DEF 14A 1 arw-20170511xdef14a.htm DEF 14A arw_Current_Folio_DEF14A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No. )

 

Filed by the Registrant  ☑

Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

Preliminary Proxy Statement

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

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to §240.14a-12

 

 

ARROW ELECTRONICS, INC.

(Name of Registrant as Specified In Its Charter)

 

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

 

Payment of Filing Fee (Check the appropriate box):

No fee required.

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

(1)

Title of each class of securities to which transaction applies:

 

 

 

 

(2)

Aggregate number of securities to which transaction applies:

 

 

 

 

(3)

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

 

 

 

 

(4)

Proposed maximum aggregate value of transaction:

 

 

 

 

(5)

Total fee paid:

 

 

 

Fee paid previously with preliminary materials.

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

 

(1)

Amount Previously Paid:

 

 

 

 

(2)

Form, Schedule or Registration Statement No.:

 

 

 

 

(3)

Filing Party:

 

 

 

 

(4)

Date Filed:

 

 

 

 

 

 

 


 

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OUR 2017 ANNUAL MEETING
AND PROXY STATEMENT

Thursday, May 11, 2017
at 9:00 a.m. MT
The Ritz-Carlton
1881 Curtis Street
Denver, Colorado 80202

March 29, 2017

 

 

 

Dear Shareholder:

You are invited to Arrow’s Annual Meeting on Thursday, May 11, 2017. The formal notice of the Annual Meeting and the Proxy Statement soliciting your vote at the Annual Meeting appear on the following pages.

 

 

 

The matters scheduled to be considered at the Annual Meeting are:

>    the election of the Board of Directors;

>    the ratification of the selection of the independent registered public accounting firm;

>    the holding of an advisory vote on executive compensation; and

>    the holding of an advisory vote to determine how often the Company’s shareholders will provide an advisory vote on executive compensation.

These matters are discussed more fully in the Proxy Statement.

 

 

Arrow’s Board of Directors recommends following its recommended vote on each proposal as being in the best interests of Arrow, and urges you to read the Proxy Statement carefully before you vote.

Under the rules adopted by the United States Securities and Exchange Commission, we are furnishing proxy materials to our shareholders online rather than mailing printed copies to each shareholder. Accordingly, you will not receive a printed copy of the proxy materials unless you request one. The Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting (the “Notice”) includes instructions on how to access and review the materials, and how to access your proxy card and vote online. If you would like to receive a printed copy of our proxy materials, please follow the instructions included in the Notice.

Please make sure you vote whether or not you plan to attend the Annual Meeting. You can cast your vote in person at the Annual Meeting, online by following the instructions on either the proxy card or the Notice, by telephone, or, if you received paper copies of our proxy materials, by mailing your proxy card in the postage-paid return envelope.

 

 

 

Sincerely yours,

 

Picture 8

 

Michael J. Long

Chairman of the Board

 

 

 


 

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WHEN:

Thursday, May 11, 2017
9:00 a.m. Mountain Time

WHERE:

The Ritz-Carlton
1881 Curtis Street
Denver, Colorado 80202

AGENDA:

1. Elect the Board of Directors for the ensuing year.

2. Ratify the appointment of Ernst & Young LLP as Arrow’s independent registered public accounting firm for the fiscal year ending December 31, 2017.

3. Hold an advisory vote on executive compensation.

4. Hold an advisory vote to determine how often the Company’s shareholders will provide an advisory vote on executive compensation.

5. Transact such other business as may properly come before the Annual Meeting or any adjournments thereof.

  

  

NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS

March 29, 2017

You are invited to Arrow’s Annual Meeting. Only shareholders of record at the close of business on March 13, 2017 are entitled to notice of and to vote at the Annual Meeting.

Shareholders can vote online, by telephone, by completing and returning the proxy card, or by attending the Annual Meeting. The Notice and the proxy card itself have detailed instructions for voting, including voting deadlines.

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Internet
Visit the website noted on your proxy card to vote online.

Telephone
Use the toll-free telephone number on your proxy card to vote by telephone.

Mail
Sign, date, and return your proxy card in the enclosed envelope to vote by mail.

In Person
Cast your vote in person at the annual meeting.

Shareholders may revoke a proxy (change or withdraw their votes) at any time prior to the Annual Meeting by following the instructions in the Proxy Statement.

If you wish to receive a printed copy of the proxy materials and Arrow’s 2016 Annual Report you must request a copy. The Notice has instructions on how to access and review our proxy materials online, as well as instructions for online voting.  You can obtain copies of the Arrow Annual Report and Proxy Statement by calling 1-800-579-1639, by sending an e-mail to investor@arrow.com, or by visiting the following website: www.arrow.com/annualreport2016.

Arrow’s 2016 Annual Report (which is not a part of the proxy soliciting material) and this Proxy Statement will be available through www.proxyvote.com on or about March 29, 2017, and at the Company’s website at www.arrow.com/annualreport2016.

 

 

 

 

By Order of the Board of Directors,

 

Picture 4

 

Gregory Tarpinian

Secretary

 

 

 

 

 

 

 


 

ARROW ELECTRONICS, INC.
Annual Meeting of Shareholders
To Be Held May 11, 2017

 

TABLE OF CONTENTS

 

Proxy Statement 

 

 

The Purpose of This Statement 

Invitation to the Annual Meeting 

Voting Instructions 

Shareholders Entitled to Vote 

Revocation of Proxies 

Cost of Proxy Solicitation 

Proposals Requiring Your Vote 

Voting Your Shares 

 

 

Certain Shareholders 

 

 

Holders of More Than 5% of Common Stock 

Shareholdings of Executive Officers and Directors 

 

 

Proposal 1 Election of Directors 

 

 

Board Membership Requirements 

 

 

Director Resignation Policy 

11 

 

 

The Board and Its Committees 

12 

 

 

Lead Director 

12 

Chief Executive Officer and Chairman Positions 

12 

Committees 

13 

Audit Committee 

13 

Compensation Committee 

14 

Corporate Governance Committee 

14 

Enterprise Risk Management 

15 

Compensation Risk Analysis 

15 

Independence 

16 

Compensation Committee Interlocks and Insider Participation 

16 

Meetings and Attendance 

16 

Director Compensation 

17 

Stock Ownership by Directors 

18 

 

 

Audit Committee Report 

19 

 

 

Principal Accounting Firm Fees 

20 

 

 

Proposal 2 Ratification of Appointment of Auditors 

21 

 

 

Proposal 3 Advisory Vote on Executive Compensation 

22 

 

 

Proposal 4 Advisory Vote on the Frequency of Shareholder Votes on Executive Compensation 

23 

 

 

Report of the Compensation Committee 

24 

 

 

Compensation Discussion and Analysis (“CD&A”)

25 

 

 

Executive Compensation 

25 

Executive Summary 

25 

2016 Business Strategy and Highlights 

25 

2016 Shareholder Engagement and Say-On-Pay 

26 


 

 

Best Compensation Practices and Policies 

26 

2016 Compensation Actions 

27 

What Guides the Company’s Program 

27 

The Principal Elements of Pay Total Direct Compensation  

28 

Why the Company Uses EPS in Both Short-Term and Long-Term Incentive Plans 

29 

Pay Mix 

29 

The Company’s Decision-Making Process 

30 

The Role of the Compensation Committee 

30 

The Role of Management 

30 

The Role of the Independent Compensation Consultant 

30 

The Role of Peer Companies 

31 

The 2016 Executive Compensation Program in Detail 

32 

Base Salary 

32 

Annual Cash Incentives:  The Management Incentive Compensation Plan (“MICP”)

33 

Long-Term Incentive Awards 

35 

Other Practices, Policies, and Guidelines 

38 

Stock Ownership Requirements 

38 

Anti-Hedging Policy 

38 

Severance Policy and Change of Control Agreements 

38 

Retirement Programs and Other Benefits 

38 

Tax and Accounting Considerations 

39 

Compensation Practices and Risk 

40 

 

 

Compensation of the Named Executive Officers 

41 

 

 

Summary Compensation Table 

41 

All Other Compensation — Detail 

42 

Grants of Plan-Based Awards 

43 

Outstanding Equity Awards at Fiscal Year-End 

44 

Options Exercised and Stock Vested in 2016 

46 

Supplemental Executive Retirement Plan  

47 

Deferred Compensation Plans 

48 

 

 

Agreements and Potential Payouts Upon Termination or Change of Control 

49 

 

 

Severance Policy 

49 

Participation Agreements 

50 

Change in Control Retention Agreements 

50 

Impact of Section 409A of the Internal Revenue Code 

51 

Potential Payouts Upon Termination 

51 

Narrative Explanation of the Calculation of Amounts 

54 

Non-Qualified Stock Option, Restricted Stock Unit, and Performance Stock Unit Award Agreements 

55 

 

 

Related Person Transactions 

56 

 

 

Section 16(a) Beneficial Ownership Reporting Compliance 

57 

 

 

Availability of More Information 

58 

 

 

Multiple Shareholders with the Same Address 

59 

 

 

Submission of Shareholder Proposals 

60 

 

 

 

 

 

 

 


 

 

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ARROW ELECTRONICS, INC.
9201 East Dry Creek Road
Centennial, CO 80112

 

PROXY STATEMENT

In Connection with the 2017 Annual Meeting

THE PURPOSE OF THIS STATEMENT

The Board of Directors of Arrow Electronics, Inc., a New York corporation (“Arrow” or the “Company”), is furnishing this Proxy Statement to shareholders of record to solicit proxies to be voted at the 2017 Annual Meeting. By returning a completed proxy card, or voting over the telephone or internet, you are giving instructions on how your shares are to be voted at the Annual Meeting. The Proxy Statement is available through www.proxyvote.com.

 

 

three years.

 

 

 

 

 

 

 

 

 

 

 

VOTING INSTRUCTIONS

Please vote your shares by telephone or online, or if you received printed copies of the proxy materials, complete, sign, and date your proxy card and return it promptly in the postage-paid return envelope provided. Whether or not you plan to attend the Annual Meeting, your prompt response will assure a quorum and reduce solicitation expenses.

If shares are held in “street name” (that is, in the name of a bank, broker, or other holder of record), such holder should receive instructions from the record shareholder that must be followed in order for such shares to be voted (including at the Annual Meeting). Internet and/or telephone voting will also be offered to shareholders owning shares through most banks and brokers.

Unless you indicate otherwise, the persons named as proxies on the proxy card will vote your shares “FOR” all of the nominees for director named in this Proxy Statement, “FOR” the ratification of the appointment of Ernst & Young LLP as Arrow’s independent registered public accounting firm, “FOR” approval of the executive compensation as described in the Compensation Discussion and Analysis, and for “ONE YEAR” as the frequency for an advisory vote on executive compensation.

