The following table sets forth information concerning compensation earned for the fiscal years ended December 31, 2017, 2016 and 2015, if applicable, for all persons who served as our principal executive officer or principal financial officer during 2017 and the three other most highly compensated executive officers of our Company who were serving as executive officers of the Company at December 31, 2017 (with the exception of Mr. Huhn, who resigned during 2017 (collectively, the “Named Executive Officers”):

 

Name and Principal Position

Year

Salary

($)(1)

Bonus

($)

Stock Awards

($)(2)(3)

Non-Equity

Incentive

Plan

Compensation

($)(1)(4)

All

Other

Compensation

($)(5)

Total

($)

Charles R. Gordon 

Chief Executive Officer

and President

2017

2016

2015

$664,625

650,000

650,000

 —

 —

    $1,945,103

1,692,215

2,251,325

 

(6)

(7)

(8)

 $         —

  325,000

599,300

$  23,371

172,291

44,508

$2,633,099

  2,839,506

 3,545,133

David F. Morris

Executive Vice President,

General Counsel and Interim

Chief Financial Officer

 

2017

2016

2015

$399,520

392,080

392,080

 —

 —

 —

$ 722,467

628,537

844,781

 

(6)

(7)

(8)

 

    $         —

  117,624

 216,899

 

$  16,485

16,285

16,747

 

$1,138,472

1,154,526

1,470,507

 

Stephen P. Callahan (9)

Senior Vice President, Human

Resources

2017

2016

$265,000

250,000

 —

 

 —

 —

 —

$ 225,642

241,745

 —

 

(6)

(7)

 $         —

   62,500

 —

 

$  11,553

13,153

 —

 

$  502,195

 567,398

  —

 

Michael D. White (10)

Senior Vice President, Corporate

Controller & Chief Accounting

Officer

 

2017

$243,500

 —

 —

 —

 —

 —

$ 166,723

 —

 —

(6)

 $         —

 —

 —

$  13,105

 —

 —

$ 423,328

  —

 —

David A. Martin

Former Executive Vice President

and Chief Financial Officer

 

2017

2016

2015

$345,008

365,925

357,000

 —

 —

 —

$ 722,467

628,537

731,681

(6)

(7)

(8)

   $         —

 109,778

 197,492

$ 612,054

15,304

15,766

$ 1,679,529

1,119,544

1,301,939

John D. Huhn 

Former Senior Vice President

and Chief Strategy Officer

2017

2016

2015

 

$211,293

300,000

260,000

 

 —

 —

 —

 

$ 225,642

291,745

253,274

 

(6)

(7)

(8)

     $         —

    75,000

        119,860

$ 421,240

13,352

11,560

 

$ 858,175

 680,097

644,694

 

 


 

(1)

Includes amounts earned but deferred at the election of the executive officer under our 401(k) Profit Sharing Plan and our nonqualified deferred compensation plan. Does not include severance amounts paid or accrued in 2017 for Messrs. Martin and Huhn under their respective transition and separation agreements – see “All Other Compensation” column.

 

(2)

Represents the aggregate grant date fair value of awards computed in accordance with FASB ASC Topic 718. For a discussion regarding the valuation of our stock awards for financial statement reporting purposes, please refer to Note 9, “Equity-Based Compensation,” in the Notes to Consolidated Financial Statements contained in our Annual Report on Form 10-K filed on March 1, 2018.

 

(3)

Stock Awards: These amounts do not necessarily reflect the actual economic value received by our Named Executive Officers.

 

(4)    These amounts represent bonuses awarded in 2015, 2016 and 2017 under our Management Annual Incentive Plan.

