DEF 14A 1 d338376ddef14a.htm DEFINITIVE PROXY STATEMENT DEFINITIVE PROXY STATEMENT
Table of Contents

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 Under Rule 14a-12  

Altria Group, 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: April 6, 2017

 


Table of Contents

 

LOGO


Table of Contents

LOGO

6601 West Broad Street

Richmond, Virginia 23230

 

Dear Fellow Shareholder:

 

 

 

I am pleased to invite you to join us at the 2017 Annual Meeting of Shareholders of Altria Group, Inc. to be held on Thursday, May 18, 2017 at 9:00 a.m., Eastern Time, at the Greater Richmond Convention Center, 403 North 3rd Street, Richmond, Virginia 23219.

 

At this year’s meeting, we will vote on the election of 11 directors, the ratification of the selection of PricewaterhouseCoopers LLP as Altria’s independent registered public accounting firm and, if properly presented, one shareholder proposal. We will also conduct non-binding advisory votes on both the compensation of Altria’s named executive officers and the frequency of future votes on named executive officer compensation. We will also report on our business, and shareholders will have an opportunity to ask questions.

 

To attend the meeting, an admission ticket and government-issued photo identification are required. To request an admission ticket, please follow the instructions on page 10 in response to Question 16. One immediate family member who is 21 years of age or older may accompany a shareholder as a guest.

  LOGO

 

We use the U.S. Securities and Exchange Commission rule that allows companies to furnish proxy materials to their shareholders over the Internet. We believe this expedites shareholders receiving proxy materials, lowers costs and conserves natural resources. We thus are mailing to many shareholders a Notice of Internet Availability of Proxy Materials, rather than a paper copy of the Proxy Statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. The Notice of Internet Availability explains how to access the proxy materials online, vote online and obtain a paper copy of our proxy materials.

 

Your vote is very important. I encourage you to complete, sign and return your proxy card, or use telephone or Internet voting prior to the meeting, so that your shares will be represented and voted at the meeting even if you cannot attend.

 

April 6, 2017

 

Sincerely,

 

LOGO

Martin J. Barrington

Chairman, Chief Executive Officer and President

 

 

For further information about the 2017 Annual Meeting,

please call 1-804-484-8838

 


Table of Contents

LOGO

 

NOTICE OF 2017 ANNUAL MEETING OF

SHAREHOLDERS OF ALTRIA GROUP, INC.

 

DATE AND TIME:

Thursday, May 18, 2017 at 9:00 a.m., Eastern Time

 

PLACE:

The Greater Richmond Convention Center

403 North 3rd Street

Richmond, Virginia 23219

 

ITEMS OF BUSINESS:

1)

To elect as directors the 11 nominees named in the accompanying Proxy Statement.

 

  2) To ratify the selection of PricewaterhouseCoopers LLP as Altria’s independent registered public accounting firm for the fiscal year ending December 31, 2017.

 

  3) To hold a non-binding advisory vote to approve the compensation of Altria’s named executive officers.

 

  4) To hold a non-binding advisory vote on whether future advisory votes to approve the compensation of Altria’s named executive officers should occur every one, two or three years.

 

  5) To vote on one shareholder proposal, if properly presented at the meeting.

 

  6) To transact other business properly coming before the meeting.

 

WHO CAN VOTE:

You are entitled to vote if you were a shareholder of record at the close of business on Monday, March 27, 2017.

 

VOTING:

We urge you to participate in the meeting, either by attending and voting in person or by voting through other acceptable means as promptly as possible. You may vote by telephone, through the Internet or by mailing your completed and signed proxy card (or voting instruction form, if you hold your shares through a broker, bank or other nominee). Each share is entitled to one vote on each matter to be voted upon at the annual meeting. Your vote is important and we urge you to vote.

 

MEETING ADMISSION:

If you plan to attend the meeting, you must request an admission ticket in advance. To request an admission ticket, please follow the instructions on page 10 in response to Question 16 of the accompanying Proxy Statement.

 

2016 ANNUAL REPORT:

A copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 accompanies this Proxy Statement.

 

DATE OF DISTRIBUTION:

This Notice, the Proxy Statement and proxy card are first being made available or mailed to shareholders on or about April 6, 2017.

 

   By Order of the Board of Directors,
  

 

LOGO

   W. Hildebrandt Surgner, Jr.
   Corporate Secretary

April 6, 2017

Richmond, Virginia

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS

FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 18, 2017

Altria’s Notice of Annual Meeting, Proxy Statement and Annual Report on Form 10-K

for the fiscal year ended December 31, 2016 are available, free of charge, at www.altria.com/proxy.


Table of Contents

PROXY STATEMENT – TABLE OF CONTENTS

 

PROXY STATEMENT SUMMARY

 

    

 

1

 

 

 

 

QUESTIONS AND ANSWERS ABOUT THE 2017 ANNUAL MEETING AND VOTING

 

  

 

 

 

 

6

 

 

 

 

 

BOARD AND GOVERNANCE MATTERS

     11  

 

Board Responsibility

     11  

Board Meetings and Attendance

     11  

Board Composition and Succession Planning

     11  

Board Leadership Structure and Governance

     12  

Board and Committee Self-Evaluations

     13  

Advancement Planning and CEO Succession

     13  

Governance Guidelines, Policies and Codes

     13  

Committees of Our Board of Directors

     14  

Our Board’s Risk Oversight Role

     15  

Directors

     16  

Process for Nominating Directors

     16  

Director Qualifications and Board Diversity

     17  

Director Independence Determinations

     17  

Director Compensation

     19  

Stock Ownership Guidelines for Non-Employee Directors and Prohibition on Hedging and Pledging

 

    

 

20

 

 

 

 

AUDIT COMMITTEE MATTERS

     21  

 

Audit Committee Report for the Year Ended December 31, 2016

     21  

Independent Registered Public Accounting Firm’s Fees

     22  

Pre-Approval Policy

 

    

 

22

 

 

 

 

COMPENSATION COMMITTEE MATTERS

     23  

 

Introduction

     23  

Compensation Committee Interlocks and Insider Participation

     23  

Compensation Committee Procedures

     23  

Compensation Committee Report for the Year Ended December 31, 2016

 

    

 

24

 

 

 

 

EXECUTIVE COMPENSATION

     25  

 

Compensation Discussion and Analysis

     26  

Introduction

     26  

Overview

     26  

Compensation Philosophy

     26  

Say on Pay

     26  

Shareholder Engagement

     26  

Financial Performance

     26  

Pay For Performance

     29  

2016 Performance of NEOs

     29  

Executive Compensation Design

     31  

Decision-Making Process

     35  

2016 Executive Compensation Program Decisions

     36  

Other Considerations

     42  

Stock Ownership and Holding Requirements and Prohibition on Hedging and Pledging

     42  

“Clawback” Policy Regarding the Adjustment or Recovery of Compensation

     43  

Tax and Accounting Considerations

     43  

 

ALTRIA GROUP, INC. – Proxy Statement    i


Table of Contents

PROXY STATEMENT – TABLE OF CONTENTS

 

 

Compensation Tables

     44  

Summary Compensation Table

     44  

Grants of Plan-Based Awards during 2016

     47  

Outstanding Equity Awards as of December 31, 2016

     48  

Stock Option Exercises and Stock Vested during 2016

     49  

Pension Benefits

     50  

Non-Qualified Deferred Compensation

     53  

Payments upon Change in Control or Termination of Employment

 

    

 

54

 

 

 

 

PROPOSALS REQUIRING YOUR VOTE

     58  

 

Proposal 1 – Election of Directors

     58  

Proposal 2 –  Ratification of the Selection of Independent Registered Public Accounting Firm

     64  

Proposal 3 –  Non-Binding Advisory Vote to Approve the Compensation of Altria’s Named Executive Officers

     65  

Proposal 4 –  Non-Binding Advisory Vote on the Frequency of Future Advisory Votes to Approve the Compensation of Altria’s Named Executive Officers

     66  

Proposal 5  – Shareholder Proposal Regarding Advertising in Minority/Low Income Neighborhoods

 

    

 

67

 

 

 

 

OWNERSHIP OF EQUITY SECURITIES OF ALTRIA

     69  

 

Directors and Executive Officers

     69  

Certain Other Beneficial Owners

     70  

Section  16(a) Beneficial Ownership Reporting Compliance

 

    

 

70

 

 

 

 

RELATED PERSON TRANSACTIONS AND CODE OF CONDUCT

 

    

 

71

 

 

 

 

QUESTIONS AND ANSWERS ABOUT COMMUNICATIONS, ALTRIA DOCUMENTS AND SHAREHOLDER PROPOSALS

 

    

 

72

 

 

 

 

OTHER BUSINESS

 

    

 

74

 

 

 

 

ANNEX A – ALTRIA GROUP, INC. NON-GAAP FINANCIAL MEASURES

 

    

 

A-1

 

 

 

 

PRE-REGISTRATION FORM FOR 2017 ANNUAL MEETING OF SHAREHOLDERS

 

        

 

ii    ALTRIA GROUP, INC. – Proxy Statement


Table of Contents

PROXY STATEMENT SUMMARY

This summary highlights information about Altria Group, Inc. (“Altria,” “we,” “our” or “us”) and certain information contained elsewhere in this proxy statement (“Proxy Statement”) for Altria’s 2017 Annual Meeting of Shareholders (the “2017 Annual Meeting” or the “meeting”). This summary does not contain all of the information that you should consider in voting your shares. You should read the entire Proxy Statement carefully before voting.