 

    

    

 

Invitation to the Annual Meeting

Shareholders of record at the close of business on March 13, 2017 are invited to attend the 2017 Annual Meeting on Thursday, May 11, 2017, beginning at 9:00 a.m. Mountain Time.

The Annual Meeting will be held at:

The Ritz-Carlton
1881 Curtis Street
Denver, Colorado 80202

 

 

 

 

 

 

 

 

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Table of Contents

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2017 ANNUAL

PROXY STATEMENT

 

SHAREHOLDERS ENTITLED TO VOTE

Only shareholders of record of Arrow’s common stock at the close of business on March 13, 2017 (the “Record Date”) are entitled to notice of and to vote at the Annual Meeting. As of the Record Date, there were 89,174,805 shares of Arrow common stock outstanding. Each share of common stock is entitled to one vote on each matter properly brought before the Annual Meeting. The presence in person or by proxy of a majority of the shares entitled to vote at the Annual Meeting shall constitute a quorum.

For those who hold shares as a participant in Arrow’s 401(k) Plan, the shareholder has the right to direct Vanguard Fiduciary Trust Company (the “Trustee”), who is the holder of record, how to vote the shares of common stock credited to the participant’s account at the Annual Meeting. If voting instructions for the shares of common stock in the 401(k) Plan are not received, those shares will be voted by the Trustee in the same proportions as the shares for which voting instructions were received from other participants in the 401(k) Plan. Voting (including any revocations) by 401(k) Plan participants will close at 11:59 p.m. Eastern Time on May 8, 2017. The Trustee will then vote all shares of common stock held in the 401(k) Plan by the established deadline. For all other shareholders, voting (including any revocations) will close at 11:59 p.m. Eastern Time on May 10, 2017.

REVOCATION OF PROXIES

The person giving a proxy may revoke it at any time prior to the time it is voted at the Annual Meeting by giving written notice to Arrow’s Secretary, Gregory Tarpinian, at Arrow Electronics, Inc., 9201 East Dry Creek Road, Centennial, CO 80112. If the proxy was given by telephone or through the internet, it may be revoked in the same manner. You may also revoke your proxy by attending the Annual Meeting and voting in person. If your shares are held in “street name,” you must contact the record holder of the shares regarding how to revoke your proxy.

COST OF PROXY SOLICITATION

Arrow pays the cost of soliciting proxies. Arrow has retained D.F. King & Co., Inc. to assist in soliciting proxies at an anticipated cost of approximately $20,000, plus expenses. Arrow will supply soliciting materials to the brokers and other nominees holding Arrow common stock in a timely manner so that the brokers and other nominees may send the material to each beneficial owner. Arrow will reimburse the brokers and other nominees for their expenses in so doing. In addition to this solicitation by mail, employees of the Company may solicit proxies in person or by telephone.

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Table of Contents

2017 ANNUAL

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PROXY STATEMENT

 

PROPOSALS REQUIRING YOUR VOTE

 

 

 

PROPOSAL

BOARD’S VOTING RECOMMENDATION

1

Election of Board of Directors of Arrow for the ensuing year

FOR

Each Nominee

 

 

 

2

Ratification of appointment of Ernst & Young LLP as Arrow’s independent registered public accounting firm for the fiscal year ending December 31, 2017

FOR

 

 

 

3

Advisory vote on executive compensation

FOR

 

 

 

4

Advisory vote on how often shareholders will provide an advisory vote on executive compensation

ONE YEAR

VOTING YOUR SHARES

 

 

 

 

Shareholders can vote online, by telephone, by completing and returning the proxy card, or by attending the Annual Meeting. The Notice and the proxy card have detailed instructions for voting, including voting deadlines.

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Internet
Visit the website noted on your proxy card to vote online.

Telephone
Use the toll-free telephone number on your proxy card to vote by telephone.

Mail
Sign, date, and return your proxy card in the enclosed envelope to vote by mail.

In Person
Cast your vote in person at the annual meeting.

Arrow’s Board of Directors recommends the approval of the first three proposals and voting “one year” on the last proposal as being in the best interests of Arrow, and urges you to read the Proxy Statement carefully before you vote. Your vote is important regardless of the number of shares you own.

 

 

 

 

 

 

 

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Table of Contents

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2017 ANNUAL

PROXY STATEMENT

 

CERTAIN SHAREHOLDERS

HOLDERS OF MORE THAN 5% OF COMMON STOCK

The following Table sets forth certain information with respect to the only shareholders known to the Company to own beneficially more than 5% of the outstanding common stock of Arrow as of March 13, 2017.

 

 

 

 

 

 

 

 

 

 

 

 

Name and Address

    

Number of Shares 

    

Percent of

of Beneficial Owner

 

Beneficially Owned

 

Class

BlackRock Inc. (1)

 

 

 

 

 

55 East 52nd Street

 

 

 

 

 

New York, New York 10055

 

7,989,646

 

9.0

%

The Vanguard Group (2)

 

 

 

 

 

100 Vanguard Boulevard

 

 

 

 

 

Malvern, Pennsylvania 19355

 

7,232,058

 

8.1

%

JPMorgan Chase & Co. (3)

 

 

 

 

 

270 Park Avenue

 

 

 

 

 

New York, New York 10017

 

6,737,548

 

7.6

%

Wellington Management Group LLP (4)

 

 

 

 

 

280 Congress Street 

 

 

 

 

 

Boston, Massachusetts 02210

 

5,654,153

 

6.3

%

Boston Partners (5)

 

 

 

 

 

One Beacon Street - 30th Floor

 

 

 

 

 

Boston, Massachusetts 02108

 

5,512,438

 

6.2

%

 

(1)

Based upon a Schedule 13G filed with the United States Securities and Exchange Commission (the “SEC”) on January 19, 2017, BlackRock Inc., a parent holding company, has sole voting power with respect to 7,303,347 shares and sole dispositive power with respect to all shares.

 

(2)

Based upon a Schedule 13G filed with the SEC on February 9, 2017, The Vanguard Group, a registered investment adviser, has shared voting power with respect to 16,287 shares, shared dispositive power with respect to 87,604 shares, sole dispositive power with respect to 7,144,454 shares, and sole voting power with respect to 73,597 shares. Vanguard Fiduciary Trust Company, a wholly owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 48,817 shares as a result of it serving as an investment manager of collective trust accounts. Vanguard Investments Australia, Ltd., another wholly owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 63,567 shares as a result of it serving as an investment manager of Australian investment offerings.

 

(3)

Based upon a Schedule 13G filed with the SEC on January 18, 2017, JPMorgan Chase & Co., a parent holding company, has sole voting power with respect to 6,578,202 shares, shared dispositive power with respect to 80 shares, and sole dispositive power with respect to 6,737,468 shares.

 

(4)

Based upon a Schedule 13G filed with the SEC on February 9, 2017, Wellington Management Group LLP, Wellington Group Holdings LLP, Wellington Investment Advisors Holdings LLP, each holding companies, have shared voting power with respect to 1,559,699 shares and shared dispositive power with respect to all shares. Wellington Management Company LLP, a registered investment adviser, has shared voting power with respect to 1,215,221 shares and shared dispositive power with respect to 5,268,050 shares. The shares reported are owned by clients of the following investment advisers: Wellington Management Company LLP; Wellington Management Canada LLC; Wellington Management Singapore Pte Ltd; Wellington Management Hong Kong Ltd; Wellington Management International Ltd; Wellington Management Japan Pte Ltd; and, Wellington Management Australia Pty Ltd (collectively, the "Wellington Investment Advisers"). Wellington Investment Advisers Holdings LLP controls directly, or indirectly through Wellington Management Global Holdings, Ltd., the Wellington Investment Advisers. Wellington Investment Advisers Holdings LLP is owned by Wellington Group Holdings LLP, which is owned by Wellington Management Group LLP.

 

(5)

Based upon a Schedule 13G filed with the SEC on February 10, 2017, Boston Partners, a registered investment adviser, has sole voting power with respect to 4,282,460 shares and sole dispositive power with respect to all shares.

 

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Table of Contents

2017 ANNUAL

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PROXY STATEMENT

 

SHAREHOLDINGS OF EXECUTIVE OFFICERS AND DIRECTORS

The following Table shows, as of March 13, 2017, the beneficial ownership of the Company’s common stock for each director, each of the “Named Executive Officers” (the Chief Executive Officer, the Chief Financial Officer, and each of the other three most highly compensated executive officers of the Company, referred to as the “NEOs”), and other executive officers who file Section 16(a) reports.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares of Common Stock Beneficially Owned

 

    

Currently 

    

Common 

    

Acquirable 

    

% of Outstanding 

Name

 

Owned (1)

 

Stock Units (2)

 

within 60 Days

 

Common Stock

Michael J. Long

 

425,987

 

 —

 

 —

 

*

 

Christopher D. Stansbury

 

22,860

 

 —

 

 —

 

*

 

Andrew D. King

 

36,593

 

 —

 

 —

 

*

 

Gretchen K. Zech

 

41,472

 

 —

 

 —

 

*

 

Sean J. Kerins

 

56,360

 

 —

 

 —

 

*

 

Barry W. Perry

 

 —

 

54,996

 

 —

 

*

 

Philip K. Asherman

 

 —

 

25,325

 

 —

 

*

 

Gail E. Hamilton

 

2,405

 

23,136

 

 —

 

*

 

John N. Hanson

 

9,205

 

46,561

 

 —

 

*

 

Richard S. Hill

 

2,405

 

28,994

 

 —

 

*

 

M.F. (Fran) Keeth

 

 —

 

34,437

 

 —

 

*

 

Andrew C. Kerin

 

2,405

 

18,633

 

 —

 

*

 

Stephen C. Patrick

 

 —

 

44,607

 

 —

 

*

 

Total Executive Officers’ and Directors’ Beneficial Ownership as a group
(16 individuals)

 

752,888

 

276,689

 

 —

 

1.2

%

*Represents holdings of less than 1%.

(1)

Includes vested stock options granted under the Arrow Electronics, Inc. 2004 Omnibus Incentive Plan, as amended (the “Omnibus Incentive Plan”), as well as shares owned independently.

 

(2)

Includes common stock units deferred by non-management directors and restricted stock units granted under the Omnibus Incentive Plan.

 

 

 

 

 

 

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Table of Contents

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2017 ANNUAL

PROXY STATEMENT

 

PROPOSAL 1: ELECTION OF DIRECTORS

THE BOARD RECOMMENDS A VOTE “FOR” ALL OF THE NOMINEES NAMED BELOW.

Each nominee for election as a member of the Board of Directors of Arrow (the “Board”) is to be elected to hold office until the next Annual Meeting.