 

(5)

For Mr. Gordon, includes the following amounts paid or accrued in 2017: (a) $10,800 in employer-matching payments under our 401(k) Profit Sharing Plan; (b) $6,438 in term life insurance premiums; and (c) $6,133 in executive disability insurance premiums. For all other Named Executive Officers, represents the following amounts paid or accrued in 2017: Mr. Morris, $10,800 in employer-matching payments under our 401(k) Profit Sharing Plan, $498 in term life insurance premiums and $5,187 in executive disability insurance premiums; Mr. Callahan, $10,800 in employer-matching payments under our 401(k) Profit Sharing Plan and nonqualified deferred compensation plan, $498 in term life insurance premiums and $2,055 in executive disability insurance premiums; Mr. White, $10,800 in employer-matching payments under our 401(k) Profit Sharing Plan, $454 in term life insurance premiums and $1,851 in executive disability insurance premiums; Mr. Martin, $10,800 in employee-matching payments under our 401(k) Profit Sharing Plan and nonqualified deferred compensation plan, $498 in term life insurance premiums, $4,206 in executive disability insurance premiums, and the following amounts paid and/or accrued pursuant to Mr. Martin’s Transition Agreement and Full Release, dated November 18, 2017: $565,350 in severance equal to eighteen months of regular pay, $15,000 in outplacement services; and $18,000 in group health insurance coverage; and Mr. Huhn, $10,800 in employer-matching payments under our 401(k) Profit Sharing Plan, $374 in term life insurance premiums, $1,691 in executive disability insurance premiums, and the following amounts paid and/or accrued pursuant to Mr. Huhn’s Separation Agreement and Full and Final Release, dated September 12, 2017: $384,375 in severance equal to fifteen months of regular pay; $15,000 in outplacement services; and $9,000 in group health insurance coverage.

 

46

 

 

(6)

Includes the grant date fair value of performance units awarded in 2017, based on a Monte-Carlo valuation of the TSR portion of each award on the date of grant determined under FASB ASC 718, which is equal to $1,070,103 for Mr. Gordon, $397,467 for each of Messrs. Martin and Morris, $140,642 for each of Messrs. Huhn and Callahan, and $91,723 for Mr. White. Also includes the grant date fair value of the annual awards of restricted stock units granted to each of our Named Executive Officers in 2017, based on the closing stock price on the Nasdaq Global Stock Market on the date of the award. All such awards of restricted stock units are subject to forfeiture if the Named Executive Officer’s employment terminates prior to the end of a three-year service period. Mr. Martin forfeited his entire 2017 award pursuant to his Transition Agreement and Full Release, dated November 18, 2017. Mr. Huhn forfeited his entire 2017 award pursuant to his Separation Agreement and Full and Final Release, dated September 12, 2017.

 

(7)

Includes the grant date fair value of performance units awarded in 2016, based on a Monte-Carlo valuation of the TSR portion of each award on the date of grant determined under FASB ASC 718, which is equal to $992,215 for Mr. Gordon, $368,537 for each of Messrs. Martin and Morris, $141,745 for each of Messrs. Huhn and Callahan. Also includes the grant date fair value of the annual awards of restricted stock units granted to each of our Named Executive Officers in 2016 as well as a special award of restricted stock units granted to Mr. Huhn in recognition of Mr. Huhn’s expanded responsibilities in 2016, based on the closing stock price on the Nasdaq Global Stock Market on the date of the award. All such awards of restricted stock units are subject to forfeiture if the Named Executive Officer’s employment terminates prior to the end of a three-year service period. Pursuant to his Transition Agreement and Full Release, dated November 18, 2017, Mr. Martin forfeited his 2016 award performance units and is eligible to receive 25/36 of his 2016 award restricted stock units. Pursuant to his Separation Agreement and Full and Final Release, dated September 12, 2017, Mr. Huhn forfeited his 2016 award performance units and is eligible to receive 18/36 of his 2016 award restricted stock units.