VOTING MATTERS AND BOARD RECOMMENDATIONS

 

Proposal        

Board Vote

Recommendation

  

Page

Reference

 

Proposal 1  –  

 

 

 

Election of Directors

 

  

 

FOR each nominee

 

  

 

58

 

 

Proposal 2  –  

 

 

Ratification of the Selection of Independent Registered Public Accounting Firm

 

  

 

FOR

  

 

64

 

Proposal 3  –  

 

 

Non-Binding Advisory Vote to Approve the Compensation of Altria’s Named Executive Officers

 

  

 

FOR

  

 

65

 

Proposal 4  –  

 

 

Non-Binding Advisory Vote on the Frequency of Future Advisory Votes to Approve the Compensation of Altria’s Named Executive Officers

 

  

 

1 YEAR

  

 

66

 

Proposal 5  –  

 

 

Shareholder Proposal Regarding Advertising in Minority/Low Income Neighborhoods

 

  

 

AGAINST

  

 

67

CASTING YOUR VOTE

 

     How to Vote   

Shareholders of Record

(Shares registered in your name with
Altria’s transfer agent, Computershare)
and Employee Benefit Plan Participants

  

Street Name Holders

(Shares held through a Broker,

Bank or Other Nominee)

LOGO

Internet

 

 

 

Visit the applicable voting website:

 

 

  

www.investorvote.com/altria

 

 

  

www.proxyvote.com

 

 

LOGO

Mobile Device

 

Scan the QR Code to vote using

your mobile device:

  

LOGO

 

  

Refer to voting

instruction form.

 

 

 

LOGO

Telephone

 

 

Within the United States, U.S. Territories and Canada, call toll-free:

 

  

1-800-652-VOTE (8683)

 

  

Refer to voting

instruction form.

 

LOGO

Mail

 

 

 

 

Complete, sign and mail your proxy card or voting instruction form in the self-addressed envelope provided.

 

LOGO

In Person

 

  For instructions on attending the 2017 Annual Meeting in person, please see Question 16 on page 10.

 



 

ALTRIA GROUP, INC. – Proxy Statement    1

 



Table of Contents

PROXY STATEMENT SUMMARY

 

BOARD NOMINEES

You are being asked to vote on the following 11 nominees for director. All directors are elected annually by a majority of the votes cast. Information about each director’s experiences, qualifications and skills can be found beginning on page 58.

 

Name   Age  

Director

Since

  Principal Occupation   Independent   

Board

Committee

Membership*

 

Gerald L. Baliles

 

 

76

 

 

2008

 

 

Retired Director and Chief Executive Officer, Miller Center of Public Affairs

 

 

 

Yes

  

 

CC, EC, IC, NC

 

Martin J. Barrington

 

 

63

 

 

2012

 

 

Chairman, Chief Executive Officer and President, Altria Group, Inc.

 

 

 

No

  

 

EC

 

John T. Casteen III

 

 

 

73

 

 

 

2010

 

 

 

President Emeritus, University of Virginia

 

 

 

Yes

 

  

 

AC, IC, NC

 

 

Dinyar S. Devitre

 

 

 

69

 

 

 

2008

 

 

 

Former Chief Financial Officer, Altria Group, Inc.

 

 

 

Yes

 

  

 

FC, IC

 

 

Thomas F. Farrell II

 

 

62

 

 

2008

 

 

Chairman, President and Chief Executive Officer, Dominion Resources, Inc.

 

 

 

Yes

  

 

CC, EC, NC

 

Debra J. Kelly-Ennis

 

 

60

 

 

2013

 

 

Retired President and Chief Executive Officer, Diageo Canada, Inc.

 

 

 

Yes

  

 

AC, IC, NC

 

W. Leo Kiely III

 

 

 

70

 

 

 

2011

 

 

 

Retired Chief Executive Officer, MillerCoors LLC

 

 

 

Yes

 

  

 

CC, EC, FC, IC

 

 

Kathryn B. McQuade

 

 

60

 

 

2012

 

 

Retired Executive Vice President and Chief Financial Officer, Canadian Pacific Railway Limited

 

 

 

Yes

  

 

AC, CC, FC

 

George Muñoz

 

 

65

 

 

2004

 

 

Principal, Muñoz Investment Banking Group, LLC and Partner, Tobin & Muñoz

 

 

 

Yes

  

 

AC, EC, FC, NC

 

Nabil Y. Sakkab

 

 

69

 

 

2008

 

 

Retired Senior Vice President, Corporate Research and Development, The Procter & Gamble Company

 

 

 

Yes

  

 

EC, FC, IC, NC

 

Virginia E. Shanks

 

 

56

     

 

Executive Vice President and Chief Administrative Officer, Pinnacle Entertainment, Inc.

 

 

 

Yes

    

 

* AC    Audit Committee

   CC    Compensation Committee

   

EC    Executive Committee

FC    Finance Committee

   

IC      Innovation Committee

NC    Nominating, Corporate Governance & Social Responsibility Committee

CORPORATE GOVERNANCE HIGHLIGHTS

 

    Annual election of directors

 

    Proxy access right

 

    Directors elected by majority voting

 

    10 of our 11 director nominees are independent

 

    Resignation policy for directors in failed elections

 

    Director retirement guidelines

 

    Independent presiding director

 

    All NYSE-required Board committees consist solely of independent directors
  Regular executive sessions of independent directors

 

  Over 84% average Board and Committee meeting attendance in 2016

 

  Annual Board and Committee self-evaluations

 

  Comprehensive new director orientation

 

  Ongoing director education programs

 

  Comprehensive Code of Conduct and Corporate Governance Guidelines
  No shareholder rights plan or “poison pill”

 

  Robust political activity disclosure and compliance program

 

  Board participation in executive succession planning

 

  Strong pay-for-performance philosophy

 

  Compensation “clawback” policy

 

  Stock ownership guidelines for directors and executive officers  

 

  Policies prohibiting hedging and pledging of our shares  

 

 

 

 



 

      2    ALTRIA GROUP, INC. – Proxy Statement


Table of Contents

PROXY STATEMENT SUMMARY

 

SHAREHOLDER ENGAGEMENT

We value our shareholders’ perspective on our businesses and each year interact with shareholders through numerous engagement activities. In 2016, these included three investor road shows, six investor conferences, numerous individual investor meetings and our 2016 Annual Meeting of Shareholders (“2016 Annual Meeting”). We also sought the views of investors on our executive compensation program. We value the investor perspectives that we gain through these activities.

Our Investor Relations department is the contact point for shareholder interaction with us. Shareholders may also access investor information about Altria through our website at www.altria.com/investors. For questions concerning Investor Relations, please call 804-484-8222 or e-mail us from the Contact Us section available on our website (www.altria.com/ContactUs).

2016 BUSINESS HIGHLIGHTS

We had another outstanding year. We grew our earnings in line with our long-term objectives while returning a large amount of cash to shareholders, improving our balance sheet and strengthening our organizational capability. Highlights from 2016 include the following:

 

  Our total shareholder return (“TSR”) of 20.5% outpaced both the S&P 500 and the S&P Food, Beverage & Tobacco Index, marking the fourth consecutive year that TSR exceeded 20%.

 

LOGO

 

Source:   

Bloomberg Daily Return (December 31, 2015 -

December 31, 2016)

  Source:    Bloomberg Daily Return (December 31, 2013 - December 31, 2016)      
Note:   

Assumes reinvestment of dividends as of the

ex-dividend date.

  Note:   

Assumes reinvestment of dividends as of the

ex-dividend date.

     

 

 

  We continued to deliver against our two long-term financial goals of growing adjusted diluted earnings per share (“EPS”) (1) at an average annual rate of 7% to 9% and maintaining a target dividend payout ratio of approximately 80% of adjusted diluted EPS.