All nominees identified below are current members of the Board. All have been recommended for re-election to the Board by the Corporate Governance Committee and approved and nominated for re-election by the Board. The Board does not anticipate that any of the nominees named below will be unable or unwilling to serve as a director. If any nominee should refuse or be unable to serve, the proxy will be voted for a person designated by the Board, or in lieu thereof, the Board may reduce the number of directors. In accordance with the Company’s bylaws, the nine nominees receiving a plurality of votes cast at the Annual Meeting will be elected directors, subject to the Director Resignation Policy described below.

An uncontested election of directors is no longer considered “routine” under the New York Stock Exchange rules. As a result, if a shareholder holds shares in “street name” through a broker or other nominee, the broker or nominee is not permitted to exercise voting discretion with respect to this proposal. For this reason, if a shareholder does not give his or her broker or nominee specific instructions, the shareholder’s shares will not be voted on this proposal. If you vote to “abstain,” your shares will be counted as present at the meeting, and your abstention will have the effect of a vote against the proposal.

BOARD MEMBERSHIP REQUIREMENTS

In accordance with the Company’s corporate governance guidelines, members of the Board should have the education, business experience, and insight necessary to understand the Company’s business. Members of the Board must be able to evaluate and oversee its direction and performance for the Company’s continued success. The directors should also possess such functional skills, corporate leadership, and international experience required to contribute to the development and expansion of the Board’s knowledge and capabilities. Moreover, the directors should have the willingness and ability to objectively and constructively appraise the performance of executive management and, when necessary, recommend appropriate changes. The Corporate Governance Committee has a thoughtful policy regarding diversity. Whenever the Corporate Governance Committee evaluates a potential candidate, it considers that individual in the context of the composition of the Board as a whole. The Board believes that its membership should reflect diversity in its broadest sense and, consistent with that philosophy, the Board does consider a candidate’s experience, education, gender, race, ethnicity, geographic location, and difference of viewpoint when evaluating his or her qualifications for election to the Board. Based on the nominee’s experience, attributes, and skills, which exemplify the sought-after characteristics described above, the Board has concluded that each nominee possesses the appropriate qualifications to serve as a director of the Company.

 

 

 

 

 

 

 

 

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Table of Contents

2017 ANNUAL

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PROXY STATEMENT

 

 

 

Barry W. Perry, 70    director since 1999

 

Mr. Perry has been the Lead Director of the Company since May 2011. He was Chief Executive Officer and Chairman of the Board of Engelhard Corporation, a surface and materials science company, for more than five years prior to his retirement in June 2006. Mr. Perry is currently a director of the Albemarle Corporation and Ashland Inc.

While he was Chief Executive Officer of Engelhard Corporation, Mr. Perry established the company’s vision and strategy, selected key management personnel, and evaluated the risks of participating in various markets. Further, his experience as a director of a number of public multinational companies provides him with the skills to objectively and accurately evaluate the financial performance and corporate strategies of a large company.

 

 

 

 

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Philip K. Asherman, 66    director since 2010

 

Mr. Asherman has been President and Chief Executive Officer of Chicago Bridge & Iron Company (“CB&I”) since 2006. He served as an Executive Vice President and Chief Marketing Officer of CB&I from 2001 to 2006 and Managing Director of CB&I from 2002 to 2006. Prior thereto, Mr. Asherman served in various executive positions with Fluor Corporation and its operating subsidiaries. He has more than 35 years of experience in the engineering and construction industry in a variety of project management, operations management, and sales and marketing roles.

Mr. Asherman has also had a number of expatriate assignments in Asia Pacific, Europe, and South America. He serves as a director of CB&I, CB&I N.V., and the Fletcher School at Tufts University, and is a member of the board of the National Safety Council. He has been chosen to serve as a director of the Company because of his service as Chief Executive Officer of a multinational public company and his knowledge of international business. Mr. Asherman is considered an “audit committee financial expert” as the term is defined in Item 407(d) of Regulation S-K.

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Gail E. Hamilton, 67    director since 2008

 

Ms. Hamilton was Executive Vice President of Symantec Corporation, an infrastructure software and services provider, from March 2000 to January 2005. Previously, she served as the General Manager of the Communications Division of Compaq Computer Corporation and as the General Manager of the Telecom Platform Division for Hewlett-Packard Company. She is currently a director of OpenText Corporation, Ixia, and Westmoreland Coal Company.

Ms. Hamilton was responsible for designing, manufacturing, and selling electronic systems for more than 20 years. While at Symantec, Ms. Hamilton oversaw the operations of the enterprise and consumer business. In that role, she was responsible for business planning and helped steer the company through an aggressive acquisition strategy. The Board believes Ms. Hamilton’s experience at Symantec, a leading software company, makes her particularly valuable in providing guidance to Arrow’s Enterprise Computing Solutions business with regard to its direction and strategy.

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2017 ANNUAL

PROXY STATEMENT

 

 

 

John N. Hanson, 75    director since 1997

 

Mr. Hanson has been the non-executive Chairman of the Board of Joy Global Inc. (formerly known as Harnischfeger Industries, Inc.), a manufacturer of mining equipment for both underground and surface applications, since February 2007. He was Chairman, Chief Executive Officer, and President of Joy Global Inc. for more than five years prior thereto. He is Chairman of the American Coal Foundation.

Immediately upon his appointment in 1999 as Chief Executive Officer of Harnischfeger Industries, Inc., Mr. Hanson provided the required guidance to lead it through its Chapter 11 bankruptcy reorganization. In so doing, the company became a more efficient and profitable organization. During this process, Mr. Hanson was responsible for leading that company’s direction by developing and implementing a long-term strategy and assessing risks and opportunities. Mr. Hanson has run multiple businesses throughout his career, several of which used distribution as their principal source of products and services. He has served as a director of seven different companies over his career. The Board believes that these skills and experiences make Mr. Hanson a valuable member of the Board.

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Richard S. Hill, 65    director since 2006

 

Mr. Hill was Chief Executive Officer and Chairman of the Board of Novellus Systems, Inc., a maker of devices used in the manufacture of advanced integrated circuits, from 2006 until it was acquired by Lam Research Corporation in June 2012. He is currently the Chairman of the Board of Marvell Technology Group Ltd. He is also the Chairman of the Board of Tessera Technologies, Inc. and served as its interim Chief Executive Officer from April 15, 2013 until May 29, 2013. Mr. Hill is the lead director of Cabot Microelectronics Corporation and a director of Autodesk, Inc. Mr. Hill is a director of Yahoo! Inc., but has indicated that he will resign from his board position upon the closing of the acquisition of Yahoo! Inc. by Verizon Communications Inc. Within the past five years, Mr. Hill served as a director of Planar Systems, Inc. and LSI Corporation, and as Chair and executive committee member of the University of Illinois Foundation.

Mr. Hill has had a broad base of experience as the Chief Executive Officer of Novellus. In that role, he set the strategy by evaluating market risks to determine the ultimate direction of that company. Novellus was in the business of developing, manufacturing, and selling equipment used in the fabrication of integrated circuits. As a result, Mr. Hill has a thorough understanding of the semiconductor market in which Arrow operates. He has experience in the international marketplace as a result of serving on a number of boards for companies with global operations.

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M.F. (Fran) Keeth, 70    director since 2004

 

Mrs. Keeth was Executive Vice President of Royal Dutch Shell plc and Chief Executive Officer and President of Shell Chemicals Limited, a services company responsible for Royal Dutch Shell’s global petrochemical businesses, from January 2005 to December 2006. She served as Executive Vice President of Customer Fulfillment and Product Business Units for Shell Chemicals Limited from 2001 to 2006 and was President and Chief Executive Officer of Shell Chemical LP, a U.S. petrochemical member of the Royal Dutch/ShellGroup, from July 2001 to July 2006. Mrs. Keeth also serves as the lead director of Verizon Communications Inc. Within the past five years, she has served as a director of Peabody Energy Corporation.

Mrs. Keeth’s knowledge and expertise helped guide the direction, culture, and operational excellence of Shell Chemicals Limited. She held a number of senior financial positions, including Principal Accounting Officer and Controller. As a result of this experience and associated expertise, Mrs. Keeth is considered an “audit committee financial expert” as the term is defined in Item 407(d) of Regulation S-K. In addition to her extensive financial expertise, Mrs. Keeth brings to the Board executive leadership experience as a chief executive officer and a global business perspective from her service as an executive officer of a large multinational company and her service on other public company boards.

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Andrew C. Kerin, 53    director since 2010

 

Mr. Kerin served as Chief Executive Officer and a director of The Brickman Group, Ltd. from May 2012 until July 2016. Prior to that, he was Executive Vice President, Aramark Corporation and Group President, Global Food, Hospitality and Facility Services, Aramark Corporation from June 2009 until March 2012. He served as Executive Vice President, Aramark Corporation and Group President, North America Food, from 2006 to 2009. In 2004, Mr. Kerin was elected as an executive officer of Aramark Corporation as Senior Vice President and served as President, Aramark Healthcare and Education. Prior thereto, starting in 1995, Mr. Kerin served in a number of management roles within Aramark Corporation. Under his leadership were all of Aramark’s food, hospitality, and facilities businesses, including the management of professional services in healthcare institutions, universities, schools, business locations, entertainment and sports venues, correctional facilities, and hospitality venues.

The Board believes that Mr. Kerin’s extensive experience in the service industry makes him particularly valuable in providing guidance to the Company as it continues to build its services businesses. He is considered an “audit committee financial expert” as the term is defined in Item 407(d) of Regulation S-K.

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Michael J. Long, 58    director since 2008

 

Mr. Long was appointed Chief Executive Officer of Arrow in May 2009 and Chairman of the Board effective January 2010. He was appointed President (and currently holds this position) and Chief Operating Officer of Arrow in February 2008. He served as Senior Vice President of the Company from January 2006 to February 2008, and, prior thereto, he served as Vice President of the Company for more than five years. He was appointed President, Arrow Global Components in September 2006. Mr. Long served as President, North America and Asia/Pacific Components from January 2006 until September 2006; President, North America from May 2005 to December 2005; and President and Chief Operating Officer of Arrow Enterprise Computing Solutions from 1999 to 2005. Mr. Long also serves as a director of AmerisourceBergen Corporation and is on the Board of Trustees of the Denver Zoo.

As a result of his numerous years in leadership roles at the Company and in the distribution industry, Mr. Long understands the competitive nature of the business and has an in-depth knowledge of the Company, a strong management background, and broad executive experience.