 

(8)

Includes the grant date fair value of performance units awarded in 2015, based on a Monte-Carlo valuation of the TSR portion of each award on the date of grant determined under FASB ASC 718, which is equal to $1,251,325 for Mr. Gordon, $406,681 for each of Messrs. Martin and Morris and $140,774 for Mr. Huhn. Also includes the grant date fair value of the annual awards of restricted stock units granted to each of our Named Executive Officers in 2015 as well as a special award of restricted stock units granted to Mr. Morris in recognition of his efforts during the leadership transition in 2014, based on the closing stock price on the Nasdaq Global Stock Market on the date of the award. All such awards of restricted stock units are subject to forfeiture if the Named Executive Officer’s employment terminates prior to the end of a three-year service period. Pursuant to his Separation Agreement and Full and Final Release, dated September 12, 2017, Mr. Huhn forfeited his 2015 award performance units and is eligible to receive 30/36 of his 2015 award restricted stock units.

 

(9)

Mr. Callahan became an executive officer of the Company on November 9, 2015, however, he was not one of our three most highly compensated executive officers in 2015.

 

(10)

Mr. White became an executive officer of the Company on October 28, 2013, however, he was not one of our three most highly compensated executive officers in 2015 and 2016.

 

47

 

 

Grants of Plan-Based Awards

 

The following table sets forth information concerning grants of plan-based awards for the fiscal year ended December 31, 2017 for our Named Executive Officers:

 

 

 

 

Estimated Future Payouts Under

Non-Equity Incentive Plan Awards

   

Estimated Future Payouts Under

Equity Incentive Plan Awards

   

All

Other

Stock

Awards:

Number

of

Shares of

Stock or

   

All

Other

Option

Awards:

Number of Securities Underlying

   

Exercise

or Base

Price of

Option

   

Grant

Date Fair

Value of

Stock and

Option

 
Name

 Grant

Date

 

Threshold

($)

 

Target

($)

 

Maximum

($)

   

Threshold (#)

   

Target

(#)

 

Maximum

(#)

   

 Units

(#)

   

Options

(#)

   

Awards

($/Sh)

   

Awards

($)

 

Charles R. Gordon

02/22/2017(1)

                        37,977                           $ 875,000  
 

02/22/2017(2)

                  19,989       37,977     75,954                         1,070,103  

David F. Morris

02/22/2017(1)

                        14,106                             325,000  
 

02/22/2017(2)

                  7,053       14,106     28,212                         397,467  

Stephen P. Callahan

02/22/2017(1)

                        4,991                             115,000  
 

02/22/2017(2)

                  2,496       4,991     9,982                         140,642  

Michael D. White

02/22/2017(1)

                        3,255                             75,000  
 

02/22/2017(2)

                  1,628       3,255     6,510                         91,723  

David A. Martin (3)

02/22/2017(1)

                        14,106                             325,000  
 

02/22/2017(2)

                  7,053       14,106     28,212                         397,467  

John D. Huhn (3)

02/22/2017(1)

                        4,991                             115,000  
 

02/22/2017(2)

                  2,496       4,991     9,982                         140,642  

___________________

 

 

(1)

Represents the number of shares of time-based restricted stock units awarded on February 22, 2017. “Grant Date Fair Value” is the number of shares issued to the recipient multiplied by the Grant Date stock price of $23.04.

 

 

(2)

Represents number of performance units issued to the recipient at “Threshold”, “Target” and “Maximum” performance levels. “Grant Date Fair Value” is the grant date fair value of performance units awarded in 2017, based on a Monte-Carlo valuation of the TSR portion of each award on the date of grant determined under FASB ASC 718. Please refer to Note 9, “Equity-Based Compensation,” in the Notes to Consolidated Financial Statements contained in our Annual Report on Form 10-K filed on March 1, 2018 for a discussion regarding the valuation of our stock awards.

 

 

(3)

Mr. Martin forfeited his entire 2017 award pursuant to his Transition Agreement and Full Release, dated November 18, 2017. Mr. Huhn forfeited his entire 2017 award pursuant to his Separation Agreement and Full and Final Release, dated September 12, 2017.