 

    Full-year adjusted diluted EPS, which excludes the impact of special items, grew 8.2%, in line with our long-term objectives.

 

    We paid over $4.5 billion in dividends in 2016, consistent with our goal of paying out approximately 80% of adjusted diluted EPS.

 

    In August 2016, our Board of Directors (“Board of Directors” or “Board”) raised the regular quarterly dividend by 8.0%, which was our 50th dividend increase in the last 47 years.

 

    Also during 2016, we repurchased 16.2 million shares at an average price of $63.48 for a total cost of approximately $1 billion.

 

 

(1) Adjusted diluted EPS is a financial measure that is not consistent with generally accepted accounting principles in the United States (“GAAP”). See Annex A to this Proxy Statement for information regarding non-GAAP financial measures used in this Proxy Statement and reconciliations of such non-GAAP financial measures to the most directly comparable GAAP financial measures.

 



 

ALTRIA GROUP, INC. – Proxy Statement    3

 



Table of Contents

PROXY STATEMENT SUMMARY

 

 

LOGO

 

  Our core businesses produced another year of excellent results on the strength and consistency of their leading premium brands.

 

    The smokeable products segment grew adjusted operating companies income (“OCI”) (2) by 5.3%, and Philip Morris USA Inc. (“PM USA”) maintained retail share of Marlboro near record levels at 44.0%.

 

    The smokeless products segment grew adjusted OCI by 11.0% and U.S. Smokeless Tobacco Company LLC (“USSTC”) grew retail share of Copenhagen and Skoal combined by 0.9 share points to 52.2%, the highest full-year share since we acquired USSTC.

 

    Ste. Michelle Wine Estates Ltd. (“Ste. Michelle”) grew adjusted OCI by 9.9% and is one of the fastest growing premium wine companies in the United States.

 

LOGO

 

  In October 2016, Anheuser-Busch InBev SA/NV completed its business combination with SABMiller plc (“ABI/SABMiller transaction”), and we received shares representing a 9.6% ownership in the combined company. The newly formed Belgian company, which retained the name Anheuser-Busch InBev SA/NV (“AB InBev”), became the holding company for the combined companies’ businesses. Subsequently, we purchased approximately 12 million ordinary shares of AB InBev, increasing our ownership to approximately 10.2%.

For more information regarding our 2016 performance, please review our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (“2016 Annual Report on Form 10-K”).

EXECUTIVE COMPENSATION PROGRAM HIGHLIGHTS

 

  Annual incentive awards for our executive officers named in the Summary Compensation Table on page 44 (“named executive officers” or “NEOs”) reflect our excellent 2016 business performance and are consistent with or slightly higher than last year’s awards. Stock awards reflected in the Summary Compensation Table were granted in January 2016 and reflect the executive’s individual performance in 2015 and advancement potential.

 

 

(2) Adjusted OCI is a financial measure that is not consistent with GAAP. See Annex A to this Proxy Statement for information regarding non-GAAP financial measures used in this Proxy Statement and reconciliations of such non-GAAP financial measures to the most directly comparable GAAP financial measures.

 



 

      4    ALTRIA GROUP, INC. – Proxy Statement


Table of Contents

PROXY STATEMENT SUMMARY

 

 

  The 2014 – 2016 performance cycle for the Long-Term Incentive Plan (“LTIP”) concluded on December 31, 2016. The LTIP cash payments shown in the Summary Compensation Table on page 44 are based on performance over the entire three-year 2014 – 2016 LTIP cycle. The LTIP operates on an end-to-end basis without overlapping cycles or annual payments for the LTIP. Thus, the last LTIP awards were paid at the end of the 2011 – 2013 cycle. The footnotes to the Summary Compensation Table show LTIP payments had they been allocated over the three-year 2014 – 2016 performance cycle.

 

  At the 2016 Annual Meeting, 93% of the votes cast approved, on an advisory basis, the compensation of our NEOs demonstrating strong alignment of shareholder interests with our executive compensation program and philosophy.

 

  The Compensation Committee made the following changes to our executive compensation program in 2016:

 

    Added performance stock units (“PSUs”) beginning with the January 2017 annual grant of equity compensation. For that grant, executives received a mix of 60% restricted stock units (“RSUs”) and 40% PSUs. The addition of PSUs, combined with our existing cash LTIP, increases to over 60% the portion of our executives’ long-term incentives that is tied to business performance.

 

    Added a requirement that prohibits executive officers from selling shares received as compensation until they meet their stock ownership requirement.

 

    Added an anti-pledging policy.

Key Governance Features of Our Executive Compensation Program

The following summary highlights our commitment to executive compensation practices that align the interests of our executives and shareholders:

 

What We Do        What We Don’t Do

 

  

Pay for Performance - A significant portion of our NEOs’ compensation is at-risk variable compensation.

 

   

û

 

  

No Excessive Perquisites - Perquisites represent less than 2% of our NEOs’ compensation.

 

 

  

Multiple Performance Metrics - Variable compensation is based on more than one measure to encourage balanced incentives.

 

   

û

 

  

No Single-Trigger Change in Control - Our shareholder-approved 2015 Performance Incentive Plan includes a double-trigger change in control provision.

 

 

  

Stock Holding and Ownership Requirements - All NEOs exceed our robust stock ownership requirements.

 

   

û

 

  

No Individual Supplemental Executive Retirement Plans

 

 

  

“Clawback” Provisions - Our policy provides for the adjustment or recovery of compensation in certain circumstances.

 

   

û

 

  

No Hedging or Pledging - We do not permit our executive officers to engage in either hedging or pledging activities with respect to their Altria shares.

 

 

  

Award Caps - All our variable compensation plans have caps on plan formulas.

 

   

û

 

  

No Employment Agreements - All of our NEOs are employed at-will.

 

 

  

Below Average Share Utilization - We have below average run rates for equity compensation, as compared to S&P 500 companies.

 

   

û

 

  

No Tax Gross-Ups

 

 

  

Tally Sheets - The Compensation Committee reviews compensation tally sheets at least annually as part of making individual compensation decisions for our NEOs.

 

   

û

 

  

No Share Recycling

 

 

  

Confidentiality & Non-Compete Agreements - All NEOs are subject to confidentiality and non-compete agreements.

 

      

 



 

ALTRIA GROUP, INC. – Proxy Statement    5

 



Table of Contents

QUESTIONS AND ANSWERS ABOUT THE 2017 ANNUAL MEETING AND VOTING

 

 

QUESTIONS AND ANSWERS

ABOUT THE 2017 ANNUAL MEETING AND VOTING

 

1. WHY DID I RECEIVE THESE PROXY MATERIALS?

 

 

Our Board of Directors is furnishing to you this Proxy Statement to solicit proxies on its behalf to be voted at the 2017 Annual Meeting on May 18, 2017 at 9:00 a.m., Eastern Time, at the Greater Richmond Convention Center, 403 North 3rd Street, Richmond, Virginia 23219. The proxies also may be voted at any adjournments or postponements of the meeting.

All properly executed written proxies, and all properly completed proxies submitted by telephone or by the Internet, that are delivered pursuant to this solicitation will be voted at the meeting in accordance with the directions given in the proxy, unless the proxy is revoked before the completion of voting at the meeting.

 

 

2. WHAT IS A PROXY?

 

 

It is your legal designation of another person to vote the stock you own. That other person is called a proxy. If you designate someone as your proxy in a written document, that document also is called a proxy or a proxy card.

 

Our Board of Directors has designated Martin J. Barrington and Denise F. Keane as proxies for the 2017 Annual Meeting.

 

 

3. WHAT IS THE RECORD DATE AND WHAT DOES IT MEAN?

 

 

The record date for the 2017 Annual Meeting is March 27, 2017 (the “record date”). The record date was established by our Board of Directors as required by Virginia law. Only shareholders of record at the close of business on the record date are entitled to:

 

(a) receive notice of the meeting; and
(b) vote at the meeting and any adjournments or postponements of the meeting.

Each shareholder of record on the record date is entitled to one vote for each share of our common stock held. On the record date, there were 1,935,720,437 shares of our common stock outstanding.

 

 

4. WHAT IS THE DIFFERENCE BETWEEN A SHAREHOLDER OF RECORD AND A SHAREHOLDER WHO HOLDS SHARES IN STREET NAME?

 

 

If your shares are registered in your name on the books and records of our transfer agent, Computershare Trust Company, N.A., you are a shareholder of record.