 

 

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Stephen C. Patrick, 67    director since 2003

 

Mr. Patrick was Vice Chairman of Colgate-Palmolive Company, a global consumer products company, from January 2011 until his retirement in March 2011. Prior thereto, he served as the Chief Financial Officer of Colgate-Palmolive for approximately 14 years. In his more than 25 years at Colgate-Palmolive, he held positions as Vice President, Corporate Controller, and Vice President of Finance for Colgate Latin America.

Mr. Patrick’s experience and education make him an expert in financial matters. As the Chief Financial Officer of a successful public company, Mr. Patrick was responsible for assuring that all day-to-day financial transactions were accurately recorded, processed, and reported in all public filings. All of this requires a thorough understanding of finance, treasury, and risk management functions. In addition to his extensive financial expertise, Mr. Patrick brings to the Board executive leadership experience as a chief financial officer of a large multinational company. Mr. Patrick is considered an “audit committee financial expert” as the term is defined in Item 407(d) of Regulation S-K.

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DIRECTOR RESIGNATION POLICY

The Board has adopted a Director Resignation Policy, which provides that any director nominee that receives a greater number of votes “withheld” from his or her election than votes “for” his or her election must tender a letter of resignation to the Board within five days of the certification of the shareholder vote. The Corporate Governance Committee must then consider whether to accept the director’s resignation and make a recommendation to the Board as to acceptance or rejection. The Board will then consider the resignation and, within 90 days following the date of the shareholders’ meeting at which the election occurred, shall publicly disclose its decision. A director whose resignation is under consideration may not participate in any deliberation regarding his or her resignation. The Director Resignation Policy can be found at the “Leadership & Governance” sublink of investor.arrow.com.

 

 

 

 

 

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THE BOARD AND ITS COMMITTEES

The Board meets in general sessions with the Chairman of the Board presiding, in meetings limited to non-management directors (which are led by the Lead Director), and in various committees. Committee meetings are open to all members of the Board.

Committee memberships and chair assignments are reviewed annually by the Corporate Governance Committee, which makes appointment and chair recommendations to the Board.

The Table below reflects committee memberships for calendar year 2016.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Committee

Name

    

Independent

    

Audit

    

Compensation

    

Corporate 
Governance

Barry W. Perry

 

X

 

  

 

M

 

  

Philip K. Asherman

 

X

 

M

 

M

 

  

Gail E. Hamilton

 

X

 

  

 

  

 

C

John N. Hanson

 

X

 

  

 

C

 

  

Richard S. Hill

 

X

 

  

 

M

 

M

M.F. (Fran) Keeth

 

X

 

C

 

  

 

  

Andrew C. Kerin

 

X

 

M

 

  

 

M

Michael J. Long

 

 

 

  

 

  

 

  

Stephen C. Patrick

 

X

 

M

 

  

 

M

C = Chair     M = Member

 

 

 

 

 

 

 

 

LEAD DIRECTOR

In accordance with the Company’s corporate governance guidelines, the Board appointed Mr. Perry to serve as the Lead Director. The Lead Director chairs Board meetings when the Chairman is not present. He also chairs the sessions of the non-management directors held in connection with each regularly scheduled Board meeting. The Lead Director serves as a liaison between the Chairman and the independent, non-management directors, and reviews and approves Board agendas and meeting schedules. The Lead Director has the authority to call meetings of the non-management directors.

CHIEF EXECUTIVE OFFICER AND CHAIRMAN POSITIONS

The Company’s Chief Executive Officer currently serves as Chairman of the Board. In his position as Chief Executive Officer, Mr. Long has primary responsibility for the day-to-day operations of the Company and provides consistent leadership on the Company’s key strategic objectives. In his role as Chairman, he sets the strategic priorities for the Board, presides over its meetings, and communicates its findings and guidance to management. The Board believes that the combination of these two roles is the most appropriate structure for the Company at this time because: (i) this structure provides more consistent communication and coordination throughout the organization, which results in a more effective and efficient implementation of corporate strategy; (ii) it unifies the Company’s strategy behind a single vision; (iii) the Chief Executive Officer is the most knowledgeable member of the Board regarding risks the Company may be facing and, in his role as Chairman,

 

 

 

 

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is able to facilitate the Board’s oversight of such risks; (iv) the structure has a long-standing history of serving the Company’s shareholders well through many economic cycles, business challenges, and succession of multiple leaders; (v) the Company’s current corporate governance processes, including those set forth in the various Board committee charters and corporate governance guidelines, preserve and foster independent communication amongst non-management directors as well as independent evaluations of and discussions with the Company’s senior management, including the Company’s Chief Executive Officer; and (vi) the role of the Lead Director, which fosters better communication among non‑management directors, fortifies the Company’s corporate governance practices, making the separation of the positions of Chairman of the Board and Chief Executive Officer unnecessary at this time.

COMMITTEES

Each of the committees of the Board operates under a charter, copies of which are available at the “Leadership & Governance” sublink of investor.arrow.com. As a matter of practice, the Board determined that a director that acts as a chair for a committee will not serve as a member of any other committee.

Audit Committee

 

 

 

Members

 

The Audit Committee Responsibilities

M.F. (Fran) Keeth, Chair

Philip K. Asherman

Andrew C. Kerin

Stephen C. Patrick

 

 

>    reviews and evaluates Arrow’s financial reporting process and other matters including its accounting policies, reporting practices, and internal accounting controls

>    monitors the scope and reviews the results of the audit conducted by Arrow’s independent registered public accounting firm

>    reviews the following with the Corporate Audit Department (which reports to the Audit Committee) and management:

>    the scope of the annual corporate audit plan;

>    the results of the audits carried out by the Corporate Audit Department, including its assessments of the adequacy and effectiveness of disclosure controls and procedures, and internal control over financial reporting; and

>    the sufficiency of the Corporate Audit Department’s resources

The Board has determined that Mrs. Keeth and Messrs. Asherman, Kerin, and Patrick are qualified as “audit committee financial experts,” as the term is defined in Item 407(d) of Regulation S-K.

 

 

 

 

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Compensation Committee

 

 

 

Members

 

The Compensation Committee Responsibilities

John N. Hanson, Chair

Barry W. Perry

Philip K. Asherman

Richard S. Hill

 

 

>    develops and reviews Arrow’s executive compensation philosophy

>    implements compensation philosophy through compensation programs and plans to further Arrow’s strategy, drive long-term profit growth, and increase shareholder value

>    reviews and approves the corporate goals and objectives relevant to executive compensation

>    subject to review and ratification by all non-management Board members, reviews and approves the base salary, annual cash incentives, performance and stock-based awards, retirement, and other benefits for the Company’s principal executives

>    reviews the performance of each of the NEOs and the Company as a whole

 

In 2016, the Compensation Committee directly engaged Pearl Meyer & Partners as a consultant to examine and report exclusively to the Compensation Committee on best practices in the alignment of compensation programs for the Chief Executive Officer and other members of senior management by providing competitive benchmarking data, analyses, and recommendations with regard to plan design and target compensation. Pearl Meyer & Partners does not provide any other services to the Company. These services to the Compensation Committee have not raised any conflicts of interest.

Corporate Governance Committee

 

 

 

Members

 

The Corporate Governance Committee Responsibilities

Gail E. Hamilton, Chair

Richard S. Hill

Andrew C. Kerin

Stephen C. Patrick

 

 

>    develops the corporate governance guidelines for Arrow

>    makes recommendations with respect to committee assignments and other governance issues

>    evaluates each Board member before recommending him or her to the full Board as nominees for re-election

>    reviews and makes recommendations to the Board regarding the compensation of non-management directors

>    identifies and recommends new candidates for nomination to fill existing or expected director vacancies

The Corporate Governance Committee considers shareholder recommendations of nominees for membership on the Board as well as those recommended by current directors, Company officers, employees, and others. Such recommendations may be submitted to Arrow’s Secretary, Gregory Tarpinian, at Arrow Electronics, Inc., 9201 East Dry Creek Road, Centennial, CO 80112, who will forward them to the Corporate Governance Committee. Possible candidates suggested by shareholders are evaluated by the Corporate Governance Committee in the same manner as other possible candidates.

 

 

 

 

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The Corporate Governance Committee retains the services of a third-party executive recruitment firm to assist its members in the identification and evaluation of potential nominees for the Board. The Corporate Governance Committee’s initial review of a potential candidate is typically based on any written materials provided to it. The committee then determines whether to interview the nominee. If warranted, the Corporate Governance Committee, the Chairman of the Board and Chief Executive Officer, the Lead Director, and others, as appropriate, interview the potential nominees.

The Corporate Governance Committee’s expectations as to the specific qualities and skills required for directors, including those nominated by shareholders, are set forth in Section 4 of Arrow’s Corporate Governance Guidelines (available at the “Leadership & Governance” sublink of investor.arrow.com).

ENTERPRISE RISK MANAGEMENT

The role of the Board is to promote the best interests of the Company and its shareholders by overseeing the management of Arrow’s business, assets, and affairs. Management is responsible for the day-to-day analysis and review of the risks facing the Company, including timely identification of risk and risk controls related to significant business activities, and developing programs and recommendations to determine the sufficiency of risk identification, the balance of potential risk to potential reward, and the appropriate manner in which to control risk. The Board implements its risk oversight responsibilities by having management provide regular briefing and information sessions on the significant risks that the Company faces and how the Company seeks to control those risks when appropriate. In some cases, risk oversight in specific areas is the responsibility of a Board committee, such as: the Audit Committee’s oversight of issues related to internal controls over financial reporting and regulatory compliance; the Corporate Governance Committee’s oversight of the Board’s succession planning and governance; and the Compensation Committee’s oversight of risks related to compensation programs. Arrow’s Chief Executive Officer has the ultimate management authority for enterprise risk management, including responsibility for capability development, risk identification and assessment, and policies and governance, as well as strategies and actions to address enterprise risk.

COMPENSATION RISK ANALYSIS

The Company believes that its executive compensation program reflects an appropriate mix of compensation elements and balances current and long-term performance objectives, cash and equity compensation, and risks and rewards associated with executive roles. The following features of the Company’s executive incentive compensation program illustrate this point:

>    performance goals and objectives reflect a balanced mix of performance measures to avoid excessive weight on a certain goal or performance measure;

 

>    annual and long-term incentives provide a defined range of payout opportunities (ranging from 0% to 200% of target for annual cash incentives for the NEOs and 0% to 185% for long-term incentives);

 

>    total direct compensation levels are heavily weighted on long-term, equity-based incentive awards that vest over a number of years;

 

>    equity incentive awards that vest over a number of years are granted annually so executives always have unvested awards that could decrease significantly in value if the business is not managed for the long-term;

 

>    the Company has implemented meaningful executive stock ownership guidelines so that the component of an executive’s personal wealth that is derived from compensation from the Company is significantly tied to the long-term success of the Company; and

 

>    the Compensation Committee retains discretion to adjust compensation based on the quality of Company and individual performance and adherence to the Company’s ethics and compliance programs, among other things.

