DEF 14A 1 d289104ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

 

 

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Genuine Parts Company

(Name of Registrant as Specified in Its Charter)

 

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

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GENUINE PARTS COMPANY

2999 Wildwood Parkway

Atlanta, Georgia 30339

NOTICE OF 2017 ANNUAL MEETING OF SHAREHOLDERS

April 24, 2017

TO THE SHAREHOLDERS OF GENUINE PARTS COMPANY:

The 2017 Annual Meeting of Shareholders of Genuine Parts Company, a Georgia corporation, will be held at the Company’s headquarters, 2999 Wildwood Parkway, Atlanta, Georgia, on Monday, the 24th day of April 2017, at 10:00 a.m., for the following purposes:

(1)  To elect as directors the eleven nominees named in the attached proxy statement;

(2)  To approve, by a non-binding advisory vote, the compensation of the Company’s executive officers;

(3)   To recommend, by a non-binding advisory vote, the frequency of the advisory vote on the compensation of the Company’s executive officers;

(4)  To ratify the selection of Ernst & Young LLP as the Company’s independent auditors for the fiscal year ending December 31, 2017; and

(5)  To act upon such other matters as may properly come before the meeting or any reconvened meeting following any adjournment thereof.

Information relevant to these matters is set forth in the attached proxy statement. Only holders of record of Common Stock at the close of business on February 14, 2017 will be entitled to vote at the meeting.

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be held on April 24, 2017.

The Proxy Statement and the 2016 Annual Report to Shareholders are available at

http://www.proxydocs.com/gpc

 

By Order of the Board of Directors,

LOGO

JENNIFER L. ELLIS

Corporate Secretary

Atlanta, Georgia

February 27, 2017

YOUR VOTE IS IMPORTANT!

WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING IN PERSON, PLEASE VOTE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY IN THE ENCLOSED BUSINESS REPLY ENVELOPE, OR YOU CAN VOTE BY TELEPHONE OR INTERNET PURSUANT TO THE INSTRUCTIONS ON THE ENCLOSED PROXY CARD. IF YOU DO ATTEND THE MEETING, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.


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ANNUAL MEETING — APRIL 24, 2017

     1  

VOTING

     1  

PROPOSAL 1 — ELECTION OF DIRECTORS

     2  

CORPORATE GOVERNANCE

     4  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

     12  

SECURITY OWNERSHIP OF MANAGEMENT

     13  

EXECUTIVE COMPENSATION

     15  

COMPENSATION DISCUSSION AND ANALYSIS

     15  

ADDITIONAL INFORMATION REGARDING EXECUTIVE COMPENSATION

     27  

COMPENSATION, NOMINATING AND GOVERNANCE COMMITTEE REPORT

     45  

COMPENSATION, NOMINATING AND GOVERNANCE COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     45  

COMPENSATION OF DIRECTORS

     45  

TRANSACTIONS WITH RELATED PERSONS

     47  

PROPOSAL 2 — ADVISORY VOTE ON EXECUTIVE COMPENSATION

     47  

PROPOSAL 3 — ADVISORY VOTE ON FREQUENCY OF SHAREHOLDER VOTE ON EXECUTIVE COMPENSATION

     48  

PROPOSAL 4 — RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS

     49  

AUDIT COMMITTEE REPORT

     51  

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     52  

SOLICITATION OF PROXIES

     52  

HOUSEHOLDING OF ANNUAL MEETING MATERIALS

     52  

OTHER MATTERS

     52  

SHAREHOLDER PROPOSALS FOR 2018 ANNUAL MEETING

     52  


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ANNUAL MEETING — APRIL 24, 2017

This proxy statement is being furnished to the shareholders of Genuine Parts Company in connection with the solicitation of proxies by the Board of Directors of the Company for use at the Company’s 2017 Annual Meeting of Shareholders to be held on Monday, April 24, 2017, at 10:00 a.m. local time and at any reconvened meeting following any adjournment thereof. The Annual Meeting will be held at the Company’s headquarters, 2999 Wildwood Parkway, Atlanta, Georgia.

This proxy statement and the accompanying proxy card are first being mailed to shareholders and made available on our website on or about February 27, 2017. The Company’s 2016 annual report to the shareholders, including consolidated financial statements for the year ended December 31, 2016, is enclosed.

VOTING

Shareholders of record can simplify their voting and reduce the Company’s costs by voting their shares via telephone or the Internet. Instructions for voting via telephone or the Internet are set forth on the enclosed proxy card. The telephone and Internet voting procedures are designed to authenticate votes cast by use of a personal identification number. These procedures enable shareholders to appoint a proxy to vote their shares and to confirm that their instructions have been properly recorded. If your shares are held in the name of a bank or broker (in “street name”), the availability of telephone and Internet voting will depend on the voting processes of the applicable bank or broker; therefore, it is recommended that you follow the voting instructions on the form you receive from your bank or broker. If you do not choose to vote by telephone or the Internet, please mark your choices on the enclosed proxy card and then date, sign and return the proxy card at your earliest opportunity.

All proxies properly voted by telephone or the Internet and all properly executed written proxy cards that are delivered to the Company (and not later revoked) will be voted in accordance with instructions given in the proxy. When voting on the election of directors, you may (1) vote FOR all nominees listed in this proxy statement, (2) WITHHOLD AUTHORITY to vote for all nominees, or (3) WITHHOLD AUTHORITY to vote for one or more nominees but vote FOR the other nominees. When voting on the approval of the Company’s executive compensation program and the ratification of the selection of independent auditors, you may vote FOR or AGAINST the proposal or you may ABSTAIN from voting. When voting on the frequency of advisory vote on executive compensation, you may recommend that a vote should occur (1) EVERY YEAR, (2) EVERY TWO YEARS, (3) EVERY THREE YEARS, or (4) you may ABSTAIN from voting.

If a signed proxy card is received which does not specify a vote or an abstention, the shares represented by that proxy card will be voted FOR all nominees to the Board of Directors listed in this proxy statement, FOR the proposal to approve the Company’s executive compensation program, for an advisory vote on executive compensation to occur EVERY YEAR, and FOR the ratification of the selection of independent auditors for the fiscal year ending December 31, 2017. The Company is not aware, as of the date hereof, of any matters to be voted upon at the Annual Meeting other than those stated in this proxy statement and the accompanying Notice of 2017 Annual Meeting of Shareholders. If any other matters are properly brought before the Annual Meeting, the enclosed proxy card gives discretionary authority to the persons named as proxies to vote the shares represented thereby in their discretion.

If you hold your shares in street name and you do not instruct your bank or brokerage firm in accordance with their directions how to vote your shares prior to the date of the Annual Meeting, your bank or brokerage firm cannot vote your shares (referred to as “broker non-votes”) on the following proposals: “Proposal 1 — Election of Directors,” “Proposal 2 — Advisory Vote on Executive Compensation,” or “Proposal 3 — Advisory Vote on Frequency of Advisory Shareholder Vote on Executive Compensation,” and such shares will be considered “broker non-votes” and will not affect the outcome of these votes. However, your bank or brokerage firm may vote your shares in its discretion on “Proposal 4 — Ratification of Selection of Independent Auditors.”

A shareholder of record who submits a proxy pursuant to this solicitation may revoke it at any time prior to its exercise at the Annual Meeting. Such revocation may be by delivery of written notice to the Corporate Secretary of the Company at the Company’s address shown above, by delivery of a proxy bearing a later date

 

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(including a later vote by telephone or the Internet), or by voting in person at the Annual Meeting. Street name holders may revoke their proxies prior to the Annual Meeting by following the procedures specified by their bank or brokerage firm.

Only holders of record of the Company’s Common Stock at the close of business on the record date for the Annual Meeting, which is February 14, 2017, are entitled to vote at the Annual Meeting. Persons who hold shares of Common Stock in street name as of the record date may vote at the Annual Meeting only if they hold a valid proxy from their bank or brokerage firm. At the close of business on February 14, 2017, the Company had outstanding and entitled to vote at the Annual Meeting 148,378,606 shares of Common Stock.

On each proposal presented for a vote at the Annual Meeting, each shareholder is entitled to one vote per share of Common Stock held as of the record date. A quorum for the purposes of all matters to be voted on shall consist of shareholders representing, in person or by proxy, a majority of the outstanding shares of Common Stock entitled to vote at the Annual Meeting. Shares represented at the Annual Meeting that are abstained or withheld from voting and broker non-votes will be considered present for purposes of determining a quorum at the Annual Meeting. If less than a majority of the outstanding shares of Common Stock are represented at the Annual Meeting, a majority of the shares so represented may adjourn the Annual Meeting to another date, time or place.

The vote required for (1) the election of directors, (2) the advisory vote on executive compensation, and (3) the ratification of the selection of independent auditors is the affirmative vote of a majority of the shares of Common Stock outstanding and entitled to vote on such proposal which are represented at the Annual Meeting. Because votes withheld and abstentions will be considered as present and entitled to vote at the Annual Meeting but will not be voted “for” these proposals, they will have the same effect as votes “against” these proposals. The vote required to determine the frequency of advisory shareholder vote on executive compensation is a plurality of votes cast, which means that the frequency option that receives the most affirmative votes of all the votes cast is the one that will be deemed approved by the shareholders. Abstentions will not affect the outcome of this proposal.

Although the advisory vote on executive compensation and the frequency of the advisory vote on executive compensation are non-binding as provided by law, the Company’s Board of Directors will review the results of the votes and take them into account in making future determinations concerning executive compensation and the frequency of the advisory vote.

PROPOSAL 1

ELECTION OF DIRECTORS

The Board of Directors of the Company currently consists of thirteen directorships. Dr. Mary B. Bullock and Mr. Gary W. Rollins have reached mandatory retirement age for the Board and therefore will not stand for re-election at the 2017 Annual Meeting. The Board of Directors has approved the recommendation of its Compensation, Nominating and Governance Committee to decrease the number of directorships to eleven as of the date of the 2017 Annual Meeting and has nominated the eleven nominees named below to serve as directors until the 2018 Annual Meeting and the election and qualification of their successors.

In the event that any nominee is unable to serve (which is not anticipated), the Board of Directors may:

 

   

designate a substitute nominee, in which case the persons designated as proxies will cast votes for the election of such substitute nominee;

 

   

allow the vacancy to remain open until a suitable candidate is located and nominated; or

 

   

adopt a resolution to decrease the authorized number of directorships.

If any incumbent director nominee in an uncontested election should fail to receive the required affirmative vote of the holders of a majority of the shares entitled to vote which are represented at the Annual Meeting, under Georgia law, the director remains in office as a “holdover” director until his or her successor is elected and qualified or until his or her earlier resignation, retirement, disqualification, removal from office or death. In the

 

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event of a holdover director, the Board of Directors in its discretion may request the director to resign from the Board. If the director resigns, the Board of Directors may:

 

   

immediately fill the resulting vacancy;

 

   

allow the vacancy to remain open until a suitable candidate is located and appointed; or

 

   

adopt a resolution to decrease the authorized number of directorships.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE ELECTION OF ALL OF THE NOMINEES.

Set forth below is certain information about each of the eleven nominees for director. For additional information about the nominees, including the experience, qualifications, attributes and skills that our Board believes makes them well qualified to serve as directors, as well as information about our director independence requirements, our director nominating process, our board leadership structure, and other corporate governance matters, see “Corporate Governance” below.

NOMINEES FOR DIRECTOR

 

Name, Principal Occupation, Certain Other Current and Past Directorships and Age

   Director
Since
 

Elizabeth W. Camp is President and Chief Executive Officer of DF Management, Inc., a private investment and commercial real estate management company, a position she has held since 2000. Previously, Ms. Camp served in various capacities, including President and Chief Executive Officer of Camp Oil Company for 16 years. Ms. Camp serves as a director of Synovus Financial Corp. and has chaired both its Compensation and Audit Committees. Ms. Camp is 65.

     2015  

Paul D. Donahue is President and Chief Executive Officer of the Company. In May of 2016, he was named Chief Executive Officer and was named President of the Company in January of 2012. He served as President of the Company’s U.S. Automotive Parts Group from July, 2009 to February 1, 2016. Mr. Donahue served as Executive Vice President of the Company from August 2007 until his appointment as President. In addition, between 2004 and June 2007, Mr. Donahue served as President and Chief Operating Officer of S. P. Richards Company, a wholly-owned subsidiary of the Company. Mr. Donahue is 60.

     2012  

Gary P. Fayard was Executive Vice President and Chief Financial Officer of the Coca-Cola Company from 2003 until his retirement in May, 2014. Mr. Fayard joined the Coca-Cola Company in 1994 as Vice President and Controller. He was promoted to the role of Senior Vice President and Chief Financial Officer in 1999. He has served as Director on numerous for-profit and not-for-profit boards, including service on the Coca-Cola Enterprises, Inc. board from 2001 until 2009, service on the Coca-Cola FEMSA board from 2003 to 2016, and currently serves on the board of directors of Monster Beverage Corporation. Mr. Fayard is 64.

     2014  

Thomas C. Gallagher is Executive Chairman of the Board. He has served as Chairman since February 2005 and served as Chief Executive Officer of the Company from August 2004 to May of 2016. Mr. Gallagher served as President of the Company from 1990 until January 2012 and Chief Operating Officer of the Company from 1990 until August 2004. Mr. Gallagher serves on the board of Oxford Industries, Inc. Mr. Gallagher is 69.

     1990  

John R. Holder is Chairman and Chief Executive Officer of Holder Properties, a commercial and residential real estate development, leasing, and management company based in Atlanta. Mr. Holder has held the position of Chairman since 1989 and Chief Executive Officer since 1980. He is also a director of Oxford Industries, Inc. Mr. Holder is 62.

     2011  

Donna W. Hyland is President and Chief Executive Officer of Children’s Healthcare of Atlanta and has served in that role since June 2008. Prior to that role, she was the Chief Operating Officer of Children’s Healthcare of Atlanta from January 2003 to May 2008 and the Chief Financial Officer from February 1998 to December 2002. She serves as a director of Cousins Properties, Inc. and serves as a financial expert on its Audit Committee. Ms. Hyland is 57.

     2015  

 

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Name, Principal Occupation, Certain Other Current and Past Directorships and Age

   Director
Since
 

John D. Johns is Chairman and Chief Executive Officer of Protective Life Corporation in Birmingham, Alabama, a wholly owned subsidiary of The Dai-ichi Life Insurance Company. Mr. Johns served as Chief Executive Officer of Protective Life Corporation since January 2002 and became Chairman in January 2003. He served as President and Chief Operating Officer of Protective Life from August 1996 through December 2001, and from October 1993 through August 1996 he served as Executive Vice President and Chief Financial Officer. Mr. Johns also serves as a director of Regions Financial Corporation and The Southern Company. He is formerly a director of Alabama Power Company, a wholly owned subsidiary of The Southern Company. Mr. Johns is 65.

     2002  

Robert C. “Robin” Loudermilk, Jr. is President and Chief Executive Officer of The Loudermilk Companies, LLC, a real estate management company, a position he has held since January 1, 2012. Previously he served as President of Aaron’s Inc., a furniture, electronics and home appliance retailer from 1997 through November 2011 and as Chief Executive Officer of Aaron’s Inc. from 2008 through November 2011. He also served in various other positions at Aaron’s Inc., beginning as an Assistant Store Manager in 1985 and including service as the Chief Operating Officer from 1997 until 2008. Mr. Loudermilk also previously served as a director of Aaron’s Inc. Mr. Loudermilk is 57.

     2010  

Wendy B. Needham was Managing Director, Global Automotive Research for Credit Suisse First Boston, an investment banking firm, from August 2000 to June 2003, and a Principal, Automotive Research, for Donaldson, Lufkin and Jenrette from 1994 to 2000. Ms. Needham previously served as a director of Asahi Tec. Ms. Needham is 64.

     2003  

Jerry W. Nix served as the Vice Chairman of the Board of Directors from November 2005 until his retirement as CFO in March, 2013. He served as Chief Financial Officer of the Company from 2000 to 2013. Previously, Mr. Nix held the position of Executive Vice President-Finance from February 2000 until November 2005 and Senior Vice President-Finance from 1990 through 1999. Mr. Nix currently serves as a director on the board of Synovus Financial Corp. Mr. Nix is 71.

     2005  

E. Jenner Wood, III was Corporate Executive Vice President of SunTrust Banks, Inc. until his retirement in December of 2016. He was Chairman, President and Chief Executive Officer of the Atlanta Division of SunTrust Bank from April, 2014 to October, 2015 and served as a Corporate Executive Vice President of SunTrust Banks, Inc. from 2005 through his retirement in December of 2016. Mr. Wood served as Chairman, President and Chief Executive Officer of the Georgia/North Florida Division of SunTrust Bank from 2013 through March 2014 and as Chairman, President and Chief Executive Officer of the Atlanta/Georgia Division of SunTrust Bank from 2010 to 2013. Mr. Wood previously served as President, Chairman and Chief Executive Officer of SunTrust Bank Group from 2002 to 2010. Mr. Wood is a member of the Board of Directors of The Southern Company and also serves as a director of Oxford Industries. Mr. Wood previously served as a director of Georgia Power Company until his election to the Board of Directors of that entity’s parent company, The Southern Company, in 2012. Mr. Wood is also a past member of the Board of Crawford & Company. Mr. Wood is 65.

     2014  

CORPORATE GOVERNANCE

Independent Directors

The Company’s Common Stock is listed on the New York Stock Exchange. The NYSE requires that a majority of the directors, and all of the members of certain committees of the board of directors be “independent directors,” as defined in the NYSE corporate governance standards. Generally, a director does not qualify as an independent director if the director (or in some cases, members of the director’s immediate family) has, or in the past three years has had, certain material relationships or affiliations with the Company, its external or internal auditors, or other companies that do business with the Company. The Board has affirmatively determined that ten of the Company’s thirteen current directors and eight of the eleven director nominees have no other direct or

 

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indirect relationships with the Company and therefore are independent directors according to the NYSE corporate governance standards and an analysis of all facts specific to each director.