If your shares are held for you in the name of your broker, bank or other nominee, your shares are held in street name. The answer to Question 12 describes brokers’ discretionary voting authority and when your broker, bank or other

nominee is permitted to vote your shares without instructions from you.

It is important that you vote your shares if you are a shareholder of record and, if you hold shares in street name, that you provide appropriate voting instructions to your broker, bank or other nominee as discussed in the answer to Question 12.

 

 

5. WHAT ARE THE DIFFERENT METHODS THAT I CAN USE TO VOTE MY SHARES OF COMMON STOCK?

 

 

By Telephone or Internet: All shareholders of record may vote their shares by telephone (within the United States, U.S. territories and Canada, there is no charge for the call) or by the Internet, using the procedures and instructions described on the proxy card and other enclosures. Street name holders may vote by telephone or the Internet if their brokers, banks or other nominees make those methods available. If that is the case, each broker, bank or other nominee will enclose instructions with the Proxy Statement. The telephone and Internet voting procedures, including the use of control numbers, are designed to authenticate shareholders’ identities, to allow shareholders to vote their shares and to confirm that their instructions have been properly recorded.

 

In Writing: All shareholders also may vote by mailing their completed and signed proxy card (in the case of shareholders of record) or their completed and signed voting instruction form (in the case of street name holders).

In Person: All shareholders of record may vote in person at the meeting. Street name holders must obtain a legal proxy from their broker, bank or other nominee and bring the legal proxy to the meeting in order to vote in person at the meeting.

See also “Proxy Statement Summary – Casting Your Vote” on page 1.

 

 

6    ALTRIA GROUP, INC. – Proxy Statement


Table of Contents

QUESTIONS AND ANSWERS ABOUT THE 2017 ANNUAL MEETING AND VOTING

 

 

 

6. WHAT ITEMS WILL BE VOTED ON AT THE 2017 ANNUAL MEETING?

 

 

 

 Proposal

 

  

 

Voting Choices, Board Recommendation and Voting Requirement

 

 

 Proposal 1 –

 Election of Directors

 (pages 58 – 63)

  

 

Voting Choices

•    Vote for a nominee;

•    Vote against a nominee; or

•    Abstain from voting on a nominee.

 

Board Recommendation

Our Board recommends a vote “FOR” each of the nominees named in the Proxy Statement.

 

Voting Requirement

Directors will be elected by a majority of the votes cast. A majority of the votes cast means that the number of votes “FOR” a nominee must exceed the number of votes “AGAINST” that nominee.

 

Any director who receives a greater number of votes “AGAINST” his or her election than votes “FOR” such election is required to offer promptly in writing to submit his or her resignation to our Board in accordance with our Corporate Governance Guidelines. The Nominating, Corporate Governance and Social Responsibility Committee will consider the offer and recommend to our Board whether to accept the offer. The full Board will consider all factors it deems relevant to our best interests, make a determination and publicly disclose its decision and rationale within 90 days after confirmation of the election results.

 

 

 Proposal 2 –

 Ratification of the  Selection

 of Independent Registered

 Public Accounting Firm

 (page 64)

  

 

Voting Choices

•    Vote for the ratification;

•    Vote against the ratification; or

•    Abstain from voting.

 

Board Recommendation

Our Board recommends a vote “FOR” this proposal.

 

Voting Requirement

The selection of the independent registered public accounting firm will be ratified if the votes cast “FOR” exceed the votes cast “AGAINST.”

 

 

 Proposal 3 –

 Non-Binding Advisory

 Vote to Approve

 the Compensation of

 Altria’s Named

 Executive Officers

 (page 65)

  

 

Voting Choices

•    Vote for the compensation of our named executive officers;

•    Vote against the compensation of our named executive officers; or

•    Abstain from voting.

 

Board Recommendation

Our Board recommends a vote “FOR” this proposal.

 

Voting Requirement

The compensation of our named executive officers will be approved on an advisory basis if the votes cast “FOR” exceed the votes cast “AGAINST.”

 

This vote is not binding upon Altria, our Board or the Compensation Committee. Nevertheless, the Compensation Committee values the opinions expressed by shareholders through their vote on this proposal and will consider the outcome of the vote when making future compensation decisions for our named executive officers.

 

 

ALTRIA GROUP, INC. – Proxy Statement    7


Table of Contents

QUESTIONS AND ANSWERS ABOUT THE 2017 ANNUAL MEETING AND VOTING

 

 

 

 

 Proposal

 

  

 

Voting Choices, Board Recommendation and Voting Requirement

 

 

 Proposal 4 –

 Non-Binding Advisory

 Vote on the Frequency of

 Future Advisory Votes to

 Approve the Compensation

 of Altria’s Named

 Executive Officers

 (page 66)

  

 

Voting Choices

•    Every year;

•    Every two years;

•    Every three years; or

•    Abstain from voting.

 

Board Recommendation

Our Board recommends a vote FOR 1 YEAR.

 

Voting Requirement

If none of the frequency options receives a majority of the votes cast, the option receiving the greatest number of votes will be considered the frequency recommended by shareholders.

 

This vote is not binding on Altria, our Board or the Compensation Committee. Nevertheless, our Board values the opinions expressed by shareholders in their vote on this proposal and will consider the outcome of the vote when determining the frequency of future non-binding advisory votes to approve the compensation of our named executive officers.

 

 

 Proposal 5 –

 Shareholder Proposal

 Regarding Advertising in

 Minority/Low Income

 Neighborhoods

 (pages 67 – 68)

  

 

Voting Choices

•    Vote for the proposal;

•    Vote against the proposal; or

•    Abstain from voting.

 

Board Recommendation

Our Board recommends a vote “AGAINST” this shareholder proposal.

 

Voting Requirement

The shareholder proposal will be approved if the votes cast “FOR” exceed the votes cast “AGAINST.”

 

 

7. ARE VOTES CONFIDENTIAL?

 

 

It is our long-standing practice to hold the votes of each shareholder in confidence from directors, officers and employees, except: (a) as necessary to meet applicable legal requirements and to assert or defend claims for or against us; (b) in the case of a contested proxy solicitation; (c) if a

shareholder makes a written comment on the proxy card or otherwise communicates his or her vote to us; or (d) to allow the independent inspectors of election to certify the results of the vote.

 

 

8. WHO COUNTS THE VOTES?

 

 

As we have for many years, we retain an independent tabulator to receive and tabulate the proxies and appoint

independent inspectors of election to certify the results.

 

 

9. WHAT IF I DO NOT SPECIFY A CHOICE FOR A MATTER WHEN RETURNING A PROXY?

 

 

Shareholders should specify their voting choice for each matter on the accompanying proxy. If you sign and return your proxy, yet you do not make a specific choice for one or more matters, unvoted matters will be voted “FOR” the election of each of the nominees for director, “FOR” the proposal to ratify the selection of PricewaterhouseCoopers

LLP (“PricewaterhouseCoopers”), “FOR” the non-binding advisory vote to approve the compensation of our named executive officers, FOR 1 YEAR as to the frequency of future advisory votes to approve the compensation of our named executive officers and “AGAINST” the shareholder proposal, as applicable.

 

 

10. HOW DO I VOTE IF I PARTICIPATE IN THE DIVIDEND REINVESTMENT PLAN?

 

 

The proxy card includes your dividend reinvestment plan shares.

 

The answer to Question 5 above explains how you can vote.

 

 

8    ALTRIA GROUP, INC. – Proxy Statement


Table of Contents

QUESTIONS AND ANSWERS ABOUT THE 2017 ANNUAL MEETING AND VOTING

 

 

 

11. WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?

 

 

It means that you have multiple accounts with brokers and/or our transfer agent. Please vote all of these shares represented by each proxy card. We recommend that you contact your broker or our transfer agent to consolidate as many accounts as possible under the same name and address. Our transfer agent is Computershare Trust Company, N.A.

Computershare’s address is P.O. Box 43078, Providence, Rhode Island 02940-3078; you can reach Computershare at 1-800-442-0077 (from within the United States or Canada) or 1-781-575-3572 (from outside the United States or Canada).

 

 

12. WILL MY SHARES BE VOTED IF I DO NOT PROVIDE MY PROXY OR VOTING INSTRUCTIONS?

 

 

Shareholders of Record: If you are a shareholder of record (see Question 4), your shares will not be voted if you do not provide your proxy unless you vote in person at the meeting. It is, therefore, important that you vote your shares.

Street Name Holders: If your shares are held in street name (see Question 4) and you do not provide your voting instructions to your broker, bank or other nominee, your shares may be voted by your broker, bank or other nominee but only under certain circumstances. Specifically, under the New York Stock Exchange (“NYSE”) rules, shares held in the name of your broker, bank or other nominee may be voted by your broker, bank or other nominee on certain “routine” matters if you do not provide voting instructions.