 

 

 

 

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Based on the above combination of program features, the Company believes that: (i) its executives are encouraged to manage the Company in a prudent manner; and (ii) its incentive programs are not designed in a manner that encourages executives to take risks that are inconsistent with the Company’s best interests.

It is the Company’s opinion that its compensation policies and practices for all employees are not likely to create risks that could have a material adverse effect on the Company. The Company delivers, to its entire employee base in the aggregate, most of its compensation in the form of base salary, with smaller portions delivered in the form of cash incentives and long-term incentives. The Company’s cash incentive compensation plans, which represent the primary variable component of compensation, have been designed to drive performance of employees working in management, sales, and sales-related roles. These plans are typically tied to achievement of sales/financial goals that include maximums that prevent “windfall” payouts.

INDEPENDENCE

The Company’s corporate governance guidelines provide that the Board should consist primarily of independent, non-management directors. For a director to be considered independent under the guidelines, the Board must determine that the director does not have any direct or indirect material relationships with the Company and that he or she is not involved in any activity or interest that conflicts with or might appear to conflict with his or her fiduciary duties. A director must also meet the independence standards in the New York Stock Exchange listing rules, which the Board has adopted as its standard.

In addition to applying these guidelines, the Board will consider all relevant facts and circumstances in making an independence determination. For example, in making this determination regarding Gail Hamilton, the Board considered Ms. Hamilton’s role as an independent director of Ixia, a testing and security solution provider. In 2016, the Company purchased approximately $13.4 million of Ixia products and services, which is 2.7% of Ixia’s total sales. The Board determined that this relationship did not impair Ms. Hamilton’s independence because she is an independent director of Ixia, and receives compensation from Ixia only in connection with her services as such.

The Board has determined that all of its directors and nominees, other than Mr. Long, satisfy both the New York Stock Exchange’s independence requirements and the Company’s guidelines.

As required by the Company’s corporate governance guidelines and the New York Stock Exchange’s listing rules, all members of the Audit, Compensation, and Corporate Governance Committees are independent. Non-management directors and all members of the Audit Committee and Compensation Committee also satisfy the independence requirements.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No member of the Compensation Committee is a present or former employee of the Company. Additionally, no member of the Compensation Committee has a relationship that requires disclosure of a Compensation Committee interlock.

Meetings and Attendance

Consistent with the Company’s corporate governance guidelines, it is the practice of the Board for all of its non-management directors to meet separately (without Company management present) either prior to or after each regularly scheduled Board meeting, with the Lead Director presiding. In 2016, these non-management director meetings totaled four in number.

During 2016, there were five meetings of the Board, eight meetings of the Audit Committee, four meetings of the Compensation Committee, and four meetings of the Corporate Governance Committee. All of the directors attended 75% or more of all of the meetings of the Board and the committees on which they served. It is the

 

 

 

 

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policy of the Board that all of its members attend the Annual Meeting absent exceptional cause, and all members of the Board did so in 2016.

DIRECTOR COMPENSATION

The independent, non-management members of the Board (that is, all members except Mr. Long) received the following fees in cash:

 

 

 

 

 

 

 

 

Annual retainer & fee

    

$

80,000

Annual fee for service as Corporate Governance Committee Chair

 

$

10,000

Annual fee for service as Compensation or Audit Committee Chair

 

$

20,000

In addition to the cash fees, each non-management director received an annual grant of restricted stock units (“RSUs”) valued at $150,000, based on the fair market value of Arrow common stock on the date of grant. Further, the Lead Director received another annual award of RSUs valued at $30,000 in recognition of the additional responsibilities associated with such position.

The following Table shows the total dollar value of compensation received by all non-management directors in or in respect of 2016.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Management Director Compensation

Name

    

Fees Earned
($)(1)

    

Stock Awards
($)(2)

    

All Other
Compensation
($)(3)

    

Total 
($)

Barry W. Perry

 

80,000

 

180,000

 

 —

 

260,000

Philip K. Asherman

 

80,000

 

150,000

 

300

 

230,300

Gail E. Hamilton

 

90,000

 

150,000

 

 —

 

240,000

John N. Hanson

 

100,000

 

150,000

 

 —

 

250,000

Richard S. Hill

 

80,000

 

150,000

 

563

 

230,563

M.F. (Fran) Keeth

 

100,000

 

150,000

 

 —

 

250,000

Andrew C. Kerin

 

80,000

 

150,000

 

 —

 

230,000

Stephen C. Patrick

 

80,000

 

150,000

 

 —

 

230,000

 

(1)

Mr. Asherman deferred 100% of his retainer into the Non-Employee Director Deferred Compensation Plan; Mr. Kerin deferred 100% of his retainer in deferred stock units; and Mr. Perry deferred 50% of his retainer in deferred stock units and 50% of his retainer into the Non-Employee Director Deferred Compensation Plan. Messrs. Hanson and Patrick deferred 50% and 25%, respectively, of their retainers in deferred stock units.

 

(2)

Amounts shown under the heading “Stock Awards” reflect the grant date fair values of the restricted stock units granted to each director during 2016 computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation — Stock Compensation.

 

(3)

Amount shown under the heading “All Other Compensation” reflects spousal travel and expenses to attend Board meetings.

 

 

 

 

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Under the terms of the Non-Employee Director Deferred Compensation Plan, non-management directors may defer the payment of all or a portion of their annual retainers until the end of their service on the Board. Unless a different amount is chosen by the director, 50% of the director’s annual retainer fee is automatically deferred and converted to units of Arrow common stock. The units held by each director are included under the heading “Common Stock Units” in the Shares of Common Stock Beneficially Owned Table. The amounts deferred by each director for 2016, to the extent there are any, are included under the heading “Fees Earned” on the Non-Management Director Compensation Table. All deferrals under the Plan will be paid after termination of director service on the Board.

For stock awards outlined in the Non-Management Director Compensation Table, each director is given the option to have his or her RSUs converted to shares and sold any time beyond one year after grant. Ms. Hamilton and Messrs. Hanson, Hill, and Kerin have selected that option for their 2016 grants.

STOCK OWNERSHIP BY DIRECTORS

The Board believes that stock ownership by its directors strengthens their commitment to the long-term future of the Company and further aligns their interests with those of the shareholders generally. As a result, the corporate governance guidelines specifically state that directors are expected to own beneficial shares of the Company’s common stock having a value of at least three times their annual retainer fee (including shares owned outright and RSUs and common stock units in a deferred compensation account). All directors are in compliance with this requirement.

 

 

 

 

 

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AUDIT COMMITTEE REPORT

The Audit Committee represents and assists the Board by overseeing: (i) the Company’s financial statements and internal controls; (ii) the independent registered public accounting firm’s qualifications and independence; and (iii) the performance of the Company’s corporate audit function and of its independent registered public accounting firm.

The Audit Committee currently consists of four directors, all of whom are independent in accordance with New York Stock Exchange listing standards and other applicable regulations. The Board has determined that all four committee members, Mr. Asherman, Mrs. Keeth, Mr. Kerin, and Mr. Patrick, are “audit committee financial experts” as defined by the SEC.

Company management has the primary responsibility for the preparation of the financial statements and for the reporting process, including the establishment and maintenance of Arrow’s system of internal control over financial reporting. The Company’s independent registered public accounting firm is responsible for auditing the financial statements prepared by management, expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles, and auditing the Company’s internal control over financial reporting.

In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed with both management and the independent registered public accounting firm, the Company’s quarterly earnings releases, Quarterly Reports on Form 10-Q, and the 2016 Annual Report on Form 10-K. Such reviews included a discussion of critical or significant accounting policies, the reasonableness of significant judgments, the quality (not just the acceptability) of the accounting principles, the reasonableness and clarity of the financial statement disclosures, and such other matters as the independent registered public accounting firm is required to review with the Audit Committee under the standards promulgated by the Public Company Accounting Oversight Board. The Audit Committee also discussed with both management and the Company’s independent registered public accounting firm the design and efficacy of the Company’s internal control over financial reporting.

In addition, the Audit Committee received from and discussed with representatives of the Company’s independent registered public accounting firm the written disclosure and the letter required by the applicable requirements of the Public Company Accounting Oversight Board (regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence) and considered the compatibility of non-audit services rendered to Arrow with the independence of the Company’s independent registered public accounting firm. The Audit Committee also discussed with the independent registered public accounting firm the matters required to be discussed by the Statement on Auditing Standards No. 61, as amended, and as adopted by the Public Company Accounting Oversight Board in Rule 3200T.

The Audit Committee also discussed with the independent registered public accounting firm and Arrow’s corporate audit group the overall scope and plans for their respective audits. The Audit Committee periodically met with the independent registered public accounting firm, with and without management present, to discuss the results of their work, their evaluations of Arrow’s internal controls, and the overall quality of Arrow’s financial reporting.

In reliance on these reviews and discussions, the Audit Committee recommended to the Board that the audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2016 for filing with the SEC.

M.F. (Fran) Keeth, Chair

Philip K. Asherman

Andrew C. Kerin

Stephen C. Patrick

 

 

 

 

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PRINCIPAL ACCOUNTING FIRM FEES

The aggregate fees billed by Arrow’s principal accounting firm, Ernst & Young LLP, for auditing the annual financial statements and the Company’s internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and related regulations included in the Annual Report on Form 10‑K, the reviews of the quarterly financial statements included in the Quarterly Reports on Form 10-Q, statutory audits, assistance with and review of documents filed with the SEC, and consultations on certain accounting and reporting matters for each of the last two fiscal years are set forth as “Audit Fees” in the Table below.

Also set forth for the last two fiscal years are “Audit-Related Fees.” Such fees are for services rendered in connection with business acquisitions, employee benefit plan audits, and other accounting consultations. “Tax Fees” relate to assistance with tax return preparation, tax audits, and compliance in various tax jurisdictions around the world. “Other Fees” refer to advice, planning, and consulting other than as set forth above. Ernst & Young LLP did not provide any services to the Company related to financial information systems design or implementation, nor did it provide any personal tax work or other services for any of the Company’s executive officers or members of the Board.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2016

    

2015

Audit Fees

 

$

8,094,050

 

$

7,535,700

Audit-Related Fees

 

 

182,879

 

 

590,447

Tax Fees

 

 

660,608

 

 

559,871

Other Fees

 

 

2,000

 

 

3,000

Total

 

$

8,939,537

 

$

8,689,018

The amounts in the Table above do not include fees charged by Ernst & Young LLP to Marubun/Arrow, a joint venture between the Company and the Marubun Corporation. Audit fees for Marubun/Arrow totaled $430,088 in 2016 and $375,310 in 2015.