Mr. E. Jenner Wood, a Director of the Company since August 17, 2014 retired on December 31, 2016 as Corporate Executive Vice President of SunTrust Banks, Inc. During 2016, the Company continued its long-standing banking relationship with SunTrust, and used the Bank’s services in the general course of business. This banking relationship was reviewed and considered by the Board and the Compensation, Nominating, and Governance Committee in determining the independence of Mr. Wood. The amount of payments made and received by SunTrust and the Company represented an immaterial percentage of the Company’s and SunTrust’s revenues. The Board and Compensation, Nominating, and Governance Committee believe that the relationship during 2016 was non-preferential and that Mr. Wood did not personally participate in or benefit from this relationship, leading to the conclusion that the relationship was not material and to a determination that Mr. Wood is independent.

The independent directors and nominees are: Mary B. Bullock, Elizabeth W. Camp, Gary P. Fayard, John R. Holder, Donna W. Hyland, John D. Johns, Robert C. “Robin” Loudermilk, Wendy B. Needham, Gary W. Rollins and E. Jenner Wood. Effective as of the date of the Annual Meeting, Dr. Bullock and Mr. Rollins will retire as directors.

Corporate Governance Guidelines

The Board of Directors has adopted Corporate Governance Guidelines that give effect to the NYSE’s requirements related to corporate governance and various other corporate governance matters. The Company’s Corporate Governance Guidelines, as well as the charters of the Compensation, Nominating and Governance Committee and the Audit Committee, are available on the Company’s website at www.genpt.com.

Non-Management Director Meetings and Presiding Independent Director

Pursuant to the Company’s Corporate Governance Guidelines, the Company’s non-management directors meet separately from the other directors in regularly scheduled executive sessions at least annually and at such other times as may be scheduled by the Chairman of the Board or by the presiding independent director or as may be requested by any non-management director.

The independent directors serving on the Company’s Board of Directors appointed Gary W. Rollins to serve as the Board’s presiding independent director effective in April 2013. As the presiding independent director, Mr. Rollins presides at all meetings of non-management and independent directors and serves as a liaison between the Chief Executive Officer and the non-management and independent directors. During 2016, the independent directors held four meetings without management. Mr. Rollins presided over all of these meetings. The independent directors have appointed John D. Johns to replace Mr. Rollins as the Board’s presiding independent director after Mr. Rollins’ retirement from the Board in April.

Board Leadership Structure

Upon the Board’s appointment of Paul Donahue as both President and Chief Executive Officer of the Company, the Board appointed the Company’s former Chief Executive Officer and Chairman to continue to serve as Executive Chairman of the Board. In his recent position as CEO, Mr. Gallagher had primary responsibility for the day-to-day operations of the Company; as Executive Chairman, he continues to provide leadership on the Company’s key strategic objectives as well as set strategic priorities for the Board (with input from the presiding independent director), preside over its meetings, and communicate strategic findings and guidance to management. The Board believes that this leadership structure is currently the most effective structure for the Company.

As noted earlier, the independent directors have appointed a presiding independent director, which provides balance to the Board’s structure. With a supermajority of independent directors, an Audit Committee and a Compensation, Nominating and Governance Committee each comprised entirely of independent directors, and a presiding independent director to oversee all meetings of the non-management directors, the Company’s Board

 

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of Directors is comfortable that its current leadership structure provides for an appropriate balance that best serves the Company and its shareholders. The Board of Directors periodically reviews its leadership structure to ensure that it remains the optimal structure for our Company and its shareholders.

Director Nominating Process

Shareholders may recommend a director nominee by writing to the Corporate Secretary specifying the nominee’s name and the other required information as set forth in the Company’s By-laws. The By-laws require, among other things, that the shareholder making the nomination: (1) notify us in writing no later than the close of business on the 90th day and no earlier than the close of business on the 120th day prior to the first anniversary of the date of the Company’s notice of annual meeting sent to shareholders in connection with the previous year’s annual meeting; (2) include certain information about the nominee, including his or her name, occupation and Company share ownership; (3) include certain information about the shareholder proponent and the beneficial owner, if any on whose behalf the nomination is made, including such person or entity’s name, address, Company share ownership and certain other information regarding the relationship between the shareholder and beneficial owner, if applicable, and any derivative or hedging positions in Company securities; and (4) update the required information as of the record date and after any subsequent change. The notice must comply with all requirements of the By-laws and, if the nomination is to be included in next year’s proxy statement, the requirements of SEC Rule 14a-8 and must be timely received by the Corporate Secretary at Genuine Parts Company, 2999 Wildwood Parkway, Atlanta, Georgia 30339.

The Company’s Board of Directors has established the following process for the identification and selection of candidates for director. The Compensation, Nominating and Governance Committee, in consultation with the Chairman of the Board, annually reviews the appropriate experience, skills and characteristics required of Board members in the context of the current membership of the Board to determine whether the Board would better be enhanced by the addition of one or more directors. This review includes, among other relevant factors in the context of the perceived needs of the Board at that time, issues of experience, reputation, judgment, diversity and skills. With regard to diversity, the Board and the Compensation, Nominating and Governance Committee believe that sound governance of the Company in an increasingly complex international marketplace requires a wide range of viewpoints. As a result, although the Board does not have a formal policy regarding Board diversity, the Board and the Committee believe that the Board should be comprised of a well-balanced group of individuals with diverse backgrounds, educations, experiences and skills that contribute to board diversity, and the Compensation, Nominating and Governance Committee considers such factors when reviewing potential candidates.

If the Compensation, Nominating and Governance Committee determines that adding a new director is advisable, the Committee initiates a search, working with other directors, management and, if it deems appropriate or necessary, a search firm retained to assist in the search. The Compensation, Nominating and Governance Committee considers all appropriate candidates proposed by management, directors and shareholders. Information regarding potential candidates is presented to the Compensation, Nominating and Governance Committee, and the Committee evaluates the candidates based on the needs of the Board at that time. Potential candidates are evaluated according to the same criteria, regardless of whether the candidate was recommended by shareholders, the Compensation, Nominating and Governance Committee, another director, Company management, a search firm or another third party. The Compensation, Nominating and Governance Committee then submits any recommended candidate(s) to the full Board of Directors for approval and recommendation to the shareholders.

The Company’s Board of Directors is comprised of individuals with diverse experience at policy-making levels in a variety of businesses, as well as in education and non-profit organizations, in areas that are relevant to the Company’s activities. Each director was nominated on the basis of the unique experience, qualifications, attributes and skills that he or she brings to the Board, as well as how those factors blend with those of the others on the Board as a whole. On an individual basis:

 

   

Ms. Camp has over 30 years of leadership experience in various executive roles, most recently as President and Chief Executive Officer of an investment and commercial real estate management

 

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company. Ms. Camp also serves as a director at Synovus Financial Corp. where she has chaired both its Audit and Compensation Committees. While Chair of the Synovus Audit Committee, Ms. Camp was responsible for ensuring the bank was in compliance with all of the various banking regulations that had recently been enacted in response to the 2008 recession. Her leadership and experience in this complex area was paramount to Synovus’s success at such a crucial time for the banking industry. Her previous experience as a tax attorney at large accounting and law firms in the Washington D.C. area also benefits the Company in the financial, accounting, tax, and legal areas. Ms. Camp’s background as an executive officer and director and her expertise in accounting, tax and legal matters have provided expertise in management and auditing, as well as leadership skills to our Board and Audit Committee.

 

   

Mr. Donahue has thirteen years of successful operating and management experience with the Company, which has included extensive involvement with numerous operating divisions within the Company. Prior to joining the Company, Mr. Donahue spent 24 years with a publicly traded consumer products manufacturer, ten of which were in their office products division. While there, he successfully held a number of sales, marketing, operations and executive positions. Mr. Donahue’s proven leadership, experience and success have contributed to the success of the Company and are beneficial to our Board.

 

   

Mr. Fayard brings to the Board a wealth of financial, accounting, and auditing knowledge as the former CFO of one of America’s largest corporations. Additionally, Mr. Fayard has served as Director on numerous for-profit and not-for-profit boards, giving him direct exposure to a wide variety of businesses and industries. He is also a former partner at a major public accounting firm. Mr. Fayard’s financial background and broad business exposure make him a significant contributor to our Board.

 

   

Mr. Gallagher has 46 years of operating experience with the Company and brings insight into all aspects of our business due to his extensive history with the Company. Mr. Gallagher’s leadership, together with the skills and knowledge of the industry gained in his tenure with the Company, have been instrumental in the growth and success of the Company. Mr. Gallagher also brings extensive experience as a former director of other NYSE-listed companies and as a current director of Oxford Industries, Inc.

 

   

Mr. Holder brings to the Board his strategic leadership in the growth of Holder Properties, which has been involved in the development of over 11 million square feet of real estate totaling in excess of $2 billion, as well as his extensive involvement in the areas of financial and marketing management. His service as the Chairman and CEO of Holder Properties, together with various board affiliations which include civic organizations, have given him leadership experience, business acumen and financial literacy that is beneficial to our Board and Compensation, Nominating and Governance Committee.

 

   

Ms. Hyland offers our board extensive knowledge of the health care industry as President and Chief Executive Officer of Children’s Healthcare of Atlanta. Her previous experience as COO and CFO of Children’s, as well as her experience on many non-profit boards brings a wide range of business and accounting experience to our board. Ms. Hyland also serves as a director at Cousins Properties, Inc., a for-profit real estate company, and additionally serves as a financial expert on the Cousins’ Audit Committee. Ms. Hyland’s service as a financial expert on a public company audit committee provides a wealth of experience that she has brought to our Board and Audit Committee.

 

   

Mr. Johns brings experience in running every aspect of a large insurance company, including his current position as Chairman and CEO as well as previous experience as a CEO, COO, CFO, and General Counsel of NYSE-listed public companies. Mr. Johns also serves as a director at Southern Company and is also on the board of Regions Financial Corporation, where he serves on the Nominating and Governance and Risk Committees.

 

   

Mr. Loudermilk offers extensive knowledge of the real estate industry, as founder and CEO of a real estate management company in Atlanta. He also has over 25 years of experience working with a public company in various positions, including CEO, and over 10 years as an experienced senior executive. Mr. Loudermilk’s operational, financial and management expertise and expansive knowledge of a multi-store retail business are a significant contribution to the Board and Audit Committee.

 

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Ms. Needham offers extensive knowledge and understanding of the U.S. and international auto industries as a former managing director of global automotive research at a world-wide financial services company. Throughout her career she has analyzed the financial performance and strategies of public companies in the global auto industry and brings this experience to bear as the Chair of the Company’s Audit Committee.

 

   

Prior to his retirement in 2013, Mr. Nix served in key financial positions within the Company for over 20 years and as the Company’s CFO for 13 years, providing him with extensive knowledge of the Company’s business and financial position. While serving as CFO, he managed the Company’s legal, human resources, logistics, construction, real estate and technology functions. With this knowledge and experience, Mr. Nix provides the Board with essential information that enables a better understanding of the business and financial risks facing the Company. Mr. Nix also brings experience as a director of another NYSE-listed company.

 

   

Mr. Wood’s professional career includes over 20 years in executive management positions with SunTrust Banks, Inc. and its various affiliates and 40 years of experience in the areas of banking and investment management generally. Mr. Wood has served as a Director on the Board of Southern Company since 2012, and serves as the lead independent director at Oxford Industries, Inc. Mr. Wood’s insights with respect to financial issues and the financial services industry, including the retail and business aspects of banking operations, together with his extensive experience on the boards of directors and committees of public and private companies, make him a valuable asset to our Board.

Communications with the Board

The Company’s Corporate Governance Guidelines provide for a process by which shareholders or other interested parties may communicate with the Board, a Board committee, the presiding independent director, the non-management directors as a group, or individual directors. Shareholders or other interested parties who wish to communicate with the Board, a Board committee or any such other individual director or directors may do so by sending written communications addressed to the Board of Directors, a Board committee or such individual director or directors, c/o Corporate Secretary, Genuine Parts Company, 2999 Wildwood Parkway, Atlanta, Georgia 30339. This information is also available on the Company’s website at www.genpt.com. All communications will be compiled by the Secretary of the Company and forwarded to the members of the Board to whom the communication is directed or, if the communication is not directed to any particular member(s) of the Board, the communication shall be forwarded to all members of the Board of Directors.

Annual Performance Evaluations

The Company’s Corporate Governance Guidelines provide that the Board of Directors shall conduct an annual evaluation to determine, among other matters, whether the Board and the Committees are functioning effectively. The Audit Committee and the Compensation, Nominating and Governance Committee are also required to each conduct an annual self-evaluation. The Compensation, Nominating and Governance Committee is responsible for overseeing this self-evaluation process. The Board, Audit Committee and Compensation, Nominating and Governance Committee each conducted an annual self-evaluation process during 2016 and feedback from the process was reported to and discussed by the Board.

Board Oversight of Risk

The Company’s Board of Directors recognizes that, although risk management is primarily the responsibility of the Company’s management team, the Board plays a critical role in the oversight of risk. The Board believes that an important part of its responsibilities is to assess the major risks the Company faces and review the Company’s options for monitoring and controlling these risks. The Board assumes responsibility for the Company’s overall risk assessment.

The Board as a whole examines specific business risks in its regular reviews of the individual business units and also on a Company-wide basis as part of its regular strategic reviews. In addition to periodic reports from two committees (discussed below) about risks, the Board receives presentations throughout the year from various

 

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business units that include discussion of significant risks specific to such business unit as necessary. Periodically, at Board meetings, management discusses matters of particular importance or concern, including any significant areas of risk requiring Board attention.

The Audit Committee has specific responsibility for oversight of risks associated with financial accounting and audits, as well as internal control over financial reporting. The Audit Committee monitors and reviews applicable enterprise risks identified as part of the Company’s enterprise risk management program, including the Company’s risk assessment and management policies, the Company’s major financial risk exposure and the steps taken by management to monitor and mitigate such exposure.

The Compensation, Nominating and Governance Committee oversees the risks relating to the Company’s compensation policies and practices as well as management development and leadership succession in the Company’s various business units.

The Compensation, Nominating and Governance Committee annually reviews with management the design and operation of the Company’s incentive compensation arrangements for all employees, including executive officers, for the purpose of determining whether such programs might encourage inappropriate risk-taking that could have a material adverse effect on the Company. In advance of such review, the Company identifies internal and external factors that comprise the Company’s primary business risks, and management compiles an inventory of incentive compensation arrangements, which are then summarized for the Compensation, Nominating and Governance Committee and reviewed for the purpose of identifying any aspects of such programs that might encourage behaviors that could exacerbate the identified business risks.

In conducting this assessment for 2016, the Compensation, Nominating and Governance Committee considered the performance objectives and target levels used in connection with these incentive awards and also the features of the Company’s compensation program that are designed to mitigate compensation-related risk. Based on such assessment, the Compensation, Nominating and Governance Committee concluded that the Company’s compensation policies and practices for its employees are not reasonably likely to have a material adverse effect on the Company.

Code of Conduct and Ethics

The Board of Directors has adopted a Code of Conduct and Ethics for Employees, Contract and/or Temporary Workers, Officers and Directors and a Code of Conduct and Ethics for Senior Financial Officers, both of which are available on the Company’s website at www.genpt.com. These Codes of Conduct and Ethics comply with NYSE and Securities and Exchange Commission (the “SEC”) requirements, including procedures for the confidential, anonymous submission by employees or others of any complaints or concerns about the Company or its accounting, internal accounting controls or auditing matters. The Company will post any amendments to or waivers from the Code of Conduct and Ethics (to the extent applicable to the Company’s executive officers and directors) on its website.

Board Attendance

The Company’s Corporate Governance Guidelines provide that all directors are expected to attend all meetings of the Board and committees on which they serve and are also expected to attend the Annual Meeting of Shareholders. During 2016, the Board of Directors held five meetings. One director missed one meeting; otherwise, all of the directors attended all of the Board of Director meetings. Other than three Audit Committee members missing one meeting each, all committee members attended all of the committee meetings on which they served. All of the Company’s directors attended the Company’s 2016 Annual Meeting.

Board Committees

The Board presently has three standing committees. Information regarding the functions of the Board’s committees, their present membership and the number of meetings held by each committee during 2016 is set forth below:

Executive Committee.    The Executive Committee is authorized, to the extent permitted by law, to act on behalf of the Board of Directors on all matters that may arise between regular meetings of the Board upon which

 

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the Board of Directors would be authorized to act. The current members of the Executive Committee are Thomas C. Gallagher (Chair), Paul D. Donahue, John D. Johns and Gary W. Rollins. During 2016, this committee held five meetings. Effective as of the date of the 2017 Annual Meeting, Mr. Rollins will retire as director and will no longer serve on the Executive Committee.