 

48

 

 

Outstanding Equity Awards at Fiscal Year End

 

The following table sets forth information concerning outstanding equity awards, as of the fiscal year ended December 31, 2017, held by our Named Executive Officers:

 

   

Option Awards

   

Stock Awards

 

Name

 

Number of

Securities

Underlying

Unexercised

Options

(#) Exercisable

 

 

 

 

 

 

 

Number of

Securities

Underlying

Unexercised

Options

(#) Unexercisable

 

 

Equity

Incentive

Plan Awards:

Number of

Securities

Underlying

Unexercised

Unearned

Options

(#)

 

 

 

 

 

 

Option

Exercise

Price

($)

 

Option

Expiration

Date

 

 

 

 

 

 

Number of

Shares or

Units of

Stock that

Have Not

Vested

(#)(1)

 

 

 

 

 

Market Value

of Shares or

Units of Stock

that Have Not

Vested

($)(2)

 

Equity

Incentive

Plan Awards:

Number of

Unearned

Shares, Units,

or Other

Rights that

Have Not

Vested

(#)(3)

 

Equity Incentive Plan Awards: Market or

Payout Value of Unearned

Shares, Units, or Other Rights

that Have Not Vested

($)(4)

                                                       

Charles R. Gordon

  —                 —        —         211,112     $5,368,578     —         —       
    —                 —        —         —         —          163,462     $4,156,839  
                                                       

David F. Morris

  28,239             $26.60    

1/21/18

    —         —          —         —       
    39,663             18.11    

2/21/19

    —         —          —         —       
    —                 —        —         53,801     1,368,159     —         —       
    —                 —        —         —         —          56,670     1,441,118  
                                                       

Stephen P. Callahan

  —                 —        —         15,186     386,180     —         —       
    —                 —        —         —         —          10,473     266,328  

Michael D. White

  —                 —        —         11,311     287,639     —         —       
    —                 —        —         —         —          13,489     343,025  

David A. Martin

  28,239             26.60    

1/21/18

    —         —          —         —       
    —                 —        —         28,765     731,494     —         —       
    —                 —        —         —         —          28,310     719,923  
                                                       

John D. Huhn

  —                 —        —         —         —          —         —       
                                                       

 

________

 

 

(1)

Represents the number of shares of restricted stock or restricted stock units awarded and outstanding at fiscal year-end as follows: Mr. Gordon, 37,977 restricted stock units awarded on February 22, 2017, 38,377 restricted stock units awarded on February 24, 2016, 58,072 restricted stock units awarded on February 18, 2015 and 76,686 shares of restricted stock awarded on October 8, 2014; Mr. Morris, 14,106 restricted stock units awarded on February 22, 2017, 14,254 restricted stock units awarded on February 24, 2016 and 25,441 restricted stock units awarded on February 18, 2015; Mr. Callahan, 4,991 restricted stock units awarded on February 22, 2017, 5,482 restricted stock units awarded on February 24, 2016 and 4,713 restricted stock units awarded on November 9, 2015; Mr. White, 3,255 restricted stock units awarded on February 22, 2017, 3,701 restricted stock units awarded on February 24, 2016 and 4,355 restricted stock units awarded on February 18, 2015 and Mr. Martin, 9,892 restricted stock units awarded on February 24, 2016 (represents remaining amount after Mr. Martin forfeited 11/36th of his February 24, 2016 grant) and 18,873 restricted stock units awarded on February 18, 2015.

 

 

(2)

Represents the value of restricted stock and restricted stock units calculated on the basis of the closing price of our common stock on The Nasdaq Global Select Market on December 31, 2017 ($25.43 per share).

 

 

(3)

Represents the number of performance units granted in 2015 that vested on December 30, 2017, but will not be distributed until February 18, 2018. Also represents the number of performance units granted in 2016 and 2017 that, as of December 31, 2017, may potentially vest if three-year target performance goals are met.