Consistent with the Audit Committee charter, audit, audit-related, tax, and other services were approved by the Audit Committee, or by a designated member thereof. The Audit Committee has determined that the provision of the non-audit services described above is compatible with maintaining Ernst & Young LLP’s independence.

 

 

 

 

 

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PROPOSAL 2: RATIFICATION OF
APPOINTMENT OF AUDITORS

THE BOARD RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP.

Shareholders are asked to ratify the appointment of Ernst & Young LLP as Arrow’s independent registered public accounting firm for the fiscal year ending December 31, 2017. Arrow expects that representatives of Ernst & Young LLP will be present at the Annual Meeting with the opportunity to make a statement if they desire to do so and that they will be available to answer appropriate inquiries raised at the Annual Meeting. Abstentions and broker non-votes are counted only for purposes of determining whether a quorum is present at the Annual Meeting.

 

 

 

 

 

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PROPOSAL 3: ADVISORY VOTE ON
EXECUTIVE COMPENSATION

THE BOARD RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE EXECUTIVE COMPENSATION AS DISCLOSED IN THIS PROXY STATEMENT.

The Board of Directors has decided that the Company will hold an advisory vote each year in connection with its Annual Meeting, until the next vote on the frequency of shareholder votes on the compensation of the NEOs (which is occurring this year – see Proposal 4 below) or until the Board of Directors otherwise determines that a different frequency for such advisory votes is in the best interests of the shareholders.

Shareholders have an opportunity to cast an advisory vote on compensation of the NEOs. This proposal, commonly known as “say-on-pay,” gives shareholders the opportunity to approve, reject, or abstain from voting with respect to the Company’s executive compensation programs and policies and the compensation paid to the NEOs.

The Company is requesting shareholder approval of the compensation of its NEOs as disclosed in this Proxy Statement. Proposal 3 requires the affirmative vote of a majority of votes cast at the Annual Meeting. For purposes of determining the number of votes cast with respect to this Proposal 3, only those votes cast “FOR” or “AGAINST” are included. Abstentions and broker non-votes are counted only for purposes of determining whether a quorum is present at the Annual Meeting. As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, this is an advisory vote, which means that this proposal is not binding on the Company. The Compensation Committee, however, values the opinions expressed by the Company’s shareholders and will carefully consider the outcome of the vote when making future compensation decisions for the Company’s NEOs.

The Company asks that you review in detail the disclosure contained in this Proxy Statement regarding compensation of the Company’s NEOs (including the Company’s Compensation Discussion and Analysis, the compensation tables, and the narrative disclosures that accompany such compensation tables) and indicate your support for the compensation of the Company’s NEOs that is described in this Proxy Statement.

Based on the foregoing, and as a matter of good corporate governance, the Board is asking shareholders to approve the following advisory resolution at the 2017 Annual Meeting:

“RESOLVED that the shareholders of the Company approve, on an advisory basis, the compensation of the Company’s Named Executive Officers disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and the related compensation tables, notes, and narrative in the Proxy Statement for the Company’s 2017 Annual Meeting.”

 

 

 

 

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PROPOSAL 4: ADVISORY VOTE ON THE FREQUENCY OF SHAREHOLDER VOTES ON EXECUTIVE COMPENSATION

THE BOARD RECOMMENDS A VOTE FOR A FREQUENCY PERIOD OF “ONE YEAR” FOR FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION.

The Company is asking its shareholders to cast a non-binding advisory vote on whether future advisory votes to approve the compensation paid to its NEOs should be held annually, biennially, or triennially.

The Board believes that the Company’s shareholders should have the opportunity to vote on the compensation of its NEOs annually. The Company’s executive compensation program is designed to support long-term value creation. While the Company believes that many of its shareholders think that the effectiveness of such programs cannot be adequately evaluated on an annual basis, the Board believes that at present it should receive advisory input from the Company’s shareholders each year. The Board believes that allowing shareholders to provide their input on the Company’s executive compensation philosophy, policies, and practices as disclosed in the Company’s proxy statement every year is a good corporate governance practice. Shareholders may vote on their preferred voting frequency or abstain by selecting from the options of “ONE YEAR,” “TWO YEARS,” “THREE YEARS,” or “ABSTAIN” on the proxy card when voting on this Proposal 4.

 

The frequency that receives the highest number of votes cast by shareholders will be the shareholder-approved frequency selection for the advisory vote on executive compensation. However, because this vote is advisory and not binding on the Board or the Company, the Board may decide that it is in the best interests of shareholders and the Company to hold an advisory vote on executive compensation more or less frequently than the frequency receiving the highest number of votes cast by shareholders.

 

 

 

 

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REPORT OF THE COMPENSATION COMMITTEE

The substantive discussion of the material elements of all of the Company’s executive compensation programs and the determinations by the Compensation Committee with respect to compensation and executive performance for 2016 are contained in the Compensation Discussion and Analysis that follows below. The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with the management representatives responsible for its preparation and the Compensation Committee’s advisors. In reliance on these reviews and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the definitive Proxy Statement on Schedule 14A for Arrow’s 2017 Annual Meeting for filing with the SEC and be incorporated by reference in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

 

John N. Hanson, Chair

Philip K. Asherman

Richard S. Hill

Barry W. Perry

 

 

 

 

 

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COMPENSATION DISCUSSION AND ANALYSIS (“CD&A”)

EXECUTIVE COMPENSATION

This CD&A explains the executive compensation program for the Company’s NEOs listed below. The CD&A also describes the Compensation Committee’s process for making pay decisions, as well as its rationale for specific decisions related to fiscal 2016.

 

 

 

Name

 

Title

Michael J. Long

 

Chairman, President, and Chief Executive Officer

Christopher D. Stansbury*

 

Senior Vice President, Chief Financial Officer

Paul J. Reilly*

 

Former Executive Vice President, Finance & Operations & Chief Financial Officer

Andrew D. King

 

President, Global Components

Gretchen K. Zech

 

Senior Vice President, Global Human Resources

Sean J. Kerins

 

President, Global Enterprise Computing Solutions

*Mr. Stansbury was named Senior Vice President, Chief Financial Officer effective May 11, 2016. Mr. Stansbury succeeds Mr. Reilly, who retired from the Company effective January 31, 2017.

EXECUTIVE SUMMARY

2016 Business Strategy and Highlights

It was a record-breaking year for the Company. Full-year sales, gross profit and earnings per share (“EPS”) reached all-time record levels. The Company delivered on its financial objectives to grow sales faster than the market, increase markets served, and grow profits faster than sales. Sales grew 2% and EPS on a diluted basis grew 8% compared to 2015. In terms of increasing the Company’s global presence, the number of countries served expanded to more than 90 in 2016 from approximately 85 in 2015.

 

The Company believes that a non-GAAP EPS calculation is appropriate in assessing and understanding the company’s operating performance and trends in the company’s business because it removes financial information outside the company’s core operating results.  As a result, all references to EPS in this Proxy Statement are to non-GAAP EPS.

Financial Performance Achievements

The Company’s organic investments, acquisitions, and strong execution resulted in 32% three-year adjusted EPS growth. This growth was third highest among the nine companies in the Arrow defined Peer Group. Three-year average return on invested capital (“ROIC”) was 2.4% above the three-year weighted average cost of capital (“WACC”). Total shareholder return for the three-year period was 31% compared to 29% for the S&P 500 stock index.

 

 

 

 

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Strategic Performance Achievements

Over the past three years, the Company completed 18 strategic acquisitions to broaden its product and service offerings, to further expand its geographic reach in the Asia Pacific region, and to increase its digital capabilities to meet the evolving needs of customers and suppliers. Aligned with the vision of guiding innovation forward, the Company is investing in emerging and adjacent markets. Further, during 2016, the Company made significant progress in its effort to attain its goal of sustaining strong financial performance on a long-term basis. It entered into new distribution agreements intended to help the Company maintain its leadership position in the electronic component and information technology solutions markets. These agreements include relationships with semiconductor, passive electromechanical component, information technology hardware and software, and cloud-based solution providers. Arrow believes the semiconductor and information technology industries are rapidly converging, driven by the adoption of Internet of Things products and solutions. To be a leader amidst this rapid pace of change, the Company believes it needs to broaden its capabilities and offer more complete solutions than the competition. It is also fostering innovation with early stage companies by establishing an exclusive agreement with crowd-funding leader Indiegogo to help innovators and inventors scale faster and bring products more quickly to the market. The Company has globally expanded this initiative through such efforts as establishing a new Asia-region headquarters in the Hong Kong Science Park, the center of innovation for the region.

2016 Shareholder Engagement and Say-On-Pay

In 2016, the Company’s executive compensation program for 2015 was submitted to an advisory vote of the shareholders and it received the support of approximately 90% of the total votes cast at the Annual Meeting. Based on the high level of approval received from shareholders and the Compensation Committee's determination that the Company’s existing programs were operating properly, the Company made no significant changes to its executive compensation programs in 2016. The Compensation Committee continues to carefully consider any shareholder feedback in its executive compensation decisions.

Best Compensation Practices and Policies

 

 

 

 

What We Do

What We Don’t Do

Heavy emphasis on variable compensation

×

No guaranteed salary increases

All long-term incentives vest based on
performance

×

No “single trigger” change-in-control (“CIC”) cash payments

Rigorous stock ownership guidelines

×

No tax gross ups on compensation equity

Independent compensation consultant

×

No option backdating or repricing

Annual risk assessments

×

No hedging or pledging

Non-equity incentives are provided based on incentive plans and are not solely discretionary

×

No extensive perquisites

 

 

 

 

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2016 Compensation Actions

The Compensation Committee took several actions in 2016 to ensure market-competitive NEO compensation, emphasizing performance-based compensation programs tied directly to value creation for the Company’s shareholders.    

Base Salary

The Committee targets a competitive positioning of NEO salaries relative to the defined Peer Group, the larger general industry, and individual professional development. As such, Ms. Zech and Mr. Kerins were both provided with salary increases to align them with a competitive market position based on their performance. Mr. Stansbury and Mr. King received base salary increases due to their promotions.

Annual Cash Incentives (“MICP”)

Annual cash incentives are based on the achievement of two key performance measures: EPS and strategic goals. For 2016, the Company’s EPS grew by 8%, accounting for the majority of the annual cash incentive payout. Achievement on strategic goals varied from 25% to 101%, depending on each individual NEO’s performance. This resulted in awards that were below target levels for some of the NEOs and above target levels for other NEOs.