Only the ratification of the selection of PricewaterhouseCoopers as our independent registered public accounting firm is considered a “routine” matter for which brokers, banks or other nominees may vote uninstructed shares. The other proposals to be voted on at the meeting are not considered “routine” under NYSE rules, so the broker, bank or other nominee cannot vote your shares on any of these other proposals unless you provide to the broker, bank or other nominee voting instructions for each of these matters. If you do not provide voting instructions on a non-routine matter, your shares will not be voted on that matter, which is referred to as a “broker non-vote.” It is, therefore, important that you vote your shares.

 

 

13. ARE ABSTENTIONS AND BROKER NON-VOTES COUNTED?

 

 

Abstentions and broker non-votes on one or more matters will not be considered votes cast and, therefore, will not affect the outcome of the vote on those matters at the 2017

Annual Meeting. Broker non-votes are described more particularly in Question 12 above.

 

 

14. HOW CAN I REVOKE A PROXY OR CHANGE MY VOTE?

 

 

If you are a shareholder of record, you can revoke a proxy or change your vote before the completion of voting at the meeting by:

 

(a) giving written notice to our Corporate Secretary;

 

(b) delivering a later-dated proxy; or
(c) voting in person at the meeting.

If your shares are held in street name, you should follow the instructions provided by your broker, bank or other nominee to revoke or change your voting instructions.

 

 

15. WHO WILL PAY THE COST OF THIS PROXY SOLICITATION?

 

 

We will pay the cost of this solicitation of proxies. In addition to the use of the mail, some of our officers and employees may solicit proxies by telephone or e-mail and will request brokerage houses, banks and other custodians, nominees and fiduciaries to forward soliciting material to the beneficial owners of shares held of record by such persons. We will reimburse such persons for expenses incurred in

forwarding such soliciting material. It is contemplated that additional solicitation of proxies will be made in the same manner under the engagement and direction of our proxy solicitor, D.F. King & Co., Inc., 48 Wall Street, New York, New York 10005, at an anticipated cost of $24,000, plus reimbursement of out-of-pocket expenses.

 

 

ALTRIA GROUP, INC. – Proxy Statement    9


Table of Contents

QUESTIONS AND ANSWERS ABOUT THE 2017 ANNUAL MEETING AND VOTING

 

 

 

16. HOW DO I OBTAIN ADMISSION TO THE 2017 ANNUAL MEETING?

 

 

If you plan to attend the meeting, you must request an admission ticket in advance.

Please submit your request for an admission ticket by completing the Pre-Registration Form located on the last page of this Proxy Statement and submitting it, along with your proof of ownership as of the record date for the meeting (March 27, 2017), no later than May 12, 2017, using one of the means identified on the Pre-Registration Form.

If your shares are held for you in the name of your broker, bank or other nominee, please provide evidence of your stock ownership as of the record date for the meeting (such as your voting instruction form, a current letter from your broker, bank or other nominee or a photocopy of a brokerage or other account statement).

If you are a duly appointed proxy for a shareholder, you must provide proof of your appointment and proof of share ownership for the shareholder for whom you are a proxy.

You may bring only one immediate family member as a guest. All immediate family member guests must be 21 years of age or older. If you are a duly appointed proxy for a shareholder, you may not bring a guest.

All meeting attendees must present government-issued photo identification, such as a driver’s license or passport, at the meeting.

The meeting facilities will open at 8:00 a.m., Eastern Time, to facilitate your registration and security clearance. For your security, you will not be permitted to bring any packages, briefcases, large pocketbooks or bags into the meeting. Also, cellular and digital phones, audio tape recorders, video and still cameras, pagers, laptops and other portable electronic devices will not be permitted into the meeting. We thank you in advance for your patience and cooperation with these rules.

 

 

17. MAY SHAREHOLDERS ASK QUESTIONS AT THE 2017 ANNUAL MEETING?

 

 

Yes. The Chairman will answer shareholders’ questions during the question and answer period of the meeting. In order to provide an opportunity for everyone who wishes to ask a question, each shareholder will be limited to two minutes. Shareholders may ask a second question if all

others have first had their turn and if time allows. When speaking, shareholders must direct questions to the Chairman and confine their questions to matters that relate directly to the business of the meeting.

 

 

18. HOW MANY VOTES MUST BE PRESENT TO HOLD THE 2017 ANNUAL MEETING?

 

 

In order for us to conduct the meeting, a majority of our outstanding shares of common stock as of the record date for the meeting (March 27, 2017), must be present in person or by proxy at the meeting. This is referred to as a quorum.

Your shares are counted as present at the meeting if you attend the meeting and vote in person or if you properly return a proxy by Internet, telephone or mail.

Abstentions and shares of record held by a broker, bank or other nominee (“broker shares”) that are voted on any matter are also included in determining the number of shares present. Broker shares that are not voted on any matter will not be included in determining whether a quorum is present.

 

 

10    ALTRIA GROUP, INC. – Proxy Statement


Table of Contents

BOARD AND GOVERNANCE MATTERS

 

 

BOARD AND GOVERNANCE MATTERS

Board Responsibility

The primary responsibility of our Board is to foster our long-term success. In fulfilling this role, each director must exercise his or her good faith business judgment of the best interests of Altria and our shareholders. Our Board has responsibility for establishing broad corporate policies, setting strategic direction and overseeing management, which is responsible for our day-to-day operations.

Board Meetings and Attendance

Our Board holds regular meetings typically during the months of January, February, May, August, October and December, and holds special meetings when necessary. Our Board’s organizational meeting follows our annual meeting of shareholders. Another meeting focuses significantly on reviewing our strategic plan. Our Board held six meetings in 2016. Our Board meets in executive session at every in-person Board meeting, which is followed by a session of only independent directors led by the Presiding Director. Directors are expected to attend Board meetings, meetings of the Committees of our Board (the “Committees”) on which they serve and our annual meeting of shareholders, with the understanding that on occasion a director may be unable to attend a meeting. During 2016, all directors then in office attended at least 84% of the aggregate number of meetings of our Board during their respective terms of service and of all Committees on which they served. In addition, 10 of 11 directors then in office attended the 2016 Annual Meeting.

Board Composition and Succession Planning

Our Board consists of 11 directors. Directors are elected annually at each annual meeting to serve until the next annual meeting and until their successors are duly elected and qualified, subject to their earlier death, resignation or removal. Each of the nominees currently serves as a director and was elected by the shareholders at the 2016 Annual Meeting with the exception of Virginia E. Shanks. Ms. Shanks was brought to the attention of the Nominating, Corporate Governance and Social Responsibility Committee by an executive search firm, and was unanimously nominated for election as a director by our Board. On February 24, 2017, Thomas W. Jones notified Altria of his decision to retire from Board service following the completion of his current term. Consequently, Mr. Jones will not stand for re-election to our Board at the 2017 Annual Meeting. Biographical information and qualifications of the nominees for director are included under “Proposal 1 – Election of Directors” on page 58.

Our Board has adopted retirement guidelines that require a director who will have attained the age of 75 as of the date of the next annual meeting to tender his or her written resignation to our Board at least six months prior to such annual meeting. If our Board determines that continued service by the director is in the best interests of Altria and our shareholders, our Board has the discretion not to accept the resignation. As required under the retirement guidelines, Governor Baliles tendered his resignation to our Board in October 2016; after due consideration, our Board did not accept his resignation.

We are committed to reviewing periodically our Board’s composition to ensure that we continue to have the right mix of skills, background and tenure. The current tenure and age composition of our Board is as follows:

 

LOGO

 

ALTRIA GROUP, INC. – Proxy Statement    11


Table of Contents

BOARD AND GOVERNANCE MATTERS

 

 

Our Board’s composition represents a balanced approach to director tenure, allowing our Board to benefit from the experience of longer-serving directors combined with the perspectives of newer directors.

Our Board has a breadth of skills and experience. As detailed under “Proposal 1 – Election of Directors,” we believe that our Board has demonstrated leadership in a variety of positions across various professions and industries. Our directors’ professional skills and experience include:

 

 

DIRECTOR SKILLS AND EXPERIENCE

 

 

   Consumer goods experience

 

  

  Public policy expertise

 

 

   Regulated industries experience

 

  

  Public company board experience

 

 

   Chief executive officer experience

 

  

  Leadership in innovation

 

 

   Financial expertise, including chief financial officer experience

 

  

  Information technology/cybersecurity experience

 

The Nominating, Corporate Governance and Social Responsibility Committee has the primary responsibility for developing a succession plan for our Board. Using tools such as the annual Board and Committee self-evaluation and our Board retirement policy, it periodically reviews our Board composition and, as further discussed below under “Director Qualifications and Board Diversity,” identifies the appropriate mix of experiences, skills, attributes and tenure for our Board as a whole in light of our strategies and needs with the objective of recommending a group of directors that can best continue our success and represent shareholder interests. The Committee and our Board are committed to developing a diverse pool of potential candidates for consideration for future Board service.