 

 

(4)

Represents the value of shares of performance units calculated on the basis of the closing price of our common stock on The Nasdaq Global Select Market on December 31, 2017 ($25.43 per share) multiplied by (a) the number of performance units that vested on December 30, 2017 with respect to the 2015 performance unit grant (which will not be distributed until February 18, 2018), plus (b) the number of performance units that, as of December 31, 2017, may potentially vest for the performance units granted in 2016 and 2017 if the target performance goal is met.

 

49

 

 

Option Exercises and Stock Vested

 

The following table sets forth information regarding options exercised by our Named Executive Officers and the vesting of stock awards previously granted to our Named Executive Officers during the fiscal year ended December 31, 2017:

 

   

Option Awards

   

Stock Awards

Name

 

Number of Shares

Acquired on Exercise

(#)

   

Value Realized

on Exercise

($)(1)

   

Number of Shares
Acquired on Vesting
(#)

   

Value Realized
on Vesting
($)(2)

Charles R. Gordon

                147,011       $3,551,364  

David F. Morris

                47,687       1,152,005  

Stephen P. Callahan

                      —       

Michael D. White

                10,547       255,302  

David A. Martin

    39,663       $364,104       47,687       1,152,005  

John D. Huhn

                15,210       320,480  

___________________

 

 

(1)

Reflects the difference between the market price on the date of exercise and the exercise price. Mr. Martin exercised: (i) 7,937 options on November 27, 2017, at an average market price of $26.89 and an exercise price of $18.11; and (ii) 31,726 options on November 28, 2017, at an average market price of $27.39 and an exercise price of $18.11.

 

 

(2)

Reflects the number of shares vesting multiplied by the market price on the date of the lapse of time-based restrictions. The restricted stock unit and performance unit grants were made pursuant to the terms of our 2013 Employee Equity Incentive Plan. Mr. Gordon had 18,821 performance units vest on February 22, 2017 with a share price of $23.04 for a FMV of $433,636, 41,082 restricted stock units vest on March 25, 2017 with a share price of $21.97 for a FMV of $902,572 and 87,108 performance units vest on December 30, 2017 (to be issued February 18, 2018) with a share price of $25.43 for a FMV of $2,215,156; Mr. Morris had 5,953 performance units vest on February 22, 2017 with a share price of $23.04 for a FMV of $137,157, 13,424 restricted stock units vest on March 25,2017 with a share price of $21.97 for a FMV of $294,925 and 28,310 performance units vest on December 30, 2017 (to be issued February 18, 2018) with a share price of $25.43 for a FMV of $2,215,156; Mr. White had 916 performance units vest on February 22, 2017 with a share price of $23.04 for a FMV of $21,105, 3,098 restricted stock units vest on March 25,2017 with a share price of $21.97 for a FMV of $68,063 and 6,533 performance units vest on December 30, 2017 (to be issued February 18, 2018) with a share price of $25.43 for a FMV of $166,134; Mr. Martin had 5,953 performance units vest on February 22, 2017 with a share price of $23.04 for a FMV of $137,157, 13,424 restricted stock units vest on March 25, 2017 with a share price of $21.97 for a FMV of $294,925 and 28,310 performance units vest on December 30, 2017 (to be issued February 18, 2018) with a share price of $25.43 for a FMV of $2,215,156; and Mr. Huhn had 1,290 performance units vest on February 22, 2017 with a share price of $23.04 for a FMV of $29,722, 4,364 shares restricted stock vest on June 2, 2017 with a share price of $20.27 for a FMV of $88,458 and 9,556 restricted stock units vest on September 8, 2017 with a share price of $21.17 and a FMV of $202,300.