Long-Term Incentive Plan (“LTIP”)

The majority of the compensation delivered to the NEOs continues to be in the form of equity under the LTIP. In 2016, the NEOs were awarded an LTIP grant with a mixture of 50% performance stock units (“PSUs”), 25% RSUs, and 25% stock options. The Committee believes the use of these equity vehicles creates strong alignment with the Company’s shareholders by linking NEO compensation closely to stock performance and the effective use of capital.

 

The performance period for the 2014 PSU awards concluded at the end of fiscal year 2016. The Company’s EPS growth relative to its peer companies and efficient use of capital resulted in a payout at 140% of target. Mr. King and Ms. Zech were also awarded one-time grants of RSUs in 2016 that vest in their entirety at the end of four years. The Company occasionally provides such grants as part of a promotion or for retention.

WHAT GUIDES THE COMPANY’S PROGRAM

As a large global provider of technology solutions operating in a highly competitive market, the Company views its people as critical assets and key drivers of its success. The Company’s executive compensation program is designed to motivate, attract, and retain talented executives who are capable of successfully leading the Company’s complex global operations and creating long-term shareholder value.

The program is structured to support Arrow’s strategic goals and reinforce high performance with a clear emphasis on accountability and performance-based pay for achievement of stated goals. As such, a significant portion of total direct compensation (“TDC”) is directly linked to the Company’s short- and long-term performance in the form of cash and equity-based incentive awards. This provides executives with an opportunity to earn above median compensation if the Company delivers superior results or below median when performance targets are not achieved. The portion of pay tied to performance is consistent with Arrow’s executive compensation philosophy and market practices.

 

 

 

 

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The Principal Elements of Pay: Total Direct Compensation

The Company’s compensation philosophy is supported by the following principal elements of pay:

 

 

 

Pay Element

How Paid

What It Does

Base Salary

Cash
(Fixed)

Provides a competitive rate ― approximately the 50th percentile paid for comparable jobs at similar companies ― relative to similar positions in the market, and enables the Company to attract and retain critical executive talent.

Annual Cash Incentive Awards

Cash
(Variable)

Rewards individuals for performance if they attain pre-established financial and strategic targets that are set by the Compensation Committee at the beginning of the year.

Long-Term Incentive Awards

Equity
(Variable)

Promotes a balanced focus on driving performance, retaining talent, and aligning the interests of the Company’s executives with those of its shareholders.

 

 

 

 

                                                  OTHER NEOs

 

 

 

 

 

 

 

 

 

 

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Pay Mix

The charts below show the target TDC of the Company’s CEO and  other NEOs for fiscal 2016 (rounded to the nearest whole percentages). Annual and long-term incentives play a significant role in the executives’ overall compensation at Arrow. They are essential to linking pay to performance, aligning compensation with organizational strategies and financial goals, and rewarding executives for the creation of shareholder value.

In fiscal 2016, in the aggregate, 80% of the NEOs’ target TDC was variable and tied to corporate performance, measured by EPS, ROIC, WACC, stock performance, and individual or team goals (86% for the Company’s CEO and an average of 75% for the other NEOs).

The following charts reflect the weighted average distribution of the elements of the CEO’s and remaining NEOs’ target compensation based on grant date values. The charts show that, excluding the value of the Supplemental Executive Retirement Plan (“SERP”), 86% of the Company’s CEO’s and 75% of the Company’s NEOs’ target compensation was performance-based, including 66% and 51% delivered in the form of Arrow equity to the CEO and NEOs, respectively. Tying pay to the Company’s performance reflects the Compensation Committee’s emphasis on “at-risk” compensation and accountability in support of the Company’s strategic goals. The Compensation Committee has weighted the pay components to establish a total compensation package that effectively motivates the Company’s leaders to drive superior performance in a manner that benefits the interests of shareholders but does not encourage excessive risk taking.

  

  

Why the Company Uses EPS in Both Short-Term and Long-Term Incentive Plans

EPS is an important financial performance metric in determining the outcomes of the Company’s annual and long-term incentive awards. The Compensation Committee believes that, even though the formulas and approach for determining annual and long-term incentive awards are different, having EPS as a common focus is in the best interest of shareholders. The Compensation Committee believes that it continues to result in shareholder value creation over time. It also allows Arrow to create greater line-of-sight for its NEOs, which facilitates an effective goal-setting process and makes discussions about performance against goals more meaningful for participants.

 

 

 

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The Company’s Decision-Making Process

The Role of the Compensation Committee

The Compensation Committee is comprised of independent, non-management members of the Board. The Compensation Committee works very closely with its independent consultant and management to examine the effectiveness of the Company’s executive compensation program throughout the year. Details of the Compensation Committee’s authority and responsibilities are specified in its charter, a copy of which is available at the “Leadership & Governance” sublink of investor.arrow.com.  

The Compensation Committee is responsible for developing and reviewing Arrow’s executive compensation philosophy. It implements that philosophy through compensation programs and plans designed to further Arrow’s strategy; drive long-term, profitable growth; and increase shareholder value. The Compensation Committee reviews and approves the corporate goals and objectives relevant to executive compensation and, subject to review and ratification by the other non-management members of the Board, reviews and approves the compensation and benefits for the CEO and the Company’s other NEOs. In making its decisions, the Compensation Committee also reviews the performance of each of the NEOs and the Company as a whole. It also considers the compensation of other Company executives, levels of responsibility, prior experience, breadth of knowledge, and job performance in reviewing target total compensation levels.

The Compensation Committee considers performance reviews prepared by the CEO for his direct reports and conducts its own performance review of the CEO. The Compensation Committee reviews the Company’s performance on the metrics relevant to the execution of its strategy and evaluates the CEO’s performance in light of that execution. For NEOs other than the CEO, the Compensation Committee’s review includes input provided by the CEO. The CEO’s compensation is evaluated in executive session without the CEO present. All decisions regarding NEO compensation are ultimately made by the Compensation Committee (subject to ratification by the Board in the case of the CEO’s compensation).

The Role of Management

Compensation Committee meetings are regularly attended by the Company’s CEO, the General Counsel, the Senior Vice President of Global Human Resources, and the CFO. Each of the management attendees provides the Compensation Committee with his or her specific expertise and the business and financial context necessary to understand and properly target financial and performance metrics. None of the members of management are present during the Compensation Committee’s deliberations regarding their own compensation, but the Company’s independent compensation consultant, Pearl Meyer & Partners, may participate in those discussions.

The Role of the Independent Compensation Consultant

The Compensation Committee has selected and engaged Pearl Meyer & Partners as its independent compensation consultant to provide the Compensation Committee with expertise on various compensation matters, including competitive practices, market trends, and specific program design. Additionally, Pearl Meyer & Partners provides the Compensation Committee with competitive data regarding market compensation levels at the 25th, 50th, and 75th percentiles for total compensation and for each major element of compensation.

Pearl Meyer & Partners reports directly to the Compensation Committee and does not provide any other services to the Company or its management. The Compensation Committee annually assesses the independence and any potential conflicts of interest of compensation advisors in accordance with applicable law and New York Stock Exchange listing standards. Pearl Meyer & Partners’ services to the Compensation Committee have not raised any conflicts of interests between the Compensation Committee, Arrow, and Arrow management.

 

 

 

 

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The Role of Peer Companies

To ensure that executive compensation plans and levels are appropriate and competitive, the Compensation Committee reviews analyses on peer company practices at various times throughout the year. Information on total compensation levels is considered in the context of peer performance analyses in order to effectively link compensation to absolute and relative performance. Through this process, and with input from its independent compensation consultant and management, the Compensation Committee determines appropriate benchmarking targets each year.

The Compensation Committee believes targeting TDC at the market 50th percentile is appropriate. For the purpose of Arrow’s annual competitive benchmarking study, Pearl Meyer & Partners reviews compensation data of the Peer Group (as defined below), as well as general industry survey data published by third parties. General industry survey data serves as a broader reference point for specific business units where the breadth and relevance of Peer Group data is not as comprehensive as desired, and in cases where the NEO’s position and responsibilities are broader than the typical benchmarks.

The Compensation Committee evaluates the appropriateness of each NEO’s compensation as positioned against the market 50th percentile based on factors that include Company and business unit performance, job scope, individual performance, time in position, and other relevant factors. To the extent the Compensation Committee deems that the compensation level associated with an NEO’s position versus the market is not aligned with the relevant factors, the Compensation Committee may choose to modify one or more of the NEO’s compensation components.

The Compensation Committee, with input from its independent compensation consultant, annually reviews and approves the compensation Peer Group to ensure it continues to meet the Company’s objectives. At the Compensation Committee’s request, Pearl Meyer & Partners conducted a comprehensive review of the Peer Group used in 2015, and no changes were made for 2016. The Peer Group companies reflect a combination of direct and broader industry peers and are as follows:

 

 

 

Peer Group Companies

Anixter International Inc.

  

Ingram Micro Inc.

Avnet, Inc.

 

Jabil Circuit, Inc.

Celestica Inc.

 

Tech Data Corporation

Flextronics International Ltd.

 

WESCO International, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

Overall Peer Group Data (Millions)

Percentile

  

Revenue*

  

Market Cap**

25th

 

7,551

 

2,907

50th

 

21,386

 

3,799

75th

 

26,259

 

5,886

Arrow

 

23,825

 

6,387

Percentile Rank

 

56th

 

88th

*Trailing Twelve Months

 

 

 

 

**As of 12/31/16 (or 12/5/16 for Ingram Micro - the company's last trading date)

 

 

 

 

 

 

 

 

 

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The Compensation Committee also reviews other benchmarking data when deemed necessary and appropriate. This data can cover a variety of areas such as equity vesting practices, the prevalence of performance metrics among peer companies, types of equity vehicles used by peer companies, severance practices, equity burn rates, and any other market data the Compensation Committee believes it needs to consider when evaluating the Company’s executive compensation program.

THE 2016 EXECUTIVE COMPENSATION PROGRAM IN DETAIL

This section of the CD&A provides details about the three principal elements of pay ― base salary, annual cash incentive awards, and long-term incentive awards. Arrow’s pay-for-performance focus is evident in the substantially greater weight given to incentive-based compensation versus fixed compensation.

Base Salary

Base salary represents annual fixed compensation and is a standard element of compensation necessary to attract and retain talent. To attract the necessary executive talent and maintain a stable executive team, the Compensation Committee generally targets executive officer base salaries at approximately the 50th percentile for comparable jobs at similar companies. In making base salary decisions, the Committee considers the CEO’s recommendations, each NEO’s position and level of responsibility within the Company, as well as a number of other factors, including:

>    Individual performance;

 

>    Company or business unit performance;

 

>    Job responsibilities;

 

>    Relevant benchmarking data; and

 

>    Internal budget guidelines.