Audit Committee.    The Audit Committee’s main role is to assist the Board of Directors with oversight of (1) the integrity of the Company’s financial statements, (2) the Company’s compliance with legal and regulatory requirements, (3) the independent auditor’s qualifications and independence and (4) the performance of the Company’s internal audit function and independent auditors. As part of its duties, the Audit Committee assists in the oversight of (a) management’s assessment of, and reporting on, the effectiveness of internal control over financial reporting, (b) the independent auditor’s integrated audit, which includes expressing an opinion on the conformity of the Company’s audited financial statements with United States generally accepted accounting principles, (c) the independent auditor’s audit of the Company’s internal control over financial reporting which includes expressing an opinion on the effectiveness of the Company’s internal control over financial reporting and (d) the Company’s risk assessment and risk management. (See “Board Oversight of Risk” above.) The Audit Committee oversees the Company’s accounting and financial reporting process and has the authority and responsibility for the appointment, retention and oversight of the Company’s independent auditors, including pre-approval of all audit and non-audit services to be performed by the independent auditors. The Audit Committee annually reviews and approves the firm to be engaged as independent auditors for the Company for the next fiscal year, reviews with the independent auditors the plan and results of the audit engagement, reviews the scope and results of the Company’s procedures for internal auditing and monitors the design and maintenance of the Company’s internal accounting controls. The Audit Committee Report appears later in this proxy statement. A current copy of the written charter of the Audit Committee is available on the Company’s website at www.genpt.com.

The current members of the Audit Committee are Wendy B. Needham (Chair), Mary B. Bullock, Elizabeth W. Camp, Gary P. Fayard, Donna W. Hyland, Robert C. Loudermilk, Jr. and E. Jenner Wood. All members of the Audit Committee are independent of the Company and management, as required by the New York Stock Exchange listing standards and SEC requirements. The Board has determined that all members of the Audit Committee meet the financial literacy requirements of the NYSE corporate governance listing standards. During 2016, the Audit Committee held five meetings. Effective as of the date of the 2017 Annual Meeting, Dr. Bullock will retire as director and will no longer serve on the Audit Committee.

The Board of Directors has determined that Ms. Camp, Mr. Fayard, Ms. Hyland, Ms. Needham, and Mr. Wood meet the requirements adopted by the SEC for qualification as an “audit committee financial expert.” Ms. Camp currently oversees all aspects of business as President and CEO of a private investment and commercial real estate management company. She also has previous experience in accounting, tax, and legal matters as a tax attorney as well as extensive finance and accounting experience as a director for over 10 years of Synovus, serving as a current member and former chair of its Audit Committee. Mr. Fayard retired in 2014 as CFO of The Coca-Cola Company, where he held various financial leadership positions since joining the company in 1994. Previous to his role at Coca-Cola, he was a partner at a major public accounting firm. Mr. Fayard brings a wealth of financial, accounting, and auditing knowledge from his finance roles at Coca-Cola. Mr. Fayard also has served as Director on numerous for-profit and not-for-profit boards, giving him direct exposure to the finance and accounting of a wide variety of businesses and industries. Ms. Hyland currently acts as the President and CEO of Children’s Healthcare of Atlanta and oversees all functions of the hospital, including its finances. As former CFO of the organization, Ms. Hyland gained significant experience with the details of the finance and accounting areas of the business. Her professional experience as well as her directorship at Cousins Properties and membership of Cousins’ Audit Committee, as well as memberships on many non-profit boards exposed her to a broad spectrum of finance and accounting issues in a variety of businesses and industries. Ms. Needham was formerly Managing Director, Global Automotive Research for Credit Suisse First Boston from August 2000 to June 2003. Prior to that, Ms. Needham was a Principal, Automotive Research for Donaldson, Lufkin & Jenrette for six years. In both of these positions, Ms. Needham actively reviewed financial statements and prepared various financial analyses and evaluations of such financial statements and related business operations. Mr. Wood recently retired as Corporate Executive Vice President of SunTrust Banks, Inc.

 

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and prior to that, he held the position of Chairman, President and Chief Executive Officer of the Atlanta Division of SunTrust Bank. Mr. Wood has direct insight and extensive experience with respect to financial issues and the financial services industry.

Compensation, Nominating and Governance Committee.    The Compensation, Nominating and Governance Committee is responsible for (1) determining and evaluating the compensation of the Chief Executive Officer and other executive officers and key employees and approving and monitoring our executive compensation plans, policies, and programs, (2) identifying and evaluating potential nominees for election to the Board and recommending candidates for consideration by the Board and shareholders, (3) developing and recommending to the Board a set of Corporate Governance Guidelines, as well as periodically reevaluating those Corporate Governance Guidelines, and (4) overseeing the evaluation of the Board of Directors and management. The Committee also periodically reviews and evaluates the risk involved in the Company’s compensation policies and practices and the relationship of such policies and practices to the Company’s overall risk and management of that risk. The Committee has and may exercise the authority of the Board of Directors as specified by the Board and to the extent permitted under the Georgia Business Corporation Code, and the Committee has the authority to delegate its duties and responsibilities to subcommittees as it deems necessary and advisable. A brief description of the Committee’s policy regarding director candidates nominated by shareholders appears in “Director Nominating Process” above, and a full version can be found in the Company’s By-Laws.

For 2016, the Committee independently retained a compensation consultant, Meridian Compensation Partners, LLC, to assist it in its review of executive compensation practices, including the competitiveness of pay levels, design issues, market trends and technical considerations.

During the year, Meridian assisted the Committee with the development of competitive market data for executives and a related assessment of the Company’s executive compensation levels, a risk assessment of the Company’s incentive compensation, and also provided legislative and regulatory updates and guidance regarding reporting of executive compensation under the SEC’s proxy disclosure rules. Both our Executive Chairman and our Chief Executive Officer, with input from our Senior Vice President—Human Resources and Meridian, recommended to the Committee base salary, target bonus levels, actual bonus payouts and long-term incentive grants for our senior executives. The Committee considered, discussed, modified as appropriate, and took action on such proposals. The Committee has agreed that Meridian will play a similar role for 2017.

The Compensation, Nominating and Governance Committee annually considers whether the work of any compensation consultant raised any conflict of interest. For 2016, the Committee considered various factors, including the six factors mandated by SEC rules, and determined that with respect to executive and director compensation-related matters, no conflict of interest was raised by the work of Meridian. The Committee also considers the six independence factors mandated by SEC rules before engaging any other compensation advisers.

The current members of the Compensation, Nominating and Governance Committee are John D. Johns (Chair), John R. Holder, Gary W. Rollins and E. Jenner Wood. All members of the Compensation, Nominating and Governance Committee are independent of the Company and management, as required by the NYSE listing standards and the SEC. During 2016, the Compensation, Nominating and Governance Committee held three meetings. Effective as of the date of the 2017 Annual Meeting, Mr. Rollins will retire as director and will no longer serve on the Compensation, Nominating and Governance Committee. A current copy of the written charter of the Compensation, Nominating and Governance Committee is available on the Company’s website at www.genpt.com.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth information as of February 14, 2017, as to all persons or groups known to the Company to be beneficial owners of more than five percent of the outstanding Common Stock of the Company.

 

Title of Class

  

Name and Address of Beneficial Owner

  

Shares

Beneficially

    Owned    

   

Percent

of Class

 
Common Stock,

    $1.00 par

    value

  

The Vanguard Group, Inc.

100 Vanguard Blvd.

Malvern, PA 19355

     14,952,834 (1)      10.1
Common Stock,

    $1.00 par

    value

  

Blackrock, Inc.

55 East 52nd Street

New York, NY 10055

     13,944,918 (2)      9.4
Common Stock,

    $1.00 par

    value

  

State Street Corporation

State Street Financial Center

One Lincoln Street

Boston, MA 02111

     8,540,829 (3)      5.7

 

(1) This information is based upon information included in a Schedule 13G filed on February 10, 2017 by The Vanguard Group, Inc. The Vanguard Group, Inc. reports sole voting power with respect to 234,083 shares, shared voting power with respect to 31,420 shares, sole dispositive power with respect to 14,692,529 shares and shared dispositive power with respect to 260,305 shares. Vanguard further reported that (a) Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 190,235 shares or .12% of the Company’s common stock as a result of its serving as investment manager of collective trust accounts and (b) Vanguard Investments Australia, Ltd., a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 113,918 or .07% of the Company’s common stock as a result of its serving as investment manager of Australian investment offerings.

 

(2) This information is based upon information included in a Schedule 13G filed on January 24, 2017 by Blackrock, Inc. Blackrock, Inc. reports sole voting power with respect to 12,471,295 shares and sole dispositive power with respect to all 13,944,918 shares. According to the filing, the reported shares are held by Blackrock, Inc. through subsidiaries.

 

(3) This information is based upon information included in a Schedule 13G filed on February 6, 2017 by State Street Corporation. State Street Corporation reports shared voting power and shared dispositive power with respect to all 8,540,829 shares. According to the filing, the reported shares are held by State Street Corporation through subsidiaries.

 

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SECURITY OWNERSHIP OF MANAGEMENT

Based on information provided to the Company by the named persons, set forth in the table below is information regarding the beneficial ownership of Common Stock of the Company held by the Company’s directors and nominees for director, the named executive officers (as defined in “Executive Compensation” below) and all directors, nominees for director and executive officers of the Company as a group as of February 14, 2017:

 

Name

   Shares of
Common Stock
Beneficially Owned(1)
    Percentage of
Common  Stock
Outstanding
 

Timothy P. Breen

     27,926 (2)      *  

Mary B. Bullock

     24,471 (3)      *  

Elizabeth W. Camp

     2,540 (4)      *  

Paul D. Donahue

     119,353 (5)      *  

Gary P. Fayard

     8,543 (6)      *  

Thomas C. Gallagher

     808,417 (7)      *  

John R. Holder

     17,650 (8)      *  

Donna W. Hyland

     2,999 (9)      *  

John D. Johns

     36,201 (10)      *  

Robin C. Loudermilk

     30,472 (11)      *  

Lee A. Maher

     76,611 (12)      *  

Wendy B. Needham

     16,365 (13)      *  

James R. Neill

     3,126,008 (14)      2.1

Jerry W. Nix

     157,309 (15)      *  

Gary W. Rollins

     52,335 (16)      *  

Carol B. Yancey

     3,176,050 (17)      2.1

E. Jenner Wood

     8,041 (18)      *  

Directors and Executive Officers as a Group (17 persons)

     4,583,155 (19)      3.1

 

    * Less than 1%

 

  (1) Information relating to the beneficial ownership of Common Stock by directors and executive officers is based upon information furnished by each such individual using “beneficial ownership” concepts set forth in rules promulgated by the SEC. Except as indicated in other footnotes to this table, directors and executive officers possessed sole voting and investment power with respect to all shares set forth by their names. The table includes, in some instances, shares in which members of a director’s or executive officer’s immediate family or trusts or foundations established by them have a beneficial interest and as to which the director or executive officer disclaims beneficial ownership.

 

  (2) Includes 24,591 shares subject to stock options and stock appreciation rights that are exercisable currently or within 60 days after February 14, 2017. Does not include 4,428 restricted stock units that each represent a right to receive one share of Common Stock on the five-year anniversary of their original grant date, subject to earlier settlement in certain events outside the control of Mr. Breen.

 

  (3) Includes (i) 10,797 restricted stock units that each represent a right to receive one share of Common Stock on the five-year anniversary of their original grant date, subject to earlier settlement in certain events, including a termination of service as a director by reason of retirement and (ii) 7,568 shares of Common Stock equivalents held in Ms. Bullock’s stock account under the Directors’ Deferred Compensation Plan. See “Compensation of Directors.”

 

  (4) Includes 2,040 restricted stock units that each represent a right to receive one share of Common Stock on the five-year anniversary of their original grant date, subject to earlier settlement in certain events, including a termination of service as a director by reason of retirement.

 

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  (5) Includes 51,797 shares subject to stock options and stock appreciation rights that are exercisable currently or within 60 days after February 14, 2017. Does not include 23,949 restricted stock units that each represent a right to receive one share of Common Stock on the five-year anniversary of their original grant date, subject to earlier settlement in certain events outside the control of Mr. Donahue.

 

  (6) Includes (i) 6,291 restricted stock units that each represent a right to receive one share of Common Stock on the five-year anniversary of their original grant date, subject to earlier settlement in certain events, including a termination of service as a director by reason of retirement and (ii) 2,252 shares of Common Stock equivalents held in Mr. Fayard’s stock account under the Directors’ Deferred Compensation Plan.

 

  (7) Includes (i) 234,698 shares subject to stock options and stock appreciation rights that are exercisable currently or within 60 days after February 14, 2017, and (ii) 946 shares owned jointly by Mr. Gallagher and his wife. Does not include 47,189 restricted stock units that each represent a right to receive one share of Common Stock on the five-year anniversary of their original grant date, subject to earlier settlement in certain events outside the control of Mr. Gallagher.

 

  (8) Includes (i) 10,797 restricted stock units that each represent a right to receive one share of Common Stock on the five-year anniversary of their original grant date, subject to earlier settlement in certain events, including a termination of service as a director by reason of retirement, and (ii) 3,578 shares of Common Stock equivalents held in Mr. Holder’s stock account under the Directors’ Deferred Compensation Plan.

 

  (9) Includes (i) 2,040 restricted stock units that each represent a right to receive one share of Common Stock on the five-year anniversary of their original grant date, subject to earlier settlement in certain events, including a termination of service as a director by reason of retirement and (ii) 959 shares of Common Stock equivalents held in Ms. Hyland’s stock account under the Directors’ Deferred Compensation Plan.

 

(10) Includes (i) 10,797 restricted stock units that each represent a right to receive one share of Common Stock on the five-year anniversary of their original grant date, subject to earlier settlement in certain events, including a termination of service as a director by reason of retirement, (ii) 17,941 shares of Common Stock equivalents held in Mr. Johns’ stock account under the Directors’ Deferred Compensation Plan, and (iii) 2,053 shares owned by Mr. Johns’ spouse, as to which Mr. Johns disclaims beneficial ownership.

 

(11) Includes (i) 10,797 restricted stock units that each represent a right to receive one share of Common Stock on the five-year anniversary of their original grant date, subject to earlier settlement in certain events, including a termination of service as a director by reason of retirement and (ii) 6,169 shares of Common Stock equivalents held in Mr. Loudermilk’s stock account under the Directors’ Deferred Compensation Plan.

 

(12) Includes 27,001 shares subject to stock options and stock appreciation rights that are exercisable currently or within 60 days after February 14, 2017. Does not include 7,701 restricted stock units that each represent a right to receive one share of Common Stock on the five-year anniversary of their original grant date, subject to earlier settlement in certain events outside the control of Mr. Maher.

 

(13) Includes (i) 10,797 restricted stock units that each represent a right to receive one share of Common Stock on the five-year anniversary of their original grant date, subject to earlier settlement in certain events, including a termination of service as a director by reason of retirement.

 

(14) Includes (i) 15,894 shares subject to stock options and stock appreciation rights that are exercisable currently or within 60 days after February 14, 2017. Does not include 5,859 restricted stock units that each represent a right to receive one share of Common Stock on the five-year anniversary of their original grant date, subject to earlier settlement in certain events outside the control of Mr. Neill. Also includes 2,016,931 shares held in trust for Company employees under the Company’s Pension Plan for which Mr. Neill is one of six trustees and 1,088,532 shares held in a benefit fund for Company employees of which Mr. Neill is one of four trustees.

 

(15) Includes (i) 6,292 restricted stock units that each represent a right to receive one share of Common Stock on the five-year anniversary of their original grant date, subject to earlier settlement in certain events, including a termination of service as a director by reason of retirement, and (ii) 70,900 shares owned by Mr. Nix’s wife. Mr. Nix disclaims beneficial ownership as to all shares held by his wife.

 

(16)

Includes (i) 10,797 restricted stock units that each represent a right to receive one share of Common Stock on the five-year anniversary of their original grant date, subject to earlier settlement in certain events,

 

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  including a termination of service as a director by reason of retirement, and (ii) 34,030 shares held in a charitable foundation for which Mr. Rollins is a trustee and thereby has shared voting and investment power. Mr. Rollins disclaims beneficial ownership as to all such shares held in trust.

 

(17) Includes (i) 37,332 shares subject to stock options and stock appreciation rights that are exercisable currently or within 60 days after February 14, 2017. Does not include 16,207 restricted stock units that each represent a right to receive one share of Common Stock on the five-year anniversary of their original grant date, subject to earlier settlement in certain events outside the control of Ms. Yancey. Also includes 2,016,931 shares held in trust for Company employees under the Company’s Pension Plan for which Ms. Yancey is one of six trustees and 1,088,532 shares held in a benefit fund for Company employees of which Ms. Yancey is one of four trustees.

 

(18) Includes (i) 4,139 restricted stock units that each represent a right to receive one share of Common Stock on the five-year anniversary of their original grant date, subject to earlier settlement in certain events, including a termination of service as a director by reason of retirement, (ii) 2,102 shares of Common Stock equivalents held in Mr. Wood’s stock account under the Directors’ Deferred Compensation Plan, and (iii) 300 shares held in trust for Mr. Wood’s children to which Mr. Wood disclaims beneficial ownership.

 

(19) Includes (i) 391,313 shares or rights issuable to certain executive officers and directors upon the exercise of options and/or stock appreciation rights, (ii) 2,016,931 shares held in trust for Company’s employees under the Company’s Pension Plan, (iii) 1,088,532 shares held in a benefit fund for Company employees, and (iv) 40,569 shares held as Common Stock equivalents in directors’ stock accounts under the Directors’ Deferred Compensation Plan.

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

In this section, an overview and analysis is provided of our executive compensation programs and policies, the material compensation decisions we have made under those programs and policies, and the material factors that we considered in making those decisions. Later in this proxy statement under the heading “Additional Information Regarding Executive Compensation” you will find a series of tables containing specific information about the compensation earned or paid in 2016 to the following individuals, who are referred to as our named executive officers:

 

   

Thomas C. Gallagher, Executive Chairman

 

   

Paul D. Donahue, President & Chief Executive Officer

 

   

Carol B. Yancey, Executive Vice President & Chief Financial Officer

 

   

Timothy P. Breen, President & Chief Executive Officer — Motion Industries

 

   

Lee A. Maher, President — U.S. Automotive Parts Group

 

   

James R. Neill, Senior Vice President — Human Resources

The discussion below is intended to explain the detailed information provided in those tables and put that information into context within the Company’s overall compensation program.