 

 

Nonqualified Deferred Compensation 

 

Executive officers may choose to defer up to specified maximum amounts of compensation by contributing those amounts to our nonqualified deferred compensation plan for key employees. For 2017, the plan allowed for base salary deferral up to 75% of base salary, and bonus deferral of up to 100% of bonus amounts. Under the plan, we will match contributions equal to the first 3% of compensation at a 100% rate, and contributions equal to the next 2% of compensation at a 50% rate, when aggregated with any matching contributions made under our 401(k) Profit Sharing Plan (Company-matching payments were limited to a maximum aggregate amount of $10,800 per employee for 2017). Deferred account balances in the nonqualified deferred compensation plan are adjusted to match the performance of participant-selected indices, which mirror fund choices available under our 401(k) Profit Sharing Plan. In connection with this plan, the Company established a Rabbi Trust to fund the Company’s promise to pay deferred compensation account balances contributed to by participants in the plan. This trust becomes fully funded upon a change in control. We amended the plan (effective January 1, 2018) to include non-employee directors as eligible participants with respect to the cash component of the compensation paid to our non-employee directors.

 

50

 

 

Account balances will accrue for each participant based on the amount of the participant’s deferrals into the account, the Company’s matching payment, if any, and the investment performance of his or her selected indices. Participants are at all times 100% vested in their deferrals, Company-matching payments and investment earnings. Employee participants generally will be paid their account balances after termination of their employment with our Company or on such other distribution date as they may elect. For Named Executive Officers, however, no payments may be made from his or her account balance until a date that is at least six months following the date of termination of the Named Executive Officer’s employment.

 

During 2017, Messrs. Morris, Callahan and Martin deferred $29,406, $42,125 and $13,800 of their compensation, respectively, under our nonqualified deferred compensation plan. We credited an additional $1,800.00 in Company-matching payments to Mr. Callahan’s and Mr. Martin’s accounts, respectively, in 2017. No Company-matching payments were made under the plan to Mr. Morris’ account during 2017.

 

The following table sets forth information concerning contributions, Company-matching payments, earnings and balances under our nonqualified deferred contribution plan for our Named Executive Officers:

 

Name

 

Executive

Contribution

in Last FY

($)(1)

 

Registrant

Contributions

in Last FY

($)(1)

 

Aggregate

Earnings

in Last FY

($)(2)

 

Aggregate

Withdrawals/

Distributions

($)

   

Aggregate

Balance

at Last FYE

($)

Charles R. Gordon

                             

David F. Morris

    $29,406             $175,025             $1,087,116  

Stephen P. Callahan

    42,125       $1,800       11,679             84,148  

Michael D. White

                             

David A. Martin

    13,800       1,800       47,451             268,090  

John D. Huhn

                             

_______________________

 

 

(1)

Named Executive Officer contributions and registrant payments also are reported in the “Salary”, “Non-Equity Incentive Plan Compensation” and “Other Compensation” columns of the Summary Compensation Table.

 

 

(2)

Amounts credited do not constitute above-market earnings.

 

 

CEO Pay Ratio

 

For 2017, the Committee reviewed a comparison of the annual total compensation of the Company’s principal executive officer, Mr. Gordon, to the annual total compensation of our median employee. Annual total compensation for both individuals was calculated in accordance with Item 402(c)(2)(x) of SEC Regulation S-K. In 2017, annual total compensation for Mr. Gordon was $2,633,099, and for our median employee $73,848, resulting in a ratio of approximately 36:1. We identified the median employee by examining 2017 base wages for all individuals, excluding Mr. Gordon, who were employed by us on October 31, 2017. We believe the use of base wages for all employees is a consistently applied compensation measure because our employee benefits vary across the globe.

 

We included all employees of the Company, whether employed on a full-time, part-time, or seasonal basis, except as set forth below, including employees on leave of absence. We annualized the compensation for any full-time employees that were not employed by us for all of 2017. We applied October 2017 exchange rates to base wages paid in non-U.S. dollar currencies, converting all base wages to U.S. dollar amounts.