Subject to ratification by the Board, the CEO’s base salary is determined by the Compensation Committee in executive session based on its evaluation of his individual performance, the Company’s performance, and relevant benchmarking data. The Compensation Committee, in consultation with its independent compensation consultant, met in December 2015 to conduct its annual review of base salaries and determined the appropriate annual base salary rate for each then current NEO to be as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name

    

2015

    

2016

Michael J. Long

 

$

1,150,000

 

$

1,150,000

Christopher D. Stansbury *

 

 

 —

 

$

500,000

Paul J. Reilly

 

$

700,000

 

$

700,000

Andrew D. King *

 

 

 —

 

$

500,000

Gretchen K. Zech

 

$

420,200

 

$

455,000

Sean J. Kerins

 

$

500,000

 

$

550,000

* Messrs. Stansbury and King were not NEOs during 2015. Therefore, their base salaries for 2015 are not reflected in this chart. Mr. Stansbury’s base salary for 2016 was effective May 11, 2016, the date of his promotion to Senior Vice President, Chief Financial Officer.

In 2016, Mr. Kerins and Ms. Zech received salary increases of 10% and 8%, respectively. These increases were intended to keep salaries competitive and consistent with the Company’s compensation philosophy and the performance of the incumbent. Messrs. Stansbury’s and King’s base salaries were each set at $500,000 as a result of their promotions and are representative of their increased responsibilities in each of their new roles.

 

 

 

 

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Annual Cash Incentives: The Management Incentive Compensation Plan (“MICP”)

Arrow’s annual cash incentives are designed to reward individuals for performance against pre-established targets that are set by the Compensation Committee at the beginning of the year. Each of the Company’s NEOs is assigned an annual cash incentive target. Annual cash incentive targets are established based on market compensation analysis within the context of targeting TDC at the 50th percentile, provided that the actual incentive levels may be higher or lower than the 50th percentile based upon a number of factors, such as Company and individual performance. Actual award payouts depend on the achievement of pre-established performance objectives and can range from 0% to 200% of target award amounts. Target annual award opportunities were established by the NEO’s level of responsibility and his or her ability to impact overall results. The Compensation Committee also considers market data in setting target award amounts.

2016 MICP Performance Objectives and Results

The annual cash incentive for each of the NEOs follows the structure of the Company’s MICP, which is based on a combination of financial and strategic goals. The financial goals account for 70% and the strategic goals account for 30% of the total annual cash incentive award.

Strategic Goals

Each NEO can earn between 0% and 200% based on individual performance against his or her pre-established, strategic goals. The strategic goals are designed to be specific and measurable and to further the objectives of the Company. For 2016, the strategic component of the award was based on individual and/or team performance goals.

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Financial Goals

Each NEO can earn between 0% and 200% based on the achievement of pre-established, financial goals. For 2016, the financial performance metric was EPS. The Compensation Committee selected EPS to reinforce the Company’s overall profit objectives, based on the rationale that EPS is a primary driver of shareholder value.

The 2016 annual cash incentive metrics and results against those metrics were as follows: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Performance

  

 

Achievement

  

 

 

  

 

Weighted

 

Performance Metric

 

Range

 

 

Percentage

 

 

Weighting

 

 

Achievement %

 

Arrow EPS

 

$

4.63 - 7.71

**  

 

103.90

%  

 

70

%  

 

72.73

%

Strategic Goals

 

 

0 - 200

%  

 

24.75 - 100.70

%  

 

30

%  

 

7.43 - 30.21

%

Total

 

 

 —

 

 

 —

 

 

100

%  

 

80.16 - 102.94

%

**     Achievement of each performance metric at the midpoint of the performance range would result in a payout of 100% of the target opportunity for such metric and all other payments are interpolated based on the applicable performance range. For example, with respect to the EPS metric, if EPS equals $6.17, the resulting payout would be 100% of the target opportunity. Achievement below $4.63 or above $7.71 would result in payouts of 0% or 200% of the target opportunity, respectively, on that performance metric.

The Company attained an EPS performance of $6.23, resulting in an achievement percentage of 103.9% for each of the NEO’s financial goals, except for Mr. Stansbury, whose financial achievement percentage was 101.79%. The NEOs can also earn between 0% and 200% of the 30% strategic component of the MICP based on the Compensation Committee’s evaluation of each individual’s performance against his or her pre-established, strategic goals. The strategic goals are designed to be specific and measurable and to further the objectives of the Company. For 2016, the strategic component of the MICP was based on individual and/or team performance goals.

 

 

 

 

 

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In regards to Mr. Long, the Compensation Committee applied the same basic methodology described above, including the same 70% financial component based on the above EPS performance range, and as stated in the table above he attained 103.9% achievement on his financial goal. The Compensation Committee tied the 30% strategic component for Mr. Long’s annual cash incentive to individual contributions made relative to the Company’s strategic business imperatives. Based on the Compensation Committee's assessment of Mr. Long’s successful performance on his strategic objectives, it awarded him 100.7% on his individual performance and team goals. This resulted in a total weighted achievement percentage of 102.9% for Mr. Long and an annual cash incentive of $1,750,000. The performance goal details under the requirements of Section 162(m) of the Internal Revenue Code are discussed under the heading “Tax and Accounting Considerations.”

The table below provides a summary of the awards earned for EPS and strategic goal performance by each NEO:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Strategic

 

 

 

 

 

 

    

 

 

    

 

    

Goal

 

    

 

    

Total

 

 

Target Award

 

EPS Payout 

 

Payout

 

 

Total

 

 Payout as %

Name

 

 ($)

 

(70% Weighting)

 

(30% Weighting)

 

 

 Payout ($)

 

of Target

Michael J. Long

 

 

1,700,000

 

103.90%

 

100.70%

 

 

1,750,000

 

102.94%

Christopher D. Stansbury

 

 

446,315

 

101.79%

 

76.14%

 

 

428,273

 

95.96%

Paul J. Reilly

 

 

675,000

 

103.90%

 

100.00%

 

 

693,428

 

102.73%

Andrew D. King

 

 

400,000

 

103.90%

 

24.75%

 

 

320,640

 

80.16%

Gretchen K. Zech

 

 

455,000

 

103.90%

 

100.00%

 

 

467,422

 

102.73%

Sean J. Kerins

 

 

450,000

 

103.90%

 

41.50%

 

 

383,310

 

85.18%

*Mr. Stansbury was promoted to Senior Vice President, Chief Financial Officer effective May 11, 2016. The amounts in the table above reflect a prorated payment of $98,458 from his prior role, and $329,815 as Senior Vice President, Chief Financial Officer.   

 

 

 

 

 

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PROXY STATEMENT

 

Long-Term Incentive Awards

Long-term incentive awards are designed to promote a balanced focus on driving performance, retaining talent, and aligning the interests of the Company’s NEOs with those of its shareholders. Under the LTIP, awards are expressed in dollars and normally granted annually. The LTIP includes a mix of PSUs, stock options, and RSUs.

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PSUs

     

Stock Options

     

RSUs

PSUs are rewards for three-year EPS growth relative to Arrow’s Peer Group Companies (weighted at 60%), as adjusted for Arrow’s three-year ROIC in excess of WACC (weighted at 40%).

>     The number of PSUs earned (from 0% to 185% of target number of PSUs granted) is based on the Company’s performance over a three-year period

>     Vesting is contingent upon the Company achieving a 2016 net income, as adjusted, greater than zero

>     PSUs are paid out in shares of Arrow stock at the end of the three-year vesting term

 

Stock Options reward price appreciation.

>     Stock options vest in four equal annual installments beginning on the first anniversary of the grant

>     Exercise price is determined by using the closing price on date of grant

>     Options expire ten years from grant date

 

RSUs support retention.

>     RSUs generally vest in four equal annual installments beginning on the first anniversary of the grant

>     Vesting is contingent upon the Company achieving a net income, as adjusted, greater than zero in the fiscal year of the initial grant

>     RSUs are paid out in shares of Arrow stock when vested

 

 

 

 

 

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2017 ANNUAL

PROXY STATEMENT

 

2016 Target LTIP Award Opportunities

The Compensation Committee makes LTIP award decisions for executives based on input from the CEO (other than for himself), prior grant history, the Compensation Committee’s own assessment of each executive’s contribution, potential contribution, performance during the prior year, peer compensation benchmarking analysis, and the long-term incentive award practices of the Peer Group discussed above. The target LTIP award level is set at approximately the 50th percentile of the benchmark data gathered and adjusted by the Compensation Committee’s assessment of each executive based on the elements described above.

The Compensation Committee also evaluates the Chief Executive Officer’s performance in light of the factors discussed above to determine his annual long-term incentive award. That award and those for the other NEOs for 2016 are set forth below. For more detail, including the expense to the Company associated with each grant, see the Grants of Plan-Based Awards Table.

The Compensation Committee generally makes annual equity grants at the first regularly scheduled Board meeting of the calendar year. Hiring and promotion grants are made at the next regularly scheduled meeting of the Board that follows such an event, and in instances where retention awards or other ad-hoc awards are advisable, grants are made at the appropriate meeting. All stock option grants are made with exercise prices equal to the value of the Company stock on the grant date closing price to ensure participants derive value only as shareholders realize corresponding gains over an extended time period. None of the options granted by the Company, as discussed throughout this Proxy Statement, have been repriced, replaced, or modified in any way since the time of the original grant. The Company’s three-year average burn rate of 1.21% of weighted average basic common shares outstanding reflects its prudent management of equity shares used under its LTIP. The 2016 LTIP awards were granted as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name

    

PSUs

    

Stock Options

    

RSUs

Michael J. Long

 

48,733

 

81,840

 

24,366

Christopher D. Stansbury *

 

3,101

 

5,208

 

9,784

Paul J. Reilly

 

14,177

 

23,808

 

7,088

Andrew D. King *

 

8,861

 

14,880

 

13,290

Gretchen K. Zech *

 

6,114

 

10,267

 

11,916

Sean J. Kerins

 

8,861

 

14,880

 

4,430

* Includes special RSU grants for promotions for Messrs. Stansbury and King and a retention grant for Ms. Zech.

A Closer Look at PSUs: 2016 Grants

The 2016 PSU awards are tied to Arrow’s three-year (2016-2018) EPS growth as compared to the EPS growth of Arrow’s Peer Group and Arrow’s three-year average ROIC in excess of its three-year WACC. The Compensation Committee chose EPS and ROIC as performance metrics in order to reward participants for successfully balancing profit maximization and the efficient use of capital, both key drivers in creating shareholder value.

The EPS variable is weighted at 60%, and the ROIC/WACC variable at 40%. Provided the Company achieves a net income, as adjusted, of greater than zero, participants may earn up to 185% of their targeted PSUs based

 

 

 

 

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