2016 In Brief

During 2016, the Compensation, Nominating and Governance Committee actions and our pay-for-performance program operated such that compensation actually earned by executives reflected the performance of the Company. Highlights for 2016 are as follows:

Performance

 

   

Our total shareholder return for 2016 was 14.3%. This served to increase both shareholder wealth and the value of equity awards previously granted to our executives.

 

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Revenues were up 0.4% and were 98% of our target; pre-tax earnings were down 4.4% and were 94% of our target.

Plan Payouts

As a result of the above and other performance results, 2016 bonus payouts and earning of performance-based restricted stock units were generally below target.

 

   

2016 annual incentive awards for Messrs. Gallagher, Donahue and Neill and Ms. Yancey were 100% of the total target amount, based on the Company’s 2016 pre-tax profit of $1,074,340,000, or 94% of the target amount, and a working capital improvement of 12%, which was 150% of the target amount.

 

   

Mr. Breen’s 2016 annual incentive award was 61% of total target. This award was partly earned based on the Industrial Products Group’s pre-tax profit performance, which was at 90% of target. Mr. Breen’s annual incentive award is also based on the Industrial Products Group’s sales performance, which was 96% of target. Additional goals for the Industrial Products Group pertaining to inventory turnover and working capital were partially met.

 

   

Mr. Maher’s 2016 annual incentive award was 42% of total target. This award was partly earned based on the Automotive Part’s Group’s pre-tax profit performance, which was 86% of target. Mr. Maher’s annual incentive award is also based on the Automotive Group’s sales which was 94% of target. Accounts receivable and inventory turnover performance goals were partially met.

 

   

The performance-based restricted stock units granted in 2016 were earned at 72% of target for Messrs. Gallagher, Donahue and Neill and Ms. Yancey, at 52% of target for Mr. Breen, and at 0% target for Mr. Maher for performance during 2016. Such earned shares generally vest based on four additional years of continued employment.

2016 Pay Opportunities

 

   

Any 2016 base salary increases higher than 3-4% and any increases in 2016 target bonus percentage were made in order to recognize promotions into new roles or meaningful gaps to market levels.

 

   

Long-term incentive awards (stock appreciation rights, or SARs, and performance-based restricted stock units, or PRSUs) were granted to our executive officers in 2016 at similar levels relative to prior year grants, below the size-adjusted 50th percentile of the market data.

 

   

PRSU payouts were dependent on achievement of corporate performance goals relating to pre-tax profit for 2016.

 

   

SARs deliver value to executive officers only to the extent our stock price increases after the grant date.

Best Practices

We believe our compensation programs reflect a “best practices” approach to pay and governance:

 

   

Our “double trigger” change-in-control severance arrangements with the named executive officers do not provide for any excise tax gross ups.

 

   

We have no employment contracts or guaranteed severance arrangements with named executive officers other than our “double-trigger” change in control agreements.

 

   

Grants of long-term incentives are subject to “double-trigger” vesting upon a change in control.

 

   

We target pay opportunities for base salary, target bonus and long-term incentives as a group at or below the size-adjusted 50th percentile of the market data.

 

   

About 70% of our CEO’s compensation is performance-based and performance-based compensation represents between 61% and 77% of compensation for each of the other named executive officers.

 

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Our stock ownership guidelines result in our executives being long-term holders of our stock.

 

   

Our Annual Incentive Plan contains a clawback provision.

 

   

We have no tax gross-ups for perquisites or benefits other than relocation.

 

   

We have never re-priced stock options or stock appreciation rights.

 

   

We pay dividend equivalents on performance-based restricted stock units only to the extent such units are earned through performance.

 

   

Our insider trading policy prohibits transactions in publicly traded options and other hedging transactions with respect to Company common stock.

Consideration of Last Year’s Advisory Shareholder Vote on Executive Compensation

At the 2016 Annual Meeting of Shareholders, approximately 97% of the shares present and entitled to vote were cast in support of the compensation of the Company’s executive officers, as discussed and disclosed in the 2016 Proxy Statement.

In light of the strong shareholder support of the compensation paid to our executive officers evidenced by the results of this advisory vote, the Board and the Committee did not make any specific changes to our executive compensation program for 2016 in response to the vote, other than adding a working capital metric to the Annual Incentive Program. Future advisory votes on executive compensation will serve as an additional tool to guide the Board and the Committee in evaluating the alignment of the Company’s executive compensation program with the interests of the Company and its shareholders.

Compensation Philosophy and Objectives

Our overall goal in compensating executive officers is to attract, retain and motivate key executives of superior ability who are critical to our future success. We believe that short-term and long-term incentive compensation opportunities provided to executive officers should be directly aligned with our performance, and our compensation is structured to ensure that a significant portion of executives’ compensation opportunities is directly related to achievement of financial and operational goals and other factors that impact shareholder value.

Our compensation decisions with respect to executive officer salaries, annual incentives, and long-term incentive compensation opportunities are influenced by (a) the executive’s level of responsibility and function within the Company, (b) the overall performance and profitability of the Company, (c) our assessment of the competitive marketplace, including other peer companies, and (d) the economic environment. Our philosophy is to focus on total direct compensation opportunities through a mix of base salary, annual cash bonus and long-term incentives, including stock-based awards.

We also believe that the best way to directly align the interests of our executives with the interests of our shareholders is to make sure that our executives acquire and retain a significant level of stock ownership throughout their tenure with the Company. Our compensation program pursues this objective in two ways: through our equity-based long-term incentive awards and our stock ownership guidelines for our senior executives, as described in more detail below.

 

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Overview of Executive Compensation Components

The Company’s executive compensation program consists of several compensation elements, as described in the table below.

 

Pay Element  

What the Pay Element is

Designed to Reward

 

Objective of the Pay

Element

 

Why We Choose to Pay

Each Element

Base Salary   Core competence in the executive role relative to skills, experience and contributions to the Company   Provide fixed compensation based on competitive market practice   Provide a standard element of competitive market pay
Annual Cash Incentive   Contributions toward the Company’s achievement of specified pre-tax profit goals, as well as achievement of revenue and asset management goals for certain NEOs  

•   Provide focus on meeting critical annual goals that lead to our long-term success

 

•   Provide annual performance-based cash incentive compensation

  Motivate achievement of critical annual performance metrics

Long-Term

Incentives

 

Stock Appreciation Rights (SARs):

 

•   Sustained stock price appreciation

 

•   Continued employment with the Company during a three-year vesting period

 

The combination of SARs and PRSUs provides a blended long-term focus on:

 

•   Sustained stock price performance

 

•   Achievement of pre-tax profitability targets

 

•   Executive ownership of our stock

 

•   Executive retention in a challenging business environment and competitive labor market

  Align executives’ interests with those of shareholders and enhance their retention
   

Performance Restricted Stock Units (PRSUs):

 

•   Sustained pre-tax profitability (determines the number of PRSUs that are earned)

 

•   Focus on the Company’s stock price performance

 

•   Continued employment with the Company during a four-year vesting period (five years including the performance year)

     

 

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Pay Element  

What the Pay Element is

Designed to Reward

 

Objective of the Pay

Element

 

Why We Choose to Pay

Each Element

Retirement Benefits

 

Plans are described in detail later in this proxy statement under the heading “Additional Information Regarding Executive Compensation”

 

Executives are eligible to participate in employee benefit plans available to all employees as well as:

 

•   Tax Deferred Savings Plan: Rewards saving for retirement

 

•   Supplemental Retirement Plan (SRP): Rewards executives for continued employment in the same manner as other employees

 

•   Tax Deferred Savings Plan: Provide a voluntary tax-deferred retirement savings vehicle for our executive officers

 

•   SRP: Make total retirement benefits for our executive officers commensurate with those available to our other employees as a percentage of pay

  Treat executives in the same manner as other employees by making them “whole” on amounts they would have been entitled to receive under retirement plans had the plans not been limited by the IRS Code
Welfare Benefits  

•   Executives participate in medical, health, life insurance and disability plans generally available to our employees

 

•   Continuation of welfare benefits may occur as part of severance upon certain terminations of employment

  Provide health and welfare benefits to our employees that are competitive within the marketplace   These benefits are part of our broad-based total compensation program
Additional Benefits and Perquisites  

•   CEO/President/Chairman only: Board-mandated requirement that the corporate aircraft be used for personal travel

 

•   CEO/President/Chairman only: Selected club memberships

 

Neither item has a tax reimbursement provision

 

These pay elements facilitate certain Company objectives

 

Corporate aircraft use: Accommodate security, CEO/President/Chairman availability and efficiency concerns

 

Club memberships: Facilitate the CEO/President/Chairman’s role as a Company representative in the community

  Accomplish the specific objectives noted at left
Change in Control and Termination Benefits  

What is provided: We have change in control agreements with certain officers, including our named executive officers. The agreements provide severance benefits if an officer’s employment is terminated within two years after a change in control. No excise tax gross-ups are provided

 

What it rewards: Continued employment in the event of an actual or threatened change in control

  Retain executives and provide continuity of management in the event of an actual or threatened change in control   Maintain a stable executive organization in the face of the uncertainty of an actual or threatened change in control

 

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The use of these programs enables us to reinforce our pay for performance philosophy, as well as strengthen our ability to attract and retain highly qualified executives. We believe that this combination of programs provides an appropriate mix of fixed and variable pay, balances short-term operational performance with long-term shareholder value and encourages executive recruitment and retention.

Determination of Appropriate Pay Levels

Pay Philosophy and Competitive Standing

In general, we target total compensation opportunities for our executive officers at or under the size-adjusted 50th percentile of the market data, including salary, target annual bonus, and long-term incentive opportunities. We provide somewhat conservative base salaries, higher-than-market target bonus opportunities and lower-than-50th percentile long-term incentives.

Determinations of one element of pay tend not to affect determinations of other pay elements.

We also design our incentive plans to pay more or less than the target amount when performance is above or below target performance levels. Thus, our plans are designed to result in payouts that are commensurate with the Company’s performance for that year or period.

For 2016, with the assistance of the Committee’s compensation consultant, Meridian Compensation Partners, LLC, we reviewed and analyzed competitive market data to be used as background for 2016 pay decisions and to obtain a general understanding of current compensation practices. This data was referenced when targeting the positioning for compensation discussed above. Data sources included public company proxy statements, broad-based, published compensation surveys and a private total compensation database maintained by Aon Hewitt.

We compared compensation opportunities for our named executive officers with pay opportunities available to executive officers in comparable positions at similar companies (our “Comparison Group”). During 2016 the Comparison Group included companies from industry segments in which we compete: automotive parts, industrial parts, specialty retail and office products. The Comparison Group companies used in 2016 are shown below. While the companies are either larger or smaller than us, Meridian used various statistical techniques to size-adjust the data to our revenue size. The list of companies below is reevaluated annually to take into account changes in our own operations, our size and our industry, but no changes were made for 2016.

 

Advance Auto Parts, Inc.

Applied Industrial Technologies, Inc.

Arrow Electronics, Inc.

Autozone, Inc.

Avnet, Inc.

Eaton Corporation Plc.

Federal Mogul

Johnson Controls

Kaman Corp.

LKQ Corp.

MSC Industrial Direct Co., Inc.

  

O’Reilly Automotive, Inc.

Office Depot, Inc.

Parker-Hannifin Corporation

Staples, Inc.

Tech Data Corp.

Tenneco Inc.

Tractor Supply Company

Essendant Inc. (formerly United Stationers)

Wesco International

W. W. Grainger, Inc.

2016 Base Salary

Our base salary levels reflect a combination of factors, including the pay posture discussed above, the executive’s experience and tenure, our overall annual budget for both pay increases and pre-tax profit, the executive’s individual performance and changes in responsibility. We review salary levels annually to recognize these factors.

 

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The base pay increases for 2016 were effective on April 1, 2016; however, Mr. Maher’s base pay increase was effective on February 1, 2016. They were as follows:

 

Executive

   2016 Base
Salary  Increase
   

Comments

Gallagher

     3.0   Role change from Chief Executive Officer to Executive Chairman in 2016

Donahue

     36.4   Promoted to Chief Executive Officer in 2016

Yancey

     10.6   Promoted to Chief Financial Officer in 2013; pay continues below market level

Breen

     3.6  

Maher

     10.0   Promoted to President of the U.S. Automotive Parts Group in 2016

Neill

     3.9  

2016 Annual Incentive Plan

Our annual incentive plan (the “Annual Incentive Plan”) provides our executive officers with an opportunity to earn annual cash bonuses based on our achievement of certain pre-established performance goals. Similar to the process for setting base salaries, we consider a combination of factors in establishing the annual target bonus opportunities for our named executive officers. For 2016, we added a working capital improvement metric to the Annual Incentive Plan for all business units, detailed below.

We set the profit goals for 2016 bonus opportunities at levels that are intended to be challenging yet achievable, and reflect better than average growth within our competitive industry. Goals are set for pre-tax profit, along with revenue, expense control and asset management for certain executives with specific operational responsibilities.

The Compensation, Nominating and Governance Committee sets target bonus opportunities for each named executive officer to be earned based on achievement of such goals. Target bonus opportunities for 2016 were set as a percentage of each named executive officer’s base salary, as follows: Mr. Gallagher, 192%; Mr. Donahue, 120%; Ms. Yancey, 110%; Mr. Breen, 100%; Mr. Maher, 80% and Mr. Neill, 85%.

The performance goals on which each executive officer’s 2016 bonus opportunity is determined varies depending on the individual’s role in the Company. Performance criteria and relative weights for 2016 are shown below for each executive. The combination of goals for each executive is intended to have a strong correlation with shareholder value. Goals for Corporate, Automotive and Industrial Products are each set based upon (i) prior year performance by store, branch, or distribution center; (ii) the overall economic outlook of the region served by a particular store, branch, or distribution center; and (iii) specific market conditions.

 

Performance Goal

   2016 Weight of Goal by Executive  
     Gallagher
Donahue

Yancey
Neill
    Breen(1)     Maher(2)  

Corporate Pre-tax profit

     80    

Automotive

      

Pre-tax profit

         50

Industrial Products

      

Pre-tax profit

       50  

Sales

       30     30

Working capital improvement

     20     10  

Inventory turnover

       10     10

Accounts receivable growth vs. sales growth

         10
  

 

 

   

 

 

   

 

 

 

Total

     100     100     100
  

 

 

   

 

 

   

 

 

 

 

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(1) For Mr. Breen, Industrial Products consists of Motion Industries, Inc. and EIS, Inc., wholly owned subsidiaries of the Company.

 

(2) For Mr. Maher, Automotive consists of the U.S. Automotive Parts Group.

The ranges of bonus payout possibilities for the various pre-tax profit goals and the Automotive and Industrial Products sales and other goals are shown below. Straight-line interpolation is used between data points. The 2016 Corporate pre-tax profit goal was $1,138,700,000.

 

Pre-Tax Profit

(Corporate,

Automotive, or

Industrial Products)

as a % of Quota

 

% of Target

Bonus Earned

 

Mr. Breen

and Mr. Maher

Sales

as a %

of Quota

 

% of

Target

Bonus

Earned

Below 75%

  —%   Below 95%   —%

75%

  45%   95%   15%

100%

  100%   100%   100%

110% or above

  175%   105% or above   150%

For Mr. Breen, bonus opportunity was provided for attainment of inventory turnover, and asset management goals, with a goal of various levels of improvement versus the prior year. Bonus opportunity was provided from 50% of target to 150% of target based on the achievement of the various levels of improvement.

For Mr. Maher, bonus opportunity was provided for attainment of inventory turnover and accounts receivable goals, with a goal of various levels of improvement versus the prior year. Bonus opportunity for inventory turnover was provided from 15% of target to 150% of target based on the achievement of the various levels of improvement, and for accounts receivable goals, 50% of target to 150% of target based on the achievement of improvement.

For 2016, the Company’s pre-tax profit was $1,074,340,000 representing 94% of the target level set for executive officer incentive bonuses, and working capital improvement performance was improved 12%, representing 150% of the target level set for the executive officer incentive bonuses resulting in bonus payments equal to 100% of the total target bonus opportunity for Mr. Gallagher, Mr. Donahue, Ms. Yancey and Mr. Neill.

Mr. Breen’s program produced a bonus payment equal to 61% of target earned based on Industrial Products Group performance. That Group’s pre-tax profit was 90% of target, while its sales performance was 96% of target. Additional goals pertaining to inventory turnover and working capital improvement were partially met.

Mr. Maher’s program produced a bonus payment equal to 42% of target earned based on U.S. Automotive Parts Group performance. That Group’s pre-tax profit was 86% of target, while its sales performance was 94% of target. Additional goals pertaining to accounts receivable and inventory turnover were partially met.

In developing the payout figures, formulas were applied strictly. The Committee did not exercise discretion to increase or decrease 2016 bonus payments for the named executive officers.

For additional information about the Annual Incentive Plan, please refer to the “Grants of Plan-Based Awards” table, which shows the threshold, target and maximum bonus amounts payable under the plan for 2016, and the Summary Compensation Table, which shows the actual amount of bonuses paid under the plan to our named executive officers for 2016.

2016 Long-Term Incentives

During 2016, the Compensation, Nominating and Governance Committee granted long-term equity-based incentive compensation to our executive officers in the form of Stock Appreciation Rights (“SARs”) and Performance Restricted Stock Units (“PRSUs”). These grants align executive performance and achievement with shareholder interests.

 

   

SARs:    Each SAR represents the right to receive upon exercise an amount, payable in shares of common stock, equal to the excess, if any, of the fair market value of our common stock on the date of exercise over the base value of the grant. The SARs were granted with a base value equal to the closing stock price

 

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on the date of the grant (April 1, 2016). The SARs vest in equal annual installments on the first three anniversaries following the grant date and have a ten-year exercise period.