Board Leadership Structure and Governance

 

Our Board believes that it is important to retain the flexibility to allocate the responsibilities of the Chairman of the Board (the “Chairman”) and the Chief Executive Officer (“CEO”) in a way that it considers to be in the best interests of Altria and our shareholders. After due consideration by the Nominating, Corporate Governance and Social Responsibility Committee and our Board, our Board has concluded that presently combining the roles of Chairman and CEO is in the best interests of Altria and our shareholders. Our Mission is to own and develop financially disciplined businesses that are leaders in responsibly providing adult tobacco and wine consumers with superior branded products. Our Board believes that the combination of the roles of Chairman and CEO promotes the pursuit of our Mission by allowing the senior-most executive with accountability for our day-to-day operations and execution of our strategic plan, who also possesses significant business, regulatory and industry knowledge, to set Board meeting agendas (in consultation with the Presiding Director), to lead the related discussions and to communicate with one voice to employees, shareholders and other stakeholders. Our Board considers this effective and efficient structure to be particularly appropriate for us given the unique challenges that we have faced and continue to face in our businesses, particularly domestic tobacco, and the enhanced regulatory environment.

 

Our Board’s strict adherence to sound corporate governance practices, as reflected in our Corporate Governance Guidelines, has promoted, and continues to promote, the effective and independent exercise of Board leadership for Altria and our shareholders. We have a strong and experienced independent Presiding Director who, in discharging his responsibilities, promotes dialogue among independent members of our Board and directly, clearly and regularly communicates the views of our Board to management. Moreover, our independent directors convene at each Board meeting in an executive session led by the Presiding Director.

   

 

RESPONSIBILITIES OF OUR

PRESIDING DIRECTOR

 

    Preside over executive sessions of the independent directors and at all meetings at which the Chairman is not present

 

    Call meetings of the independent directors as he or she deems necessary

 

    Serve as a liaison between the Chairman and the independent directors

 

    Together with the Chairman, approve agendas and schedules for Board meetings

 

    Advise the Chairman of the Board’s informational needs and, where appropriate, approve information sent to the Board

 

    Together with the Chair of the Compensation Committee, communicate goals and objectives to the CEO and the results of the evaluation of the CEO’s performance

 

    Be available for consultation and communication if requested by major shareholders

 

 

12    ALTRIA GROUP, INC. – Proxy Statement


Table of Contents

BOARD AND GOVERNANCE MATTERS

 

 

Board and Committee Self-Evaluations

Our Board assesses annually its effectiveness and that of its Committees in advancing our Mission. The method for conducting the annual Board and Committee self-evaluations has consisted of interviews conducted by the Presiding Director, interviews conducted by the Chair of the Nominating, Corporate Governance and Social Responsibility Committee, third-party interviews and written surveys. More recently, our Board has determined that interviews by the Presiding Director or the Chair of the Nominating, Corporate Governance and Social Responsibility Committee is a highly effective method of conducting the self-evaluations. The Nominating, Corporate Governance and Social Responsibility Committee oversees the evaluation process, including determining the format, and presents to our Board the results of the self-evaluations to identify opportunities to enhance effectiveness. Self-evaluation topics generally include, among other matters, Board composition and structure, meeting topics and process, information flow, Board oversight of risk management and strategic planning, succession planning and access to management. Our Board discusses the results of each annual self-evaluation and, as appropriate, implements enhancements and other modifications identified during the self-evaluation.

Advancement Planning and CEO Succession

Our Board believes that senior executive advancement and succession is one of its most important responsibilities. The Compensation Committee is responsible for overseeing the development of executive succession plans and reviewing such plans, evaluating and making recommendations to our Board regarding potential candidates to become CEO, and evaluating and approving candidates to fill other senior executive positions. At least annually, the Chairman and CEO meets with the Compensation Committee and our Board to discuss CEO succession planning (including specific candidates). The Compensation Committee also considers the procedure for the timely and efficient transfer of CEO responsibilities in the event of an emergency or the sudden incapacitation, departure or death of the Chairman and CEO. The Chairman and CEO meets with the Compensation Committee at least annually to discuss the performance of key members of our senior management. These matters are regularly communicated to our Board by the Chair of the Compensation Committee.

Governance Guidelines, Policies and Codes

Our Board has adopted Corporate Governance Guidelines. In addition, our Board has adopted a Code of Business Conduct and Ethics for Directors (“Director Code”) that applies to our directors and a policy with regard to reviewing certain transactions in which we are a participant and an officer, director or nominee for director has had or may have a direct or indirect material interest. These documents are available on our website at www.altria.com/governance. We have also adopted the Altria Code of Conduct (“Code of Conduct”) that applies to all of our employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. The Code of Conduct is available on our website at www.altria.com/codeofconduct.

Information on, or that can be accessed through, our website is not, and shall not be deemed to be, a part of this Proxy Statement or incorporated into any other filings we make with the U.S. Securities and Exchange Commission (“SEC”).

 

ALTRIA GROUP, INC. – Proxy Statement    13


Table of Contents

BOARD AND GOVERNANCE MATTERS

 

 

Committees of Our Board of Directors

Our Board has established various standing Committees to assist it with the performance of its responsibilities. Our Board designates the members of these Committees and the Committee Chairs annually at its organizational meeting following our annual meeting of shareholders, based on the recommendations of the Nominating, Corporate Governance and Social Responsibility Committee. The Chair of each Committee develops the agenda for that Committee and determines the frequency and length of Committee meetings. After each meeting, each Committee provides a full report to our Board.

Our Board has adopted written charters for each of these Committees. These charters are available on our website at www.altria.com/governance. The following table summarizes the primary responsibilities of the Committees:

 

 Committee    Primary Responsibilities

 

 Audit

  

 

The Audit Committee assists our Board in its oversight of (i) the integrity of our financial statements and financial reporting processes and systems of internal control, (ii) the qualifications, independence and performance of our independent registered public accounting firm, (iii) the internal auditors and the internal audit function and (iv) our compliance with legal and regulatory requirements. The Audit Committee also prepares the Audit Committee report that SEC rules require us to include in our proxy statement. See pages 21 to 22 for further matters related to the Audit Committee, including its report for the year ended December 31, 2016.

 

 

 Compensation        

  

 

The Compensation Committee determines and approves CEO compensation and reviews and approves the compensation of the other executive officers, including salary, annual incentive awards and long-term incentive awards. The Compensation Committee also oversees the development of executive succession plans and evaluates and makes recommendations to our Board regarding potential CEO candidates. In addition, the Compensation Committee evaluates the design and effectiveness of our incentive programs. See pages 23 to 24 for further matters related to the Compensation Committee, including a discussion of its procedures and its report on the Compensation Discussion and Analysis appearing on pages 26 through 43.

 

 

 Executive

  

 

The Executive Committee has authority to act for our Board during intervals between Board meetings to the extent permitted by law.

 

 

 Finance

  

 

The Finance Committee monitors our financial condition, oversees the sources and uses of cash flow and advises our Board with respect to financing needs, dividend policy, share repurchase programs and other financial matters.

 

 

 Innovation

  

 

The Innovation Committee assists our Board in its oversight of the strategic goals and objectives of our subsidiaries’ innovation and marketing strategies, consumer/market understanding and brand plans, technological initiatives and research, development and engineering programs.

 

 

 Nominating,

 Corporate

 Governance

 and Social

 Responsibility

  

 

The Nominating, Corporate Governance and Social Responsibility Committee identifies individuals qualified to become Board members consistent with the criteria established by our Board and described in our Corporate Governance Guidelines, and recommends a slate of nominees for election at each annual meeting of shareholders; makes recommendations to our Board concerning the appropriate size, function, needs and composition of our Board and its Committees; reviews non-employee director compensation and recommends changes in compensation to our Board; advises our Board on corporate governance matters; oversees the annual self-evaluation process of our Board and its Committees; and provides oversight of our public affairs, corporate reputation and societal alignment strategies.