 

The total number of our U.S. and non-U.S. employees as of October 31, 2017 was 6,242. In determining the median employee, we excluded employees from certain non-U.S. countries under the de minimis exemption allowed under Item 402(u)(4)(ii) of SEC Regulation S-K. The list of excluded countries, along with the number of employees excluded in each country, is as follows: Argentina (3); Brazil (1); Brunei (2); France (6); India (18); Japan (2); Mexico (208); Poland (1); Portugal (2) and South Africa (32). The total number of employees excluded under the de minimis exemption is 275 (4.4% of our total number of employees as of October 31, 2017).

 

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This information is provided pursuant to the SEC’s guidance under Item 402(u) of SEC Regulation S-K and is the Company’s good faith estimate of the median of the annual total compensation of all of our employees, except Mr. Gordon.

 

 

Severance, Change in Control and Termination 

 

Severance 

 

Effective March 15, 2017, our Board of Directors approved a new severance policy (the “2017 Severance Policy”). Mr. Gordon is not subject to the 2017 Severance Policy as his severance is addressed under the terms of his 2014 offer letter. Under the terms of the 2017 Severance Policy, in the event of a qualifying severance event Mr. Morris would be entitled to 18 months severance (base salary and benefits continuation); Mr. Callahan would be entitled to 15 months severance (base salary and benefits continuation); and Mr. White would be entitled to 12 months severance (base salary and benefits continuation). Under the 2017 Severance Policy, severance is paid out over the course of the severance period (rather than a lump sum) and the employee must sign a separation agreement to qualify. In the event of a termination for cause, the employee is not eligible for severance.

 

The Severance Policy would apply if a Named Executive Officer in good standing with our Company is involuntarily terminated without cause and not due to a Code of Conduct violation, and the Named Executive Officer has completed a minimum of six months’ continuous service time.

 

Our Company does not offer change in control tax gross-up provisions.

 

Under his offer letter, if Mr. Gordon is terminated for any reason other than for “Cause” (as defined in his offer letter), Mr. Gordon would receive severance benefits equal to 24 months of his then current base salary and 24 months of the monthly cost of health, dental, vision, life, long-term disability and accidental insurance then provided by us. The payments are in lieu of payments that would have been due Mr. Gordon under the 2017 Severance Policy. Any severance payments made pursuant to Mr. Gordon’s offer letter are conditioned upon certain representations, warranties, covenants and agreements to be made by Mr. Gordon, including, but not limited to, covenants of confidentiality, non-solicitation and non-competition and a release of all claims.

 

Change in Control and Termination  

 

Continuity Agreements. On October 6, 2014, the Company entered into Executive Change in Control Severance Agreements (the “Continuity Agreements”) with each of Messrs. Gordon, Morris and Martin. Each of the Continuity Agreements provide for a “double trigger” such that benefits are only payable if there is a change in control (as defined in the Continuity Agreements) followed, within 24 months after the change in control, by involuntary termination without cause (as defined in the Continuity Agreements) or voluntary termination for good reason (as defined in the Continuity Agreements). Mr. Martin’s Continuity Agreement was expressly terminated by his November 17, 2017 separation agreement.

 

Upon such a termination, the Continuity Agreements provide, among other things, for the following benefits:

 

 

A lump-sum payment of the executive’s accrued but unpaid base salary, accrued vacation pay and other items earned and owed to the executive through and including the effective date of termination;

 

A lump-sum payment of a pro-rated portion of the executive’s annual target bonus opportunity;

 

A lump-sum payment of a specified multiple, which is 2.99 for Mr. Gordon and 1.99 for Mr. Morris, of the executive’s base salary and annual target bonus opportunity;

 

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Continuation of health, dental and vision insurance coverage after termination for 36 months for Mr. Gordon and 24 months for Mr. Morris; and

 

Up to $15,000 in executive outplacement services.

 

On March 1, 2017, the Company entered into Change in Control Severance Agreements (“Change in Control Agreements”) with each of Messrs. Callahan, White and Huhn. Each of the Change