 

   

PRSUs:    The PRSUs represent the right to earn and receive a number of shares of our common stock in the future, based on the level of the Company’s 2016 pre-tax profit performance as shown in the table below.

 

Percent of Pre-Tax Profit Goal Achieved

   % of  Target
Award
Earned
 

110% or higher

     150

100%

     100

90%

     50

Less than 90%

    

 

   

To the extent the PRSUs are earned, they are subject to an additional four-year vesting schedule (e.g., for PRSUs granted in 2016, shares of restricted stock will be earned in early 2017 based on 2016 performance and will vest on December 1, 2020). Dividends declared after the restricted shares are earned are accrued and converted into additional shares of stock at the end of the vesting period.

The sizes of grants to individual named executive officers were subjectively determined by considering the following factors:

 

   

Competitive market data, defined by the competitive award levels summarized in the annual executive compensation study;

 

   

The officer’s responsibility level;

 

   

The officer’s specific function within the overall organizational structure;

 

   

The Company’s profitability, including consideration of the compensation cost associated with the awards; and

 

   

The number and amount of awards currently held by the executive officer (we continue to review this as part of our administration of stock ownership guidelines discussed below).

Comparison to market data suggests that the value of the 2016 SARs and PRSUs awarded to our named executive officers was less than a 50th percentile grant relative to our Comparison Group. Grants in 2016 were weighted approximately 25% SARs and 75% PRSUs.

Mr. Gallagher, Mr. Donahue, Ms. Yancey and Mr. Neill earned 72% of their PRSUs in 2016, based on the Company’s actual 2016 pre-tax profit of $1,074,340,000, which represented 94% of the Company’s pre-tax profit goal of $1,138,700,000. Mr. Breen earned 52% of his PRSUs in 2016, based on a 90% achievement of the 2016 pre-tax profit goal for the Industrial Products Group. Mr. Maher earned 0% of his PRSUs in 2016, based on a 86% level of achievement of the 2016 pre-tax profit goals for the Automotive Parts Group.

Please refer to the “Grants of Plan-Based Awards” and “Outstanding Equity Awards at Fiscal Year-End” tables and the related footnotes for additional information about long-term stock awards.

Change in Control Arrangements

The Company believes that severance protections, particularly in the context of a change in control transaction, can play a valuable role in attracting and retaining key executive officers. Accordingly, the Company has entered into change in control agreements with each of the named executive officers. Information regarding these agreements and the benefits they provide is included in the Post Termination Payments and Benefits section of this Proxy Statement.

The Compensation, Nominating and Governance Committee evaluates the level of severance benefits to each such officer on a case-by-case basis, and in general, we consider these severance protections an important part of our executives’ compensation and consistent with competitive practices.

 

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We believe that the potential occurrence of a change in control transaction would create uncertainty regarding the continued employment of our executive officers. This uncertainty results from the fact that many change in control transactions result in significant organizational changes, particularly at the senior executive level. In order to encourage our senior executive officers to remain employed with the Company during an important time when their prospects for continued employment are often uncertain, we provide our executive officers with severance benefits if the executive’s employment is terminated by the Company without cause or by the executive for “good reason” in connection with a change in control. Because we believe that a termination by the executive for good reason may be conceptually the same as a termination by the Company without cause, and because we believe that in the context of a change in control, potential acquirers would otherwise have an incentive to constructively terminate the executive’s employment to avoid paying severance, we believe it is appropriate to provide severance benefits in these circumstances.

The change-in-control agreements with our executives were amended in 2014 to eliminate all tax gross-ups with respect to excise taxes under Internal Revenue Code Section 4999 that may be due on such payments. In addition, the Company has in the past grossed-up additional SRP amounts for FICA taxes in the event of a change in control. The SRP was amended and restated January 1, 2009 to provide that no employees may commence participation in the plan on or after that date. As such, there are no further gross-ups other than to those individuals participating in the SRP prior to the January 1, 2009 freezing of the plan.

Factors Considered in Decisions to Materially Increase or Decrease Compensation

Market data, individual performance, retention needs and internal pay equity have been the primary factors considered in decisions to adjust compensation materially. We do not target any particular weight for base salary, annual bonus and long-term incentive as a percent of total direct compensation. We tend to follow market practice in allocating between the various forms of compensation, but with greater emphasis on performance-based incentive bonus opportunities because doing so results in pay opportunity that is heavily performance-based, as shown below, and results in compensation that is directly aligned with Company performance, is market-competitive and allows us to attract and retain competent executives.

2016 Performance-Based versus Fixed Compensation:

The following table shows the allocation of each Executive’s base salary and short-term and long-term incentive compensation opportunities between fixed and performance-based compensation (at the target levels).

 

Name

   Fixed
Compensation
       Performance-Based
Compensation
 

Gallagher

     23        77

Donahue

     30        70

Yancey

     31        69

Breen

     35        65

Maher

     39        61

Neill

     39        61

 

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2016 Short-Term versus Long-Term Incentive Compensation:

The following table shows the allocation between each Executive’s target short-term and long-term incentive compensation opportunities (each at the target level) as a percentage of each Executive’s base salary.

 

Name

   Short-Term
Incentive
Opportunity
       Long-Term
Incentive
Opportunity
 

Gallagher

     192        151

Donahue

     120        119

Yancey

     110        114

Breen

     100        87

Maher

     80        79

Neill

     85        70

Timing of Compensation

Base salary adjustments, annual incentive plan opportunities, and SAR/PRSU grants were approved at the March 29, 2016 meeting of the Compensation, Nominating and Governance Committee. These compensation adjustments and awards were all effective April 1, 2016, with the exception of Mr. Maher, whose salary was adjusted effective February 1. We do not coordinate the timing of equity award grants with the release of material non-public information. The exercise price for SARs is established at the fair market value of the closing price of our stock on the effective date of the grant (April 1, 2016).

Stock Ownership Guidelines

We have adopted stock ownership guidelines for the named executive officers identified above and for other key executives designated by the Compensation, Nominating and Governance Committee. The ownership guidelines are reviewed at least annually by the Compensation, Nominating and Governance Committee, which also has the authority to evaluate whether exceptions should be made for any executive on whom the guidelines would impose a financial hardship. The current guidelines as determined by the Committee include: (i) CEO — ownership equal to seven times prior year’s salary; and (ii) other covered executives — ownership equal to one to three times the prior year’s salary.

The covered executives have a period of five years in which to satisfy the guidelines from the date of appointment to a qualifying position. Shares counted toward this requirement will be based on shares beneficially owned by such executive (as beneficial ownership is defined by the SEC’s rules and regulations) including PRSUs, but excluding unexercised options and measured against the average year-end stock price for the preceding three fiscal years. The guidelines also call for the covered executive to retain 50% of the net shares obtained through the exercise of options or when a restricted stock award vests for at least six months. The covered executives are encouraged to retain stock ownership per the guidelines for a period of six months following the date of retirement.

Impact of Accounting and Tax Treatments of Compensation

The accounting and tax treatment of compensation generally has not been a factor in determining the amounts of compensation for our executive officers. However, the Committee and management have considered the accounting and tax impact of various program designs to balance the potential cost to the Company with the benefit/value to the executive.

With regard to IRS Code Section 162(m), it is the Committee’s intent to maximize deductibility of executive compensation while retaining some discretion needed to compensate executives in a manner commensurate with performance and the competitive landscape for executive talent. The Annual Incentive Plan has been approved by shareholders and is designed to qualify as “performance-based” to be fully deductible by the Company. The 2006 Long-Term Incentive Plan and the 2015 Incentive Plan are approved by shareholders

 

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and permit the award of stock options, SARs and other performance-based equity awards that are fully deductible under Code Section 162(m).

Clawback Provision

Since 2010, the Company has had a clawback provision in its Annual Incentive Plan. If at any time after payment of an executive’s bonus, the Company and its auditors determine that it was calculated on financial results that subsequently were restated or were otherwise based on incorrect data, the executive may be required to repay the unearned portion to the Company upon notice from the Company.

Role of Executive Officers in Determining Compensation

Our Executive Chairman and our Chief Executive Officer, with input from our Senior Vice President — Human Resources, recommend to the Compensation, Nominating, and Governance Committee base salary, target bonus levels, actual bonus payouts and long-term incentive grants for our senior officer group (other than themselves). Mr. Gallagher and Mr. Donahue make these recommendations to the Committee based on data and analysis provided by our independent compensation consultant and qualitative judgments regarding individual performance. Neither Mr. Gallagher nor Mr. Donahue are involved with any aspect of determining their own compensation.

 

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ADDITIONAL INFORMATION REGARDING EXECUTIVE COMPENSATION

2016 SUMMARY COMPENSATION TABLE

 

Name and Principal Position

  Year     Salary($)     Stock
Awards
($)(1)
    Option
Awards
($)(1)
    Non-Equity
Incentive Plan
Compensation
($)(2)
    Change in
Pension
Value and
Non-
Qualified
Deferred
Compensation
Earnings
($)(3)
    All Other
Compensation
($)(4)
     Total ($)  

Thomas C. Gallagher

    2016       1,158,500       1,318,797       439,708       2,242,174       3,916,599       150,067        9,225,845  

Executive Chairman

    2015       1,124,750       1,318,906       439,504       2,034,213       1,195,940       97,321        6,210,634  
    2014       1,091,750       1,315,020       443,362       2,182,916       4,974,776       122,987        10,130,811  

Paul D. Donahue

    2016       840,000       800,253       266,814       1,080,566       847,754       121,982        3,957,369  

President & Chief

    2015       650,000       640,415       213,462       715,957       58,822       47,935        2,326,591  

Executive Officer

    2014       612,000       637,980       216,174       698,836       506,462       52,558        2,724,010  

Carol B. Yancey

    2016       507,500       445,748       148,553       572,300       546,071       13,250        2,233,422  

Executive Vice President &

    2015       462,500       445,446       148,530       461,450       140,394       13,000        1,671,320  

Chief Financial Officer

    2014       430,000       442,680       151,459       454,774       345,275       13,000        1,837,188  

Timothy P. Breen

    2016       456,000       300,157       100,004       282,144       297,084       13,250        1,448,639  

President & Chief Executive

    2015       444,000       300,023       99,967       180,147       62,969       13,000        1,100,106  

Officer

Motion Industries

                

Lee A. Maher

    2016       489,670       300,157       100,004       169,795       551,734       13,250        1,624,610  

President — U.S. Automotive

                

Parts Group

                

James R. Neill

    2016       319,000       170,023       56,730       273,843       203,769       13,250        1,036,615  

Senior Vice President —

    2015       307,500       170,196       56,747       246,387       103,297       13,000        897,127  

Human Resources

    2014       287,500       169,260       57,830       263,562       272,171       13,000        1,063,323  

 

(1) Represents the aggregate grant date fair value of awards determined in accordance with FASB ASC Topic 718. Grant date fair value for performance-based restricted stock units (“PRSUs”) reflected in the Stock Awards column is based on the grant date fair value of the underlying shares and the probable outcome of performance-based vesting conditions, excluding the effect of estimated forfeitures. Grant date fair value for stock appreciation rights (“SARs”) reflected in the Option Awards column is based on the Black-Scholes option pricing model. The actual value, if any, that a named executive officer may realize upon exercise of SARs will depend on the excess of the stock price over the base value on the date of exercise, so there is no assurance that the value realized by a named executive officer will be at or near the value estimated by the Black-Scholes model. The assumptions used in determining the grant date fair values of the SARs are set forth in the notes to the Company’s consolidated financial statements, which are included in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC.

 

(2) Reflects the value of cash incentive bonuses earned under our Annual Incentive Plan.

 

(3) Reflects the increase during 2016 in actuarial present values of each executive officer’s accumulated benefits under our Pension Plan and our Supplemental Retirement Plan, and with respect to Mr. Gallagher, our Original Deferred Compensation Plan.

 

(4)

Amounts reflected in this column for 2016 include 401(k) matching contributions in the amount of $13,250 for each named executive officer. The amount shown for Mr. Gallagher also includes his personal use of company aircraft ($130,886) and club membership dues ($5,931). The amount shown for Mr. Donahue also includes his personal use of the company aircraft ($108,732). The incremental cost to the Company of the personal use of company aircraft is calculated based on the average variable operating costs to the Company. Variable operating costs include fuel costs, mileage, maintenance, crew travel expenses, catering and other miscellaneous variable costs. The total annual variable costs are divided by the annual number of miles the Company aircraft flew to derive an average variable cost per mile. This average variable cost per mile is then multiplied by the miles flown for personal use to derive the incremental cost. The fixed costs that do not change based on usage, such as pilot salaries, the lease costs of the company aircraft, hangar

 

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  expense for the home hangar, and general taxes and insurance are excluded from the incremental cost calculation. When Company aircraft is being used for mixed business and personal use, only the incremental cost of the personal use is included, such as on-board catering or other charges attributable to an extra passenger traveling for personal reasons on an aircraft being primarily used for a business trip. The Board of Directors mandates that the Company’s Chairman, Chief Executive Officer and President use corporate aircraft for personal travel to accommodate security, availability and efficiency concerns. The Company does not provide tax reimbursements with respect to any perquisites to executive officers.

2016 GRANTS OF PLAN-BASED AWARDS

 

Name

  Approval
Date
    Grant
Date
    Estimated Future Payouts Under
Non-Equity Incentive
Plan Awards(1)
    Estimated Future Payouts Under
Equity Incentive Plan
Awards(2)
    All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)(3)
    Exercise
or Base
Price of
Option
Awards
($/Sh)
    Grant
Date Fair
Value of
Stock and
Option
Awards
($)(4)
 
      Threshold
($)
    Target
($)
    Maximum
($)
    Threshold
(#)
    Target
(#)
    Maximum
(#)
       

Thomas C. Gallagher

        1,030,860       2,241,000       3,809,700              
    3/27/2016       4/1/2016             6,613       13,225       19,838           1,318,797  
    3/27/2016       4/1/2016                   32,515       99.72       439,708  

Paul D. Donahue

        496,800       1,080,000       1,836,000              
    3/27/2016       4/1/2016             4,013       8,025       12,038           800,253  
    3/27/2016       4/1/2016                   19,730       99.72       266,814  

Carol B. Yancey

        263,120       572,000       972,400              
    3/27/2016       4/1/2016             2,235       4,470       6,705           445,748  
    3/27/2016       4/1/2016                   10,985       99.72       148,553  

Timothy P. Breen

        170,200       460,000       747,500              
    3/27/2016       4/1/2016             1,505       3,010       4,515           300,157  
    3/27/2016       4/1/2016                   7,395       99.72       100,004  

Lee A. Maher

        135,340       404,000       656,500              
    3/27/2016       4/1/2016             1,505       3,010       4,515           300,157  
    3/27/2016       4/1/2016                   7,395       99.72       100,004  

James R. Neill

        125,902       273,700       465,290              
    3/27/2016       4/1/2016             853       1,705       2,558           170,023  
    3/27/2016       4/1/2016                   4,195       99.72       56,730  

 

(1) Represents threshold, target and maximum payout levels under the Annual Incentive Plan for 2016 performance. The actual amount of incentive bonus earned by each named executive officer is reported under the Non-Equity Incentive Plan Compensation column in the Summary Compensation Table. Additional information regarding the design of the Annual Incentive Plan is included in the Compensation Discussion and Analysis section of this Proxy Statement.

 

(2) Represents threshold, target and maximum number of PRSUs to be earned on December 31, 2016 based on the Company’s achievement of pre-tax profit goals. If the Company achieves 100% or greater of its 2016 pre-tax profit goal, 100% of the PRSUs will be earned. If the Company achieves 110% of the pre-tax profit goal, 150% of the PRSUs will be earned. If the Company achieves at least 90% of its 2016 pre-tax profit goal, 50% of the PRSUs will be earned. If the Company achieves less than 90% of its 2016 pre-tax profit goal, then no PRSUs will be earned. Each PRSU that is earned represents a contingent right to receive one share of Company Common Stock in the future. PRSUs earned for the 2016 fiscal year will vest and be settled in shares of Common Stock on December 1, 2020 (or earlier upon a change in control of the Company) provided the executive is still employed by the Company, subject to earlier vesting in the event of (i) the executive’s retirement from the Company or (ii) the executive’s employment with the Company is terminated due to death or disability. Dividends paid on the Company’s Common Stock after the PRSUs are earned will accrue with respect to the PRSUs and will convert into additional shares of stock at the end of the vesting period. Additional information regarding the PRSUs and the Company’s long-term incentive program is included in the Compensation Discussion and Analysis section of this Proxy Statement.

 

(3)

Each SAR represents the right to receive from the Company upon exercise an amount, payable in shares of Common Stock, equal to the excess, if any, of the fair market value of one share of Common Stock on the

 

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  date of exercise over the base value per share. The SARs were granted with a base value equal to the fair market value of the Company’s Common Stock on the date of grant. The SARs vest in equal annual installments on each of the first three anniversaries of the grant date, subject to accelerated vesting upon a termination of employment due to death, disability or retirement more than one year after the date of grant of the SAR or upon a change in control of the Company. The SARs granted on April 1, 2016 will expire on April 1, 2026 or earlier upon termination of employment. Additional information regarding the SARs and the Company’s long-term incentive program is included in the Compensation Discussion and Analysis section of this Proxy Statement.