 

 

14    ALTRIA GROUP, INC. – Proxy Statement


Table of Contents

BOARD AND GOVERNANCE MATTERS

 

 

The following table sets forth the current members of each of the Committees and the number of meetings held during 2016:

 

Name

 

 

    Audit (1)

 

 

    Compensation (2)

 

 

Executive

 

 

Finance

 

 

Innovation

 

 

Nominating, Corporate

Governance and Social

    Responsibility (3)

 

 

Gerald L. Baliles*

 

   

 

 

 

 

 

   

 

 

 

 

Chair

 

 

Martin J. Barrington

 

         

 

Chair

 

           

 

John T. Casteen III*

 

 

 

 

       

 

 

 

 

 

 

Dinyar S. Devitre*

 

             

 

 

 

 

 

   

 

Thomas F. Farrell II* (4)

 

   

 

 

 

 

 

     

 

 

 

Thomas W. Jones*

 

 

 

 

 

 

 

 

 

 

 

 

Chair

 

       

 

Debra J. Kelly-Ennis*

 

 

 

 

       

 

 

 

 

 

 

W. Leo Kiely III*

 

     

 

Chair

 

 

 

 

 

 

 

 

 

 

   

 

Kathryn B. McQuade*

 

 

 

 

 

 

 

   

 

 

   

 

George Muñoz*

 

 

 

Chair

 

     

 

 

 

 

 

     

 

 

 

Nabil Y. Sakkab*

 

     

 

 

 

 

 

 

 

Chair

 

 

 

 

 

2016 Meetings

 

 

 

7

 

 

 

5

 

 

 

0

 

 

 

5

 

 

 

4

 

 

 

4

 

 

* Independent Director.

 

(1) The Audit Committee consists entirely of non-management directors all of whom our Board has determined are independent within the meaning of the listing standards of the NYSE and Rule 10A-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our Board has determined that all members of the Audit Committee are financially literate and that George Muñoz is an “audit committee financial expert” within the meaning set forth in the regulations of the SEC.

 

(2) The Compensation Committee consists entirely of non-management directors all of whom our Board has determined are independent within the meaning of the listing standards of the NYSE; are non-employee directors for the purposes of Rule 16b-3 of the Exchange Act; and satisfy the requirements of Internal Revenue Code Section 162(m) for outside directors.

 

(3) The Nominating, Corporate Governance and Social Responsibility Committee consists entirely of non-management directors all of whom our Board has determined are independent within the meaning of the listing standards of the NYSE.

 

(4) Presiding Director.

Our Board’s Risk Oversight Role

Our Board believes it has in place effective processes to identify and oversee the material risks facing Altria and our businesses and that these processes are consistent with, and provide additional support for, the current leadership structure of our Board. Our Board, both acting as a full Board and through its Committees, plays an important oversight role in our risk management processes. Regular Board and Committee meetings cover multiple days. Management from Altria and our subsidiaries and business functions attend each meeting. Board members also conduct periodic site visits to locations of our subsidiaries both in and outside our Richmond, Virginia headquarters. These meetings and site visits and, as appropriate, communications between Board meetings, allow our Board to discuss with management the operational risks facing the businesses of our subsidiaries.

We conduct an enterprise risk management process to identify, prioritize and manage risks that have the potential to present the most significant obstacles to achieving business objectives. Management reports annually to our Board on this process.

 

ALTRIA GROUP, INC. – Proxy Statement    15


Table of Contents

BOARD AND GOVERNANCE MATTERS

 

 

Our Board, directly or through its Committees, also oversees management of the following risk areas:

 

  Legal and Regulatory Risk: Our Board, both directly and through the Audit Committee, receives regular updates on various legal and regulatory matters, including developments in litigation and developments related to U.S. Food and Drug Administration (“FDA”) regulation of certain of our subsidiaries, thereby reviewing our management of legal and regulatory risk. In addition, reports to the Audit Committee at each of its meetings by our Chief Compliance Officer and Corporate Audit personnel provide insight into our risk assessment and risk management policies and processes.

 

  Financial and Accounting Risk: The Finance and Audit Committees oversee our management of financial, accounting, internal controls and liquidity risks through interaction at each meeting with the Chief Financial Officer, management from our financial, accounting, auditing and treasury functions (as appropriate) and, for the Audit Committee, representatives from our independent registered public accounting firm.
  Reputational and Governance Risk: Through its interaction with business functions responsible for our public policy and societal alignment activities and strategies, the Nominating, Corporate Governance and Social Responsibility Committee oversees the ways in which we manage reputational and public policy risk. The Nominating, Corporate Governance and Social Responsibility Committee also oversees risks related to Board organization, membership and structure and other corporate governance matters.

 

  Executive Compensation Program Risk: The Compensation Committee considers the extent to which the executive compensation program may create risk for us (see page 35 for a more detailed description).

 

  Technology, Intellectual Property and Research and Product Development Risk: The Innovation Committee oversees our management of the risks associated with technology, research and product development, including intellectual property.

 

  IT Security Risk: The Audit Committee oversees our IT security program and management of the associated risks.
 

 

LOGO

Directors

Process for Nominating Directors

The Nominating, Corporate Governance and Social Responsibility Committee is responsible for identifying and evaluating nominees for director and for recommending to our Board a slate of nominees for election at the annual meeting of shareholders.

In identifying potential candidates for Board membership, the Committee relies on suggestions and recommendations from directors, shareholders, management and others, including from time to time executive search and board advisory firms. The

 

16    ALTRIA GROUP, INC. – Proxy Statement


Table of Contents

BOARD AND GOVERNANCE MATTERS

 

 

Committee does not distinguish between nominees recommended by shareholders and other nominees. Shareholders wishing to suggest candidates to the Nominating, Corporate Governance and Social Responsibility Committee for consideration as directors must submit a written notice to our Corporate Secretary following the procedures set forth in this Proxy Statement under “Questions and Answers about Communications, Altria Documents and Shareholder Proposals How Do I Communicate with Our Board of Directors?” on page 72. Our By-Laws set forth the procedures that a shareholder must follow to nominate directors. The procedures are summarized under the same section in response to the question “How Can a Shareholder Nominate a Director or Submit a Proposal for Next Year’s Annual Meeting?” on page 72.

Director Qualifications and Board Diversity

 

In reviewing nominee candidates, the Nominating, Corporate Governance and Social Responsibility Committee follows the process described above and, in so doing, considers both (i) our Mission to own and develop financially disciplined businesses that are leaders in responsibly providing adult tobacco and wine consumers with superior branded products and (ii) its four related Mission goals – Invest in Leadership; Align with Society; Satisfy Adult Consumers; and Create Substantial Value for Shareholders. The Committee has not established any specific minimum qualification standards for nominees to our Board; rather, in evaluating the suitability of individuals for Board membership, the Committee considers the ways in which it believes each nominee can assist Altria in pursuing its Mission and advancing one or more Mission goals.

 

The Committee evaluates each individual in the context of our Board as a whole, with the objective of recommending a group of directors that can best continue our success and represent shareholder interests through the exercise of sound judgment. The Committee takes into account many factors, including whether the individual meets requirements for independence and whether the individual will enhance the diversity of views and experiences available to our Board in its deliberations. In determining whether to recommend a director for re-election, the Committee also considers the director’s past attendance at meetings and participation in and contributions to the activities of our Board. In addition, the Committee considers whether our Board has specific needs for certain skills or attributes at a given time (for example, financial or chief executive officer experience). Other criteria for Board membership are set forth in our Corporate Governance Guidelines.

 

Under “Proposal 1 – Election of Directors,” we provide an overview of each nominee’s principal occupation, business experience and other directorships, together with the key attributes, experience and skills considered by the Committee and our Board as being particularly meaningful in pursuing our Mission and advancing one or more Mission goals.

   

 

EVALUATING BOARD DIVERSITY

 

We are committed to diversity, as reflected in our Mission goals, our Code of Conduct, our leadership development system and our various other policies.

 

The Nominating, Corporate Governance and Social Responsibility Committee has a long-standing commitment to diversity, rather than a formal diversity policy, and is guided by our diversity philosophy in its review and consideration of potential director nominees. In this regard, our Board and the Committee view diversity holistically. As set forth in our Corporate Governance Guidelines, the Board and the Committee consider:

 

   whether the individual meets the requirements for independence;

 

   the individual’s general understanding of the various disciplines relevant to the success of a large publicly-traded company in today’s global business environment;

 

   the individual’s understanding of our businesses and markets;

 

   the individual’s professional expertise and educational background; and

 

   other factors that promote diversity of views and experiences.