 

(4) Represents the grant date fair value of the award determined in accordance with FASB ASC Topic 718. Grant date fair value for the PRSUs is based on the grant date fair value of the underlying shares and the probable outcome of performance-based vesting conditions, excluding the effect of estimated forfeitures. Grant date fair value for SARs is based on the Black-Scholes option pricing model for use in valuing executive stock options. The actual value, if any, that a named executive officer may realize upon exercise of SARs will depend on the excess of the stock price over the base value on the date of exercise, so there is no assurance that the value realized by a named executive officer will be at or near the value estimated by the Black-Scholes model. The assumptions used in determining the grant date fair values of these awards are set forth in the notes to the Company’s consolidated financial statements, which are included in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC.

 

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2016 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

     Option Awards     Stock Awards  
    Name  

Number of

Securities

Underlying

Unexercised

Options (#)

Exercisable

   

Number of

Securities

Underlying

Unexercised

Options (#)

Unexercisable

          

Option

Exercise

Price ($)

   

Option

Expiration

Date

   

Number of

Shares or

Units of

Stock That

Have Not

Vested (#)

        

Market

Value of

Shares or

Units of

Stock That

Have Not

Vested ($)

(8)

 

Thomas C. Gallagher

                                                           
            32,515       (1     99.72       4/1/2026                      
                                              9,488     (4)     906,484  
      10,830       21,660       (2     91.75       4/1/2025                      
                                              12,253     (5)     1,170,652  
      21,466       10,734       (3     86.80       4/1/2024                      
                                              15,467     (6)     1,477,717  
      38,000                     77.12       4/1/2023                      
                                              8,103     (7)     774,161  
      42,000                     63.28       4/2/2022                      
                                                             
      90,000                     54.09       4/1/2021                      

Paul D. Donahue

                                                           
            19,730       (1     99.72       4/1/2026                      
                                              5,757     (4)     550,024  
      5,260       10,520       (2     91.75       4/1/2025                      
                                              6,080     (5)     580,883  
      10,466       5,234       (3     86.80       4/1/2024                      
                                              6,895     (6)     658,748  
      19,000                     77.12       4/1/2023                      
                                              4,306     (7)     411,395  
                                      4/2/2022                      

Carol B. Yancey

                                                           
            10,985       (1     99.72       4/1/2026                      
                                              3,206     (4)     306,301  
      3,660       7,320       (2     91.75       4/1/2025                      
                                              4,138     (5)     395,345  
      7,333       3,667       (3     86.80       4/1/2024                      
                                              5,207     (6)     497,477  
      10,000                       77.12       4/1/2023                      
                                              3,001     (7)     286,716  
      5,350                     63.28       4/2/2022                      

Timothy P. Breen

                                                           
            7,395       (1     99.72       4/1/2026                      
                                              1,564     (4)     149,425  
      2,463       4,927       (2     91.75       4/1/2025                      
                                                             
      3,666       1,834       (3     86.80       4/1/2024                      
                                              2,711     (6)     232,848  
      4,200                     77.12       4/1/2023                      
                                                             
      4,500                     63.28       4/2/2022                      
                                                             
      3,000                     54.09       4/1/2021                      

Lee A. Maher

                                                           
            7,395       (1     99.72       4/1/2026                      
                                                             
      2,018       4,037       (2     91.75       4/1/2025                      
                                              2,627     (5)     250,984  
      4,000       2,000       (3     86.80       4/1/2024                      
                                              2,861     (6)     273,340  
      6,600                     77.12       4/1/2023                      
                                              1,828     (7)     174,647  
      7,900                     63.28       4/2/2022                      

 

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     Option Awards     Stock Awards  
    Name  

Number of

Securities

Underlying

Unexercised

Options (#)

Exercisable

   

Number of

Securities

Underlying

Unexercised

Options (#)

Unexercisable

          

Option

Exercise

Price ($)

   

Option

Expiration

Date

   

Number of

Shares or

Units of

Stock That

Have Not

Vested (#)

        

Market

Value of

Shares or

Units of

Stock That

Have Not

Vested ($)

(8)

 

James R. Neill

                                                           
            4,195       (1     99.72       4/1/2026                      
                                              1,223     (4)     116,845  
      1,398       2,797       (2     91.75       4/1/2025                      
                                              1,581     (5)     151,049  
      2,800       1,400       (3     86.80       4/1/2024                      
                                              1,990     (6)     190,125  
      3,600                       77.12       4/2/2023                      
                                              840     (7)     80,254  
      3,900                     63.28       4/2/2022                      

 

(1) The SARs were granted on April 1, 2016 and vest in one-third increments on each of the first three anniversaries of the grant date.

 

(2) The SARs were granted on April 1, 2015 and vest in one-third increments on each of the first three anniversaries of the grant date.

 

(3) The SARs were granted on April 1, 2014 and vest in one-third increments on each of the first three anniversaries of the grant date.

 

(4) The PRSUs were granted on April 1, 2016 and vest on December 1, 2020, or earlier upon a change in control of the Company or in the event of (i) the executive’s retirement from the Company or (ii) the executive’s employment with the Company is terminated due to death or disability. The PRSUs will convert to shares of stock on December 1, 2020, or earlier upon a change in control of the Company.

 

(5) The PRSUs were granted on April 1, 2015 and vest on December 1, 2019, or earlier upon a change in control of the Company or in the event of (i) the executive’s retirement from the Company or (ii) the executive’s employment with the Company is terminated due to death or disability. The PRSUs will convert to shares of stock on December 1, 2019, or earlier upon a change in control of the Company.

 

(6) The PRSUs were granted on April 1, 2014 and vest on December 1, 2018, or earlier upon a change in control of the Company or in the event of (i) the executive’s retirement from the Company or (ii) the executive’s employment with the Company is terminated due to death or disability. The PRSUs will convert to shares of stock on December 1, 2018, or earlier upon a change in control of the Company.

 

(7) The PRSUs were granted on April 2, 2013 and vest on December 1, 2017, or earlier upon a change in control of the Company or in the event of (i) the executive’s retirement from the Company or (ii) the executive’s employment with the Company is terminated due to death or disability. The PRSUs will convert to shares of stock on December 1, 2017, or earlier upon a change in control of the Company.

 

(8) Reflects the value as calculated based on the closing price of the Company’s Common Stock on December 31, 2016 of $95.54 per share.

 

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2016 OPTION EXERCISES AND STOCK VESTED

 

     Option Awards      Stock Awards  

Name

   Number of
Awards
Exercised  (#)
     Value Realized
on Exercise ($)
(1)
     Number of
Awards
Earned (#)
     Value Realized
on Vesting ($)
(2)
 

Thomas C. Gallagher

     73,000        4,206,895        16,000        1,711,971  

Paul D. Donahue

     17,500        608,213        6,600        706,205  

Carol B. Yancey

     8,300        364,744        2,025        216,683  

Timothy P. Breen

                   1,144        122,380  

Lee A. Maher

     12,000        538,560        3,000        320,958  

James R. Neill

     6,000        269,280        858        91,785  

 

(1) Value realized represents the excess of the fair market value of the shares at the time of exercise over the exercise price of the options.

 

(2) Value realized represents the fair market value of the shares on the vesting date.

Equity Compensation Plan Information

The following table gives information as of December 31, 2016 about the common stock that may be issued under all of the Company’s existing equity compensation plans:

 

Plan Category

   (a)
Number of
Securities to be
Issued upon
Exercise  of
Outstanding
Options,
Warrants and
Rights(1)
    (b)
Weighted  Average
Exercise Price of
Outstanding
Options,
Warrants and
Rights
     (c)
Number of
Securities
Remaining
Available for
Future Issuance
Under
Equity
Compensation
Plans (Excluding
Securities
Reflected in
Column (a))
 

Equity Compensation Plans Approved by Shareholders:

     3,010,146 (2)    $ 74.13         
     867,920 (3)    $ 99.72         
           n/a        9,132,080 (5) 
  

 

 

      

 

 

 

Equity Compensation Plans Not Approved by Shareholders:

     91,097 (4)      n/a        908,903  
  

 

 

      

 

 

 

Total

     3,969,163              10,040,983  

 

(1) Reflects the maximum number of shares issuable pursuant to the exercise or conversion of stock options, stock appreciation rights, restricted stock units and common stock equivalents. The actual number of shares issued upon exercise of stock appreciation rights is calculated based on the excess of fair market value of our common stock on date of exercise and the grant price of the stock appreciation rights.

 

(2) Genuine Parts Company 2006 Long-Term Incentive Plan.

 

(3) Genuine Parts Company 2015 Incentive Plan.

 

(4) Genuine Parts Company Director’s Deferred Compensation Plan, as amended.

 

(5) All of these shares are available for issuance pursuant to grants of full-value stock awards.

 

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2016 PENSION BENEFITS

 

Name

   Plan Name    Number  of
Years
Credited
Service (#)
     Present
Value of
Accumulated
Benefit ($)
     Payments During
Last  Fiscal Year ($)
 

Thomas C. Gallagher

   Pension Plan      43.50        2,126,596         
   Supplemental
Retirement Plan
     46.50        26,832,546         
   Original
Deferred
Compensation
Plan
     34.00        599,234        48,157  

Paul D. Donahue

   Pension Plan      5.83        282,476         
   Supplemental
Retirement Plan
     13.83        3,058,541         

Carol B. Yancey

   Pension Plan      17.67        448,250         
   Supplemental
Retirement Plan
     25.67        1,535,087         

Timothy P. Breen

   Pension Plan      10.25        327,142         
   Supplemental
Retirement Plan
     18.25        959,401         

Lee A. Maher

   Pension Plan      36.08        1,173,253     
   Supplemental
Retirement Plan
     39.08        2,973,428     

James R. Neill

   Pension Plan      2.17        73,813         
   Supplemental
Retirement Plan
     10.17        505,424         

The Pension Benefit Table provides information regarding the number of years of credited service, the present value of accumulated benefits, and any payments made during the last fiscal year with respect to the Genuine Parts Company Pension Plan (the “Pension Plan”), the Genuine Parts Company Supplemental Retirement Plan (the “SRP”), and the Genuine Parts Company Original Deferred Compensation Plan (the “ODCP”).

The Pension Plan is a broad-based, tax-qualified defined benefit pension plan which provides a benefit upon retirement to eligible employees of the Company. It was amended effective March 1, 2008, to provide that employees hired on or after that date are not eligible to participate in the plan, and there are no new entrants to the Pension Plan after December 31, 2009. In general, all employees hired before March 1, 2008, except leased employees, independent contractors and certain collectively-bargained employees are eligible to participate. Benefits are based upon years of credited service and the average of the highest five nonconsecutive years of earnings out of the last ten years. Pension Plan earnings are generally based on total pay, but do not include deferred compensation. Other than what the plan provides to all participants, no additional years of credited service have been granted to the named executive officers under the Pension Plan or the SRP.

The Pension Plan was amended to freeze credited service as of December 31, 2008, while continuing to reflect future pay increases, for most plan participants (i.e., “a soft plan freeze”). Such participants began participating in a newly established company-sponsored 401(k) savings plan effective January 1, 2009.

The soft plan freeze does not apply to service used for vesting purposes or to determine a participant’s eligibility for early retirement under the Pension Plan. Participants who satisfied a Rule of 70 criteria (age plus service equal to 70 or more) were given the option to remain under the old provisions. Mr. Gallagher and Mr. Maher satisfied the Rule of 70 criteria and elected to remain under the old provisions.

Several forms of benefit payments are available under the Pension Plan. The Pension Plan offers a life annuity option, 50%, 75%, and 100% joint and survivor options, and a 10-year certain and life annuity option. The Pension Plan was amended in 2016 to reflect an ongoing lump sum option for future terminations and retirements if the present value of benefits are $75,000 or less. Minimum lump sum distributions of benefits are

 

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required if $5,000 or less. The payout option must be elected by the participant before benefit payments begin. All options available under the Pension Plan are approximately equal in value.

The benefit payable for normal or early retirement under the Pension Plan is the greater of two benefits. The first benefit is a percentage of the participant’s average earnings less 50% of his estimated Social Security benefit. The applicable percentage is based on years of credited service and increases by 0.5% per year of credited service from 40% at 15 years of service to 55% at 45 or more years of service. The second benefit is 30% of the participant’s average earnings. Only the second benefit is available to participants with less than 15 years of credited service. For such individuals, 30% of the participant’s average earnings is multiplied by a fraction with the numerator equal to credited service (not to exceed 180 months) and the denominator equal to 180.

As of December 31, 2016, Mr. Gallagher was eligible for delayed retirement benefits. The benefit payable for delayed retirement under the Pension Plan is the greater of two benefits. The first benefit is the normal retirement benefit determined based on the participant’s average earnings and credited service at his delayed retirement date. The second benefit is the normal retirement benefit actuarially increased from the participant’s normal retirement date to the delayed retirement date based on the attained age at each date.

Early retirement benefit payments are available under the Pension Plan to participants who retire after attaining age 55 and completing 15 years of service. Early retirement benefits are reduced 0.5% for each month by which benefit commencement precedes normal retirement age (age 65 with five years of participation).

Termination benefits are calculated in the same manner as normal retirement benefits, except that (a) the benefit is calculated based on projected credited service at normal retirement date and then (b) the benefit is reduced by multiplying it by a service fraction equal to the ratio of credited service at termination to projected credited service at normal retirement date. Projected credited service at normal retirement date is determined as if the participant had continued in employment until his or her normal retirement. Under the terms of the Pension Plan, as of December 31, 2008, Mr. Donahue, Ms. Yancey, Mr. Breen, and Mr. Neill did not satisfy Rule of 70 criteria and as a result, the numerator of their service fraction is frozen as of December 31, 2008, although projected credited service at normal retirement date continues to be determined as if they earned credited service through their normal retirement date.

Participants are fully vested in their Pension Plan benefits after seven years of service, with partial vesting after three years of service. The Pension Plan was amended effective December 31, 2008, to provide that in general, only participants who satisfy Rule of 70 criteria and elect to remain under the old plan provisions may earn up to two years of additional credited service following termination due to disability and while receiving long term disability benefits from the Genuine Parts Company Long-Term Disability Plan. A 50% survivor annuity is payable to a participant’s spouse upon death prior to retirement. A surviving spouse may waive the 50% survivor benefit and elect instead to receive a benefit from the Genuine Parts Company Death Benefit Plan.

Effective January 1, 2009, in the event of a change in control, a participant’s benefit accrued under the Pension Plan is fully vested and, if the participant terminates employment within five years following the change in control, the participant may elect to receive an immediate lump sum distribution of the accrued benefit.

The Pension Plan was further amended effective December 31, 2013, to freeze future benefit accruals for all participants, including those who satisfy Rule of 70 criteria. In addition, all active participants with at least one hour of service after December 31, 2013, were fully vested in their accrued benefits as of that date. No further benefit accruals will be provided after 2013 for either additional credited service or future earnings. All benefits are frozen as of December 31, 2013, for all purposes including disability, termination and retirement. All active Pension Plan participants who satisfy Rule of 70 criteria and elected to remain under the old provisions became eligible on January 1, 2014, for the company-sponsored 401(k) Savings Plan that was established effective January 1, 2009.

The SRP is a nonqualified defined benefit pension plan which covers pay and benefits above the qualified limits in the Pension Plan for participants who satisfied the Rule of 70 criteria and entered the SRP plan prior to January 1, 2009. The SRP also provides benefits on a reduced basis for participants who entered the SRP prior to January 1, 2009, but did not satisfy the Rule of 70 criteria in the Pension Plan, or who entered the SRP after

 

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January 1, 2009. Otherwise, the provisions of the SRP in effect on December 31, 2008, are generally the same as those of the Pension Plan as in effect on that date, except benefits are payable only for retirement, disability, death, or change in control, and SRP earnings include deferred compensation.

The SRP was amended and restated effective January 1, 2009. The amended plan provides full vesting and an immediate lump sum payment if a participant dies, and full vesting of SRP benefits in the event the plan is terminated, the participant becomes disabled, or there is a change in control. Participants’ credited service in the SRP is not frozen as of December 31, 2008. Also, if a SRP participant’s credited service was frozen in the Pension Plan as amended effective December 31, 2008, an additional offset is applied to the benefits otherwise accrued under the SRP. This offset is determined based on the accumulated sum (with interest at 6.0% per year) of 3.8% of the participant’s Pension Plan earnings during each calendar year after December 31, 2008.

The SRP was later amended effective August 16, 2010, to provide that in the event of a participant’s death while in active service, the survivor benefit payable is 100% of the lump sum present value of the participant’s accrued benefit as of the date of death. Prior to the amendment, 50% of the lump sum present value was payable as a survivor benefit.

The SRP was most recently amended effective December 31, 2013, to change the benefit formula. For Mr. Gallagher and Mr. Maher, SRP benefits will continue to reflect an offset for Pension Plan benefits; however, this offset will be determined as if the Pension Plan were not frozen on December 31, 2013. As a result, the Pension Plan freeze did not have an impact on future SRP benefits.

Beginning January 1, 2014, Mr. Donahue, Mr. Breen and Ms. Yancey’s SRP benefit will be calculated under a revised benefit formula which applies to participants who entered the plan prior to January 1, 2009, and whose credited service was frozen in the Pension Plan as of December 31, 2008. The revised benefit formula is based on all years of credited service and earnings and cannot be less than the accrued SRP benefit as of December 31, 2013. The revised formula is a percentage of the participant’s average earnings less 50% of their Social Security benefit. The applicable percentage is based on years of credited service and increases by 0.5% per year of credited service from 30% at 15 years of service to 45% at 45 or more years of service. For participants with less than 15 years of projected credited service at normal retirement, the applicable percentage is equal to 30% multiplied by a fraction with the numerator equal to credited service (not to exceed 180 months) and the denominator equal to 180. Under the revised SRP benefit formula, there is an offset for the frozen Pension Plan benefit, but no other offsets apply.

This most recent SRP amendment also defines the benefit formula for participants who entered the SRP on or after January 1, 2009, which applies to Mr. Neill’s benefit. This formula is identical to the revised benefit formula for non-grandfathered participants who entered the plan prior to January 1, 2009, but it does not provide a minimum benefit as of December 31, 2013.

Benefits earned under the SRP are paid from Company assets, and for participants who entered the plan prior to January 1, 2009, they are grossed-up for FICA taxes. Therefore, all named executive officers receive a FICA tax gross-up except Mr. Neill. Executives sign a joinder agreement to become participants in the SRP and select an optional form of benefit payment in the agreement. SRP participants may change their payment form elections at any time prior to benefit commencement.

Amounts reported in the 2016 Pension Benefits table as the actuarial present value of accumulated benefits under the Pension Plan and the SRP are calculated using the interest and mortality assumptions that the Company applies to amounts reported in its financial statement disclosures for year-end, and are assumed to be payable immediately for Mr. Gallagher and at age 65 for Mr. Donahue, Ms. Yancey, Mr. Breen, Mr. Maher and Mr. Neill. The interest rate assumptions at December 31, 2016, are 4.30% for the Pension Plan and 4.30% for the SRP. The mortality assumption is the RP-2016 mortality table and the mortality improvement assumption for future years is Scale MP-2016 converging to 0.62% long-term annual improvements by 2027. A blue-collar table is used for the Pension Plan calculations, and a white-collar table is used for the SRP calculations. SRP benefits have been increased by 2.35% as of December 31, 2016, to account for estimated FICA tax gross-ups for applicable NEOs (but not for any income tax impact on such gross-ups).

 

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The ODCP is a nonqualified plan that provides an annuity benefit, funded partially by executive salary deferrals. Mr. Gallagher is the only named executive officer in this plan, and no salary deferrals have been made under the plan since 2012 following Mr. Gallagher’s attainment of his normal retirement age. The retirement benefit currently in payment is a 10-year certain and life annuity which began on January 1, 2014. These benefits are payable from Company assets. The service amount shown in the table represents the period during which Mr. Gallagher has been making salary deferrals for benefits provided by the ODCP. The 2016 Pension Benefits table shows no increase in credited service under the Original Deferred Compensation Plan since 2012 given that there have been no deferrals under the plan by Mr. Gallagher since that time. Amounts reported in the 2016 Pension Benefits table as the actuarial present value of accumulated benefits under the ODCP are based in the annuity amount in payment and the interest and mortality assumptions the Company uses for purposes of financial statement disclosures of the SRP referred to above.

2016 NONQUALIFIED DEFERRED COMPENSATION

 

Name

   Executive
Contributions
in Last FY ($)
     Company
Contributions
in Last FY ($)
     Aggregate
Earnings
in Last
FY ($)(1)
     Aggregate
Withdrawals/
Distributions
($)
     Aggregate
Balance at
Last FYE
($)(2)
 

Thomas C. Gallagher

                    —        189,921                —        2,200,896  

Paul D. Donahue

                   16,367               232,049  

Carol B. Yancey

     20,000               33,145               314,960  

Timothy P. Breen

                                  

Lee A. Maher

                                  

James R. Neill

                                  

 

(2) Reflects amounts earned in 2016 on account balances under the Company’s Tax Deferred Savings Plan.

 

(3) Includes the following amounts of contributions to the Tax Deferred Savings Plan by the named executive officers that were previously reported as compensation to the named executive officers in the Company’s Summary Compensation Table for previous years: Mr. Gallagher, $200,000; Mr. Donahue, $169,723; Ms. Yancey, $70,000.

The Genuine Parts Company Tax Deferred Savings Plan is a nonqualified deferred compensation plan pursuant to which the named executive officers may elect to defer up to 100% of their annual incentive bonus. Deferral elections are due by June 30 of each year, and are irrevocable. These deferral elections are for the bonus earned during that year, which would otherwise be payable in February of the following year. Effective January 1, 2011, the Plan was amended to allow executives to defer up to 100% of their annual salary. Deferrals are held for each participant in separate individual accounts in an irrevocable rabbi trust. Deferred amounts are credited with earnings or losses based on the rate of return of mutual funds selected by the executive, which the executive may change at any time. Payment begins on the first day of the seventh month following the executive’s termination of service. The executive must also make an irrevocable election regarding payment terms, which may be either a lump sum, or installments of five (5), ten (10), or fifteen (15) years. Hardship withdrawals are available for unforeseeable emergency financial hardship situations. If a participant dies before receiving the full value of the deferral account balances, the designated beneficiary would receive the remainder of that benefit in the same payment form as originally specified (i.e., lump sum or installments). All accounts would be immediately distributed upon a change in control of the Company.

POST TERMINATION PAYMENTS AND BENEFITS

Benefits to Named Executive Officers in the Event of a Change in Control.    The Company does not have employment agreements with any of its executive officers. The Company has entered into change in control agreements with certain executive officers, including the named executive officers. These agreements provide

 

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severance payments and benefits to the executive if his employment is terminated within two years after a change in control of the Company, if the change in control occurs during the term of the agreement. The change in control agreements have a three year term with automatic annual extensions unless either party gives notice of non-renewal.

Under each of the change in control agreements, if the executive is terminated by the Company without cause or the executive resigns for good reason (as such terms are defined in the agreement), within two years after a change in control, he or she will receive a pro rata bonus for the year of termination, plus a lump sum severance payment equal to a multiple (three in the case of Mr. Gallagher and two in the case of Ms. Yancey and Messrs. Donahue, Breen, Maher and Neill) of the executive’s then-current annual salary and the average of the annual bonuses he or she received in the three years prior to the year of termination. In addition, the Company will continue to provide the executive with group health coverage for a period of 24 months.

If the executive’s employment is terminated by the Company for cause or he resigns without good reason, the agreement will terminate without further obligation of the Company other than the payment of any accrued but unpaid salary or benefits. In the case of death, disability or retirement, the executive, or his estate, would be entitled to payment of any accrued but unpaid salary or benefits, plus a pro rata bonus for the year in which the termination occurred.

The change in control agreements were amended in 2014 to eliminate all tax gross-ups with respect to the 20% excise tax that may be imposed under Section 4999 of the Internal Revenue Code on individuals who receive compensation in connection with a change of control that exceeds certain specified limits. As amended, the change in control agreements provide that in the event the executive would be subject to a 20% excise tax under Section 4999, the payments and benefits to the executive would be reduced to the maximum amount that does not trigger the excise tax unless the executive would retain greater value (on an after-tax basis) by receiving all payments and benefits and paying all excise and income taxes.

Summary of Termination Payments and Benefits.    The following tables summarize the value of the termination payments and benefits that our named executive officers would receive if they had terminated employment on December 31, 2016 under the circumstances shown. The tables exclude (i) amounts accrued through December 31, 2016 that would be paid in the normal course of continued employment, such as accrued but unpaid salary and earned annual bonus for 2016 and (ii) vested account balances under our 401(k) Savings Plan, which is a 401(k) plan that is generally available to all of our salaried employees.

Thomas C. Gallagher

 

Benefit

   Retirement ($)      Death ($)      Disability ($)      Termination
by  Company
or Executive
Other Than
Retirement,
Death or
Disability ($)
     Involuntary
Termination
Following a
Change in
Control ($)
 

Cash Severance

                                 9,561,060 (1) 

Acceleration of Equity Awards

              

Stock Options and SARs(2)

     4,120,258        175,907        175,907               111,090  

Restricted Stock and PRSUs(3)

     3,422,529        4,329,013        4,329,013               4,329,013  

Retirement Benefits

              

Pension Plan(4)

     172,300        86,150        172,300        172,300        172,300 (5) 

Supplemental Retirement Plan(6)

     1,753,014        27,086,529        1,753,014        1,753,014        32,200,279 (7) 

Original Def Comp Plan(8)

     48,157        48,157        48,157        48,157        622,459 (9) 

Tax-Deferred Savings Plan(10)

     2,200,896        2,200,896        2,200,896        2,200,896        2,200,896  

Other Benefits

              

Health & Welfare Coverage

                                 17,772 (11) 

Total

     11,717,154        33,926,652        8,679,287        4,174,367        49,214,869  

 

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  (1) Severance payment payable in lump sum pursuant to the change in control agreement described above.

 

  (2) Reflects the excess of the fair market value of the underlying shares as of December 31, 2016 over the exercise or base price of all unvested options and SARs the vesting of which accelerates in connection with the specified event.

 

  (3) Reflects the fair market value as of December 31, 2016 of restricted stock and shares underlying PRSUs the vesting of which accelerates in connection with the specified event.

 

  (4) Pension Plan benefits shown for all termination scenarios are annual annuities assuming a 50% joint and survivor annuity option and are assumed to be payable on January 1, 2017. The surviving spouse may elect to waive the death benefit from the Pension Plan and elect instead to receive a benefit from The Genuine Parts Company Death Benefit Plan.

 

  (5) Mr. Gallagher may elect to receive his pension benefit in the form of a lump sum payment in the event of termination within five years following a change in control. A lump sum option is not otherwise available under the plan. The lump sum payable to Mr. Gallagher if he terminated December 31, 2016 following a change in control is $2,804,749.

 

  (6) Supplemental Retirement Plan benefits shown for all termination scenarios (except death and involuntary termination following a change in control) assume payment under the 100% joint and survivor annuity option elected by Mr. Gallagher with payment beginning January 1, 2017. The death benefit shown is payable as a lump sum to Mr. Gallagher’s beneficiary in the event of his death prior to retirement. The lump sum death benefit is calculated as 100% of the present value of the single life annuity payable on January 1, 2017. The Supplemental Retirement Plan annuity benefits shown in the table do not reflect estimated FICA tax gross-ups paid by the Company. The estimated FICA tax gross-up, based on 2.35% of the lump sum value of the Supplemental Retirement Plan benefit calculated on the FICA tax basis for the plan, is $570,025. The Supplemental Retirement Plan was amended, effective January 1, 2009, to provide that no new employee may commence participation in the plan on or after such effective date.

 

  (7) An immediate lump sum distribution of benefits is required in the event of termination following a change in control. The lump sum value of the benefit calculated includes an estimated FICA tax gross-up amount of $739,332.

 

  (8) Original Deferred Compensation Plan benefits are payable as a 10-year certain and life annuity. Since Mr. Gallagher attained age 65 in 2012, the benefits commenced on January 1, 2014 under the terms of the agreements.

 

  (9) Amount reflects a lump sum distribution of benefits as required under the plan in the event of termination following a change in control.

 

(10) Benefits payable under the Tax Deferred Savings Plan are described and quantified in the Nonqualified Deferred Compensation table in this proxy statement.

 

(11) Reflects the cost of 24 months of continued group health coverage pursuant to the change in control agreement described above. In order to comply with Internal Revenue Code section 409A, during the last 6 months of this continued coverage period, the Company will satisfy its obligation to provide group health coverage by making 6 monthly installment payments to the executive in an amount equal to the monthly cost of providing such coverage, based upon the “applicable premium” under COBRA.

 

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Paul D. Donahue

 

Benefit

   Retirement ($)      Death ($)      Disability ($)      Termination
by  Company
or Executive
Other Than
Retirement,
Death or
Disability ($)
     Involuntary
Termination
Following a
Change in
Control ($)
 

Cash Severance

                                 2,964,969 (1) 

Acceleration of Equity Awards

              

Stock Options and SARs(2)

            85,616        85,616               85,616  

Restricted Stock and PRSUs(3)

            1,651,027        1,651,027               1,651,027  

Retirement Benefits

              

Pension Plan(4)

     24,375        12,188        24,375        24,375        24,375 (5) 

Supplemental Retirement Plan(6)

            3,027,423        265,344               4,176,030 (7) 

Tax-Deferred Savings Plan(8)

     232,049        232,049        232,049        232,049        232,049  

Other Benefits

              

Health & Welfare

                                 28,248 (9) 

Total

     256,424        5,008,303        2,258,411        256,424        9,162,314  

 

  (1) Severance payment payable in lump sum pursuant to the change in control agreement described above.

 

  (2) Reflects the excess of the fair market value of the underlying shares as of December 31, 2016 over the exercise or base price of all unvested options and SARs the vesting of which accelerates in connection with the specified event.

 

  (3) Reflects the fair market value as of December 31, 2016 of restricted stock and shares underlying PRSUs the vesting of which accelerates in connection with the specified event.

 

  (4) Pension Plan benefits shown for all termination scenarios are annual annuities assuming a 50% joint and survivor annuity option and are assumed to be payable at age 65. The surviving spouse may elect to waive the death benefit from the Pension Plan and elect instead to receive a benefit from The Genuine Parts Company Death Benefit Plan.

 

  (5) Mr. Donahue may elect to receive his pension benefit in the form of a lump sum payment in the event of termination within five years following a change in control. A lump sum option is not otherwise available under the plan. The lump sum payable to Mr. Donahue if he terminated December 31, 2016 following a change in control is $420,525.

 

  (6) The Supplemental Retirement Plan provides for 100% vesting upon death, disability or the occurrence of a change in control. No benefits are payable if termination occurs for other reasons prior to eligibility for early retirement (at least age 55 with at least 15 years of service). The death benefit shown is payable as a lump sum to Mr. Donahue’s beneficiary in the event of his death. The immediate lump sum death benefit is calculated as 100% of the present value of the single life annuity payable to Mr. Donahue deferred to age 65. Disability benefits under the Supplemental Retirement Plan are assumed to be equal to the benefit accrued under the plan as of December 31, 2016 and payable at age 65 under the elected single life annuity option.

 

  (7) An immediate lump sum distribution of benefits is required in the event of termination following a change in control. The lump sum value of the benefit calculated includes an estimated FICA tax gross-up amount of $95,883.

 

  (8) Benefits payable under the Tax Deferred Savings Plan are described and quantified in the Nonqualified Deferred Compensation table in this proxy statement.

 

  (9)

Reflects the cost of 24 months of continued group health coverage pursuant to the change in control agreement described above. In order to comply with Internal Revenue Code section 409A, during the last 6 months of this continued coverage period, the Company will satisfy its obligation to provide group health

 

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  coverage by making 6 monthly installment payments to the executive in an amount equal to the monthly cost of providing such coverage, based upon the “applicable premium” under COBRA.

Carol B. Yancey

 

Benefit

   Retirement ($)      Death ($)      Disability ($)      Termination
by  Company
or Executive
Other Than
Retirement,
Death or
Disability ($)
     Involuntary
Termination
Following a
Change in
Control ($)
 

Cash Severance

                                 1,869,030 (1) 

Acceleration of Equity Awards

              

Stock Options and SARs(2)

            59,792        59,792               59,792  

Restricted Stock and PRSUs(3)

            1,179,537        1,179,537               1,179,537  

Retirement Benefits

              

Pension Plan(4)

     47,559        309,935        47,559        47,559        47,559 (5) 

Supplemental Retirement Plan(6)

            1,422,225        138,760               2,340,719 (7) 

Tax-Deferred Savings Plan(8)

     314,960        314,960        314,960        314,960        314,960  

Other Benefits

              

Health & Welfare

                                 28,248 (9) 

Estimated 280G Tax “Cut-Back” to Avoid Excise Tax

                                 (408,542 )(10) 

Total

     362,519        3,286,449        1,740,608        362,519        5,431,303  

 

  (1) Severance payment payable in lump sum pursuant to the change in control agreement described above.

 

  (2) Reflects the excess of the fair market value of the underlying shares as of December 31, 2016 over the exercise or base price of all unvested options and SARs the vesting of which accelerates in connection with the specified event.

 

  (3) Reflects the fair market value as of December 31, 2016 of restricted stock and shares underlying PRSUs the vesting of which accelerates in connection with the specified event.

 

  (4) Pension Plan benefits shown for all termination scenarios are annual annuities assuming a 50% joint and survivor annuity option and are assumed to be payable at age 65 (apart from that from death). The surviving spouse may elect to waive the death benefit from the Pension Plan and elect instead to receive a benefit from The Genuine Parts Company Death Benefit Plan. For Ms. Yancey, the lump sum death benefit under the Death Benefit Plan is larger than the equivalent benefit under the Pension Plan when compared on a present value basis; therefore, the death benefit amount shown above reflects the immediate lump sum payable under the Death Benefit Plan.

 

  (5) Ms. Yancey may elect to receive her pension benefit in the form of a lump sum payment in the event of termination within five years following a change in control. A lump sum option is not otherwise available under the plan. The lump sum payable to Ms. Yancey if she terminated December 31, 2016 following a change in control is $715,621.

 

  (6) The Supplemental Retirement Plan provides for 100% vesting upon death, disability or the occurrence of a change in control. No benefits are payable if termination occurs for other reasons prior to eligibility for early retirement (at least age 55 with at least 15 years of service). The death benefit shown is payable as a lump sum to Ms. Yancey’s beneficiary in the event of her death. The immediate lump sum death benefit is calculated as 100% of the present value of the single life annuity payable to Ms. Yancey deferred to age 65. Disability benefits under the Supplemental Retirement Plan are assumed to be equal to the benefit accrued under the plan as of December 31, 2016 and payable at age 65 under her 100% joint and survivor annuity option election.

 

 

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  (7) An immediate lump sum distribution of benefits is required in the event of termination following a change in control. The lump sum value of the benefit calculated includes an estimated FICA tax gross-up amount of $53,744.

 

  (8) Benefits payable under the Tax Deferred Savings Plan are described and quantified in the Nonqualified Deferred Compensation table in this proxy statement.

 

  (9) Reflects the cost of 24 months of continued group health coverage pursuant to the change in control agreement described above. In order to comply with Internal Revenue Code section 409A, during the last 6 months of this continued coverage period, the Company will satisfy its obligation to provide group health coverage by making 6 monthly installment payments to the executive in an amount equal to the monthly cost of providing such coverage, based upon the “applicable premium” under COBRA.

 

(10) The change in control agreement provides that in the event the executive would be subject to a 20% excise tax under Section 4999 of the Internal Revenue Code (imposed on individuals who receive compensation in connection with a change of control that exceeds certain specified limits), the payments and benefits will be reduced to the maximum amount that does not trigger the excise tax, unless the executive would retain greater value (on an after-tax basis) by receiving all payments and benefits and paying all excise and income taxes.

Timothy P. Breen

 

Benefit

   Retirement ($)      Death ($)      Disability ($)      Termination by
Company or
Executive
Other Than
Retirement,
Death or
Disability ($)
     Involuntary
Termination
Following a
Change in
Control ($)
 

Cash Severance

                                 1,318,149 (1) 

Acceleration of Equity Awards

              

Stock Options and SARs(2)

            34,702        34,702               34,702  

Restricted Stock and PRSUs(3)

            259,009        259,009               259,009  

Retirement Benefits

              

Pension Plan(4)

     16,900        157,195        16,900        16,900        16,900 (5) 

Supplemental Retirement Plan(6)

     57,913        1,137,684        57,913        57,913        1,502,730 (7) 

Other Benefits

              

Health & Welfare

                                 20,808 (8) 

Total

     74,813        1,588,590        368,524        74,813        3,152,298  

 

  (1) Severance payment payable in lump sum pursuant to the change in control agreement described above.

 

  (2) Reflects the excess of the fair market value of the underlying shares as of December 31, 2016 over the exercise or base price of all unvested options and SARs the vesting of which accelerates in connection with the specified event.

 

  (3) Reflects the fair market value as of December 31, 2016 of restricted stock and shares underlying PRSUs the vesting of which accelerates in connection with the specified event.

 

  (4) Pension Plan benefits shown for all termination scenarios are annual annuities assuming a 50% joint and survivor annuity option and are assumed to be payable on January 1, 2017. The surviving spouse may elect to waive the death benefit from the Pension Plan and elect instead to receive a benefit from The Genuine Parts Company Death Benefit Plan. For Mr. Breen, the lump sum death benefit under the Death Benefit Plan is larger than the equivalent benefit under the Pension Plan when compared on a present value basis; therefore, the death benefit amount shown above reflects the immediate lump sum payable under the Death Benefit Plan.

 

  (5)

Mr. Breen may elect to receive his pension benefit in the form of a lump sum payment in the event of termination within five years following a change in control. A lump sum option is not otherwise available

 

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  under the plan. The lump sum payable to Mr. Breen if he terminated December 31, 2016 following a change in control is $529,048.

 

  (6) Supplemental Retirement Plan benefits shown for all termination scenarios (except death and involuntary termination following a change in control) assume payment under the 100% joint and survivor annuity option elected by Mr. Breen with payment beginning January 1, 2017. The death benefit shown is payable as a lump sum to Mr. Breen’s beneficiary in the event of his death. The lump sum death benefit is calculated as 100% of the present value of the single life annuity payable on January 1, 2017. Disability benefits under the Supplemental Retirement Plan are assumed to be equal to early retirement benefits and are payable on January 1, 2017. The Supplemental Retirement Plan annuity benefits shown in the table do not reflect estimated FICA tax gross-ups paid by the Company. The estimated FICA tax gross-up, based on 2.35% of the lump sum value of the Supplemental Retirement Plan benefit calculated on the FICA tax basis for the plan, is $24,273 upon termination for retirement.

 

  (7) An immediate lump sum distribution of benefits is required in the event of termination following a change in control. The lump sum value of the benefit calculated includes an estimated FICA tax gross-up amount of $34,503.

 

  (8) Reflects the cost of 24 months of continued group health coverage pursuant to the change in control agreement described above. In order to comply with Internal Revenue Code section 409A, during the last 6 months of this continued coverage period, the Company will satisfy its obligation to provide group health coverage by making 6 monthly installment payments to the executive in an amount equal to the monthly cost of providing such coverage, based upon the “applicable premium” under COBRA.

Lee A. Maher

 

Benefit

   Retirement ($)      Death ($)      Disability ($)      Termination
by  Company
or Executive
Other Than
Retirement,
Death or
Disability ($)
     Involuntary
Termination
Following a
Change in
Control ($)
 

Cash Severance

                                 1,593,573 (1) 

Acceleration of Equity Awards

              

Stock Options and SARs(2)

            32,780        32,780               32,780  

Restricted Stock and PRSUs(3)

            1,138,932        1,138,932               1,138,932  

Retirement Benefits

              

Pension Plan(4)

     77,761        38,880        77,761        77,761        77,761 (5) 

Supplemental Retirement Plan(6)

     172,815        3,187,460        172,815        172,815        4,039,237 (7) 

Other Benefits

              

Health & Welfare

                                 20,808 (9) 

Total

     250,576        4,398,052        1,422,288        250,576        6,903,091  

 

  (1) Severance payment payable in lump sum pursuant to the change in control agreement described above.

 

  (2) Reflects the excess of the fair market value of the underlying shares as of December 31, 2016 over the exercise or base price of all unvested options and SARs the vesting of which accelerates in connection with the specified event.

 

  (3) Reflects the fair market value as of December 31, 2016 of restricted stock and shares underlying PRSUs the vesting of which accelerates in connection with the specified event.

 

  (4) Pension Plan benefits shown for all termination scenarios are annual annuities assuming a 50% joint and survivor annuity option and are assumed to be payable on January 1, 2017. The surviving spouse may elect to waive the death benefit from the Pension Plan and elect instead to receive a benefit from The Genuine Parts Company Death Benefit Plan.

 

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  (5) Mr. Maher may elect to receive his pension benefit in the form of a lump sum payment in the event of termination within five years following a change in control. A lump sum option is not otherwise available under the plan. The lump sum payable to Mr. Maher if he terminated December 31, 2016 following a change in control is $1,711,432.

 

  (6) Supplemental Retirement Plan benefits shown for all termination scenarios (except death and involuntary termination following a change in control) assume payment under the 100% joint and survivor annuity option elected by Mr. Maher with payment beginning January 1, 2017. The death benefit shown is payable as a lump sum to Mr. Maher’s beneficiary in the event of his death. The lump sum death benefit is calculated as 100% of the present value of the single life annuity payable on January 1, 2017. Disability benefits under the Supplemental Retirement Plan are assumed to be equal to early retirement benefits and are payable on January 1, 2017. The Supplemental Retirement Plan annuity benefits shown in the table do not reflect estimated FICA tax gross-ups paid by the Company. The estimated FICA tax gross-up, based on 2.35% of the lump sum value of the Supplemental Retirement Plan benefit calculated on the FICA tax basis for the plan, is $67,247 upon termination for retirement.

 

  (7) An immediate lump sum distribution of benefits is required in the event of termination following a change in control. The lump sum value of the benefit calculated includes an estimated FICA tax gross-up amount of $92,743.

 

  (8) Benefits payable under the Tax Deferred Savings Plan are described and quantified in the Nonqualified Deferred Compensation table in this proxy statement.

 

  (9) Reflects the cost of 24 months of continued group health coverage pursuant to the change in control agreement described above. In order to comply with Internal Revenue Code section 409A, during the last 6 months of this continued coverage period, the Company will satisfy its obligation to provide group health coverage by making 6 monthly installment payments to the executive in an amount equal to the monthly cost of providing such coverage, based upon the “applicable premium” under COBRA.

James R. Neill

 

Benefit

   Retirement ($)      Death ($)      Disability ($)      Termination
by  Company
or Executive
Other Than
Retirement,
Death or
Disability ($)
     Involuntary
Termination
Following a
Change in
Control ($)
 

Cash Severance

                                 1,076,772 (1) 

Acceleration of Equity Awards

              

Stock Options and SARs(2)

            22,837        22,837               10,524  

Restricted Stock and PRSUs(3)

            421,427        421,427               421,427  

Retirement Benefits

              

Pension Plan(4)

     8,073        4,037        8,073        8,073        8,073 (5) 

Supplemental Retirement Plan(6)

            501,999        46,745               775,491 (7) 

Other Benefits

              

Health & Welfare

                                 28,248 (8) 

Estimated 280G Tax “Cut-Back” to Avoid Excise Tax

                                 (396,507 )(9) 

Total

     8,073        950,300        499,082        8,073        1,924,028  

 

  (1) Severance payment payable in lump sum pursuant to the change in control agreement described above.

 

  (2) Reflects the excess of the fair market value of the underlying shares as of December 31, 2016 over the exercise or base price of all unvested options and SARs the vesting of which accelerates in connection with the specified event.

 

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  (3) Reflects the fair market value as of December 31, 2016 of restricted stock and shares underlying PRSUs the vesting of which accelerates in connection with the specified event.

 

  (4) Pension Plan benefits shown for all termination scenarios are annual annuities assuming a 50% joint and survivor annuity option and are assumed to be payable at age 65. The surviving spouse may elect to waive the death benefit from the Pension Plan and elect instead to receive a benefit from the Genuine Parts Company Death Benefit Plan.

 

  (5) Mr. Neill may elect to receive his pension benefit in the form of a lump sum payment in the event of termination within five years following a change in control. A lump sum option is not otherwise available under the plan. The lump sum payable to Mr. Neill if he terminated December 31, 2016 following a change in control is $123,273.

 

  (6) The Supplemental Retirement Plan provides for 100% vesting upon death, disability or the occurrence of a change in control. No benefits are payable if termination occurs for other reasons prior to eligibility for early retirement (at least age 55 with at least 15 years of service). The death benefit shown is payable as a lump sum to Mr. Neill’s beneficiary in the event of his death. The immediate lump sum death benefit is calculated as 100% of the present value of the single life annuity payable to Mr. Neill deferred to age 65. Disability benefits under the Supplemental Retirement Plan are assumed to be equal to the benefit accrued under the plan as of December 31, 2016 and payable at age 65 under the 100% joint and survivor annuity option election.

 

  (7) An immediate lump sum distribution of benefits is required in the event of termination following a change in control.

 

  (8) Reflects the cost of 24 months of continued group health coverage pursuant to the change in control agreement described above. In order to comply with Internal Revenue Code section 409A, during the last 6 months of this continued coverage period, the Company will satisfy its obligation to provide group health coverage by making 6 monthly installment payments to the executive in an amount equal to the monthly cost of providing such coverage, based upon the “applicable premium” under COBRA.

 

  (9) The change in control agreement provides that in the event the executive would be subject to a 20% excise tax under Section 4999 of the Internal Revenue Code (imposed on individuals who receive compensation in connection with a change of control that exceeds certain specified limits), the payments and benefits will be reduced to the maximum amount that does not trigger the excise tax, unless the executive would retain greater value (on an after-tax basis) by receiving all payments and benefits and paying all excise and income taxes.

 

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COMPENSATION, NOMINATING AND GOVERNANCE COMMITTEE REPORT

The Compensation, Nominating and Governance Committee of the Board of Directors of Genuine Parts Company oversees the compensation programs of Genuine Parts Company on behalf of the Board. In fulfilling its oversight responsibilities, the Committee reviewed and discussed with management of the Company the Compensation Discussion and Analysis included in this proxy statement.

In reliance on the review and discussions referred to above, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and in this proxy statement, each of which has been filed with the SEC.

Members of the Compensation, Nominating and

Governance Committee:

John D. Johns (Chair)

John R. Holder

Gary W. Rollins

E. Jenner Wood

This report shall not be deemed to be incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, and shall not otherwise be deemed filed under such acts.

COMPENSATION, NOMINATING AND GOVERNANCE COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The following directors served on the Compensation, Nominating and Governance Committee during all of 2016: John D. Johns, John R. Holder, Gary W. Rollins and E. Jenner Wood. None of such persons was an officer or employee of the Company during 2016 or at any time in the past. During 2016, none of the members of the Compensation, Nominating and Governance Committee had any relationship with the Company requiring disclosure under applicable rules of the SEC. None of our executive officers served as a member of the Board of Directors or compensation committee, or similar committee, of any other company whose executive officer(s) served as a member of our Board of Directors or our Compensation, Nominating and Governance Committee.

COMPENSATION OF DIRECTORS

2016 Director Compensation

 

NAME

   Fees
Earned or
Paid in
Cash ($)
     Stock
Awards
($)(1)
     Total ($)  

Mary B. Bullock

     75,000        199,440        274,440  

Elizabeth W. Camp

     75,000        199,440        274,440  

Gary P. Fayard

     75,000        199,440        274,440  

John R. Holder

     72,000        199,440        271,440  

Donna W. Hyland

     75,000        199,440        274,440  

John D. Johns

     83,000        199,440        282,440  

Robert C. Loudermilk, Jr.

     75,000        199,440        274,440  

Wendy B. Needham

     78,500        199,440        277,940  

Jerry W. Nix

     67,500        199,440        266,940  

Gary W. Rollins

     88,000        199,440        287,440  

E. Jenner Wood

     79,500        199,440        278,940  

 

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(1) Represents the aggregate grant date total fair value of stock awards determined in accordance with FASB ASC Topic 718. The awards reflected in this column consist of 2,000 RSUs granted to non-employee directors on April 1, 2016, the grant date fair value of which was $199,440 (based on the closing price of the Company’s common stock on the grant date).

The aggregate number of RSUs held by each director as of December 31, 2016 was as follows:

 

Director

   Number of RSUs  

Mary B. Bullock

     10,723  

Elizabeth W. Camp

     2,026  

Gary P. Fayard

     6,248  

John R. Holder

     10,723  

Donna W. Hyland

     2,026  

John D. Johns

     10,723  

Robert C. Loudermilk, Jr.

     10,723  

Wendy B. Needham

     10,723  

Jerry W. Nix

     6,248  

Gary W. Rollins

     10,723  

E. Jenner Wood

     4,111  

Compensation payable to the Company’s non-employee directors is evaluated and determined by the Compensation, Nominating, and Governance Committee and is then approved by the Company’s full Board of Directors. In 2016, non-employee directors of the Company were paid $15,000 per quarter for service as director, plus $1,500 per board and committee meeting attended, except that the Chair of the Audit Committee and the Compensation, Nominating and Governance Committee were paid $16,250 per quarter and $1,500 per board and committee meeting attended, and the Lead Director was paid $17,500 per quarter and $1,500 per board and committee meeting attended. Non-employee directors may elect to defer the receipt of meeting and/or director fees in accordance with the terms of the Company’s Directors’ Deferred Compensation Plan. In addition, non-employee directors may from time to time be granted restricted stock units pursuant to the provisions of the Genuine Parts Company 2015 Incentive Plan. On April 1, 2016 each non-employee director serving on such date was granted 2,000 RSUs. Each RSU represents a fully vested right to receive one share of our common stock on April 1, 2021, or earlier upon a termination of service as a director by reason of death, disability or retirement, or upon a change in control of the Company.

Each non-employee director is required to own shares of Company common stock valued at three times his or her annual cash retainer for the prior fiscal year measured against the average stock price for the preceding three fiscal years. Directors will have five years from the date of election to the Board to attain such a level of ownership. Shares counted toward this requirement will be based on shares beneficially owned by such director (as defined by the SEC’s rules and regulations) including restricted stock units and director deferred compensation shares, but excluding any unexercised stock options or stock appreciation rights.

 

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TRANSACTIONS WITH RELATED PERSONS

The Company recognizes that transactions between the Company and any of its directors, executives or other related persons can present potential or actual conflicts of interest and create the appearance that Company decisions are based on considerations other than the best interests of the Company and its shareholders. Therefore, as a general matter and in accordance with the (1) the Code of Conduct and Ethics for Employees, Officers, Contract and/or Temporary Workers and Directors of Genuine Parts Company and (2) the Genuine Parts Company Code of Conduct and Ethics for Senior Financial Officers, it is the Company’s preference to avoid such transactions. Nevertheless, the Company recognizes that there are situations where such transactions may be in, or may not be inconsistent with, the best interests of the Company. Therefore, the Company has adopted a formal policy which requires the Company’s Compensation, Nominating and Governance Committee to review and, if appropriate, to approve or ratify any such transactions. Pursuant to the policy, the Committee will review any transaction in which the Company is or will be a participant and the amount involved exceeds $120,000, and in which any of the Company’s directors, executives or other related persons had, has or will have a direct or indirect material interest. After its review, the Committee will only approve or ratify those transactions that are in, or are not inconsistent with, the best interests of the Company and its shareholders, as the Committee determines in good faith. The policy is attached as Appendix A to the Company’s Corporate Governance Guidelines, which are available on the Company’s website at www.genpt.com.

Mr. E. Jenner Wood, a Director since August 17, 2014, retired on December 31, 2016 as Corporate Executive Vice President of SunTrust Banks, Inc. During 2016, the Company continued its long-standing banking relationship with SunTrust, and used the Bank’s services in the general course of business. This banking relationship was reviewed and considered by the Board and the Compensation, Nominating, and Governance Committee in determining the independence of Mr. Wood. The amount of payments made and received by SunTrust and the Company represented an immaterial percentage of the Company’s and SunTrust’s revenues. The Board and Compensation, Nominating, and Governance Committee believe that the relationship during 2016 was non-preferential and that Mr. Wood did not personally participate in or benefit from this relationship.

PROPOSAL 2

ADVISORY VOTE ON EXECUTIVE COMPENSATION

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, enables our shareholders to vote to approve, on an advisory (non-binding) basis, the compensation of our named executive officers. At the 2016 Annual Meeting of Shareholders, approximately 97% of the shares present and entitled to vote were voted in support of the Company’s compensation program. We plan to hold this vote annually, so our Board of Directors is again submitting a non-binding shareholder vote on our executive compensation as described in this proxy statement (commonly referred to as “say-on-pay”). The Company seeks your