 

Director Independence Determinations

Under the listing standards of the NYSE, our Board must consist of a majority of independent directors. In making independence determinations, our Board observes NYSE and SEC criteria and considers all relevant facts and circumstances. Our Board has also adopted categorical standards of director independence to further assist it in making these determinations. These standards are set forth in Annex A of our Corporate Governance Guidelines, which are available on our website at www.altria.com/governance.

On the recommendation of the Nominating, Corporate Governance and Social Responsibility Committee, our Board has affirmatively determined that each of the following nominees is independent in that such nominee has no material relationship with us: Gerald L. Baliles, John T. Casteen III, Dinyar S. Devitre, Thomas F. Farrell II, Debra J. Kelly-Ennis, W. Leo Kiely III, Kathryn B. McQuade, George Muñoz, Nabil Y. Sakkab and Virginia E. Shanks. Our Board has also affirmatively

 

ALTRIA GROUP, INC. – Proxy Statement    17


Table of Contents

BOARD AND GOVERNANCE MATTERS

 

 

determined, on the recommendation of the Committee, that Thomas W. Jones, who is not standing for re-election to our Board at the 2017 Annual Meeting, is independent. In making its recommendation to our Board, the Committee considered the following business relationships and transactions:

 

Business Relationships and Transactions Considered

 

 

Mr. Farrell is the Chief Executive Officer of Dominion Resources, Inc. (“Dominion”). A subsidiary of Dominion is a regulated public utility with which Altria or our subsidiaries has a commercial relationship for energy procurement. Amounts paid by Altria or our subsidiaries are set at rates fixed in accordance with the applicable regulatory authority. One of our subsidiaries has an agreement with the same utility under which the subsidiary receives nominal payments in connection with a solar energy program overseen and approved by the same regulatory authority. The terms of the agreement are comparable to those the utility offers to other third parties. Mr. Farrell is neither responsible for, nor involved in, the utility’s dealings with us or our subsidiaries, nor does Mr. Farrell materially benefit directly or indirectly from this relationship.

 

 

Altria or our subsidiaries from time to time do business in the ordinary course on terms comparable to those provided to unrelated third parties with entities where Mr. Casteen, Mr. Jones, Ms. Kelly-Ennis and Mr. Muñoz serve as non-executive directors or where immediate family members (as defined in the our Policy on Related Person Transactions, which is discussed in “Related Person Transactions and Code of Conduct” on page 71) of Mr. Casteen, Mr. Devitre, Mr. Farrell, Mr. Kiely and Dr. Sakkab are employed in non-executive officer capacities. In each case, neither the director nor the immediate family member is responsible for, or involved in, the entity’s day-to-day dealings with Altria or our subsidiaries, and the respective payments made by Altria or our subsidiaries to the entities in the last three fiscal years were significantly less than the greater of $1 million or 2% of any such entity’s consolidated gross revenues. None of Mr. Casteen, Mr. Devitre, Mr. Farrell, Mr. Jones, Ms. Kelly-Ennis, Mr. Kiely, Mr. Muñoz or Dr. Sakkab, or their respective immediate family members, materially benefits directly or indirectly from these relationships.

 

The Committee has determined that the foregoing business relationships and transactions did not affect the independence of any nominee for director.

In making its recommendation to our Board, the Committee also considered the following philanthropic relationships and transactions between Altria and our subsidiaries and various educational and other charitable entities located in or near our locations or facilities of our subsidiaries. We believe that corporate philanthropy furthers our Mission goal of investing in leadership, which includes investing meaningfully in the communities in which our employees live and work with the objective of making those communities leading environments where our businesses can succeed. In some cases, these relationships date back for many decades.

 

Philanthropic Relationships and Transactions Considered

 

 

Altria and the University of Virginia (the “University”) have a long-standing relationship that has included employment recruiting and charitable donations. In 2016, Altria or our subsidiaries made certain charitable donations to the University in an aggregate amount of $1,367,000, with the significant majority supporting the University’s Youth-Nex Center that promotes positive youth development and scholarships. In addition, we made ordinary course trade payments to the University in the aggregate amount of $227,606. The sum of these 2016 contributions and payments represent significantly less than 2% of the University’s consolidated gross revenues. Mr. Casteen is a former President of the University. He now serves as President Emeritus of the University. Mr. Casteen’s son, John T. Casteen IV, joined the University as a lecturer in 2016, and his daughter-in-law, Laura Casteen, is employed by the University as an Associate Dean. Neither Mr. Casteen nor his son or daughter-in-law materially benefits directly or indirectly from this relationship.

 

We also have long-standing relationships with other educational and charitable organizations in the Richmond, Virginia region, where Altria and several of our subsidiaries are headquartered and employ approximately 3,600 people. In 2016, we made a contribution to the following Richmond area charitable organization that exceeded $150,000:

 

•      $406,167 to the Virginia Museum of Fine Arts (“VMFA”) in support of exhibitions.

 

Messrs. Farrell and Barrington are non-employee trustees of the VMFA. The contributions identified did not exceed the greater of $1 million or 2% of the VMFA’s consolidated gross revenues. Neither Mr. Farrell nor Mr. Barrington materially benefits directly or indirectly from these contributions.

 

 

18    ALTRIA GROUP, INC. – Proxy Statement


Table of Contents

BOARD AND GOVERNANCE MATTERS

 

 

Philanthropic Relationships and Transactions Considered

 

 

In addition, we make various grants and charitable contributions, including matching gifts under our Matching Gift Program, to entities where Governor Baliles, Mr. Casteen, Mr. Farrell, Mr. Jones, Ms. Kelly-Ennis and Mr. Muñoz and immediate family members of Governor Baliles, Mr. Jones, Mr. Kiely and Ms. McQuade serve as non-executive directors or trustees or non-executive employees. A substantial majority of these grants and contributions were made to non-profit entities that serve the communities in which Altria and our subsidiaries operate and to non-profit educational programs and institutions located in and around these communities. In each case, payments by us in the last three fiscal years were significantly less than the greater of $1 million or 2% of any such entity’s consolidated gross revenues. None of Governor Baliles, Mr. Casteen, Mr. Farrell, Mr. Jones, Ms. Kelly-Ennis, Mr. Kiely, Ms. McQuade or Mr. Muñoz, or their respective immediate family members, materially benefits directly or indirectly from these contributions.

The Committee has determined that the foregoing philanthropic relationships and transactions did not affect the independence of any nominee for director.

Director Compensation

Our philosophy is to provide competitive compensation necessary to attract and retain high-quality non-employee directors. Our Board believes that a substantial portion of director compensation should consist of equity-based compensation to assist in aligning directors’ interests with the interests of shareholders. Directors who are employees of Altria (currently, only Mr. Barrington) receive no additional compensation for service as a director.

The Nominating, Corporate Governance and Social Responsibility Committee periodically reviews the competitiveness of director compensation (taking into account our Compensation Survey Group (“CSG”) described on page 35), considers the appropriateness of the form, mix and amount of director compensation and makes recommendations to our Board concerning such compensation with a view toward attracting and retaining qualified directors. Effective in 2016, our Board, on the recommendation of the Nominating, Corporate Governance and Social Responsibility Committee, increased the annual cash board retainer for non-employee directors by $10,000 and the annual cash retainers for the Presiding Director and each Committee Chair by $5,000, representing the first increase to the cash component of our directors’ compensation since 2008. The annual cash Committee membership retainer and the annual equity award remain unchanged.

The following table presents the 2016 components of compensation for our non-employee directors:

 

Type of Compensation   

Amount

($)

 

 

Annual Cash Board Retainer (1)

 

    

 

110,000

 

 

 

 

Annual Cash Retainer for Presiding Director

 

    

 

25,000

 

 

 

 

Annual Cash Retainer for Committee Chairs

 

  

Audit

Compensation

Finance

Innovation

Nominating, Corporate Governance and Social Responsibility

 

    

 

25,000

25,000

15,000

15,000

15,000

 

 

 

 

 

 

 

Annual Cash Membership Retainer for each member of each Committee above

 

    

 

5,000

 

 

 

Annual Equity Award (2)

 

    

 

175,000

 

 

 

 

(1) Paid in quarterly installments.

 

(2) The annual equity award is in the form of fully vested shares of Altria common stock.

A non-employee director may elect to defer all or part of the award of shares of common stock and all or part of his or her cash retainers. Pursuant to the Deferred Fee Plan for Non-Employee Directors, deferred retainers are credited to an unfunded bookkeeping account and may be “invested” in various “investment choices,” including an Altria common stock equivalent

 

ALTRIA GROUP, INC. – Proxy Statement    19


Table of Contents

BOARD AND GOVERNANCE MATTERS

 

 

account. These “investment choices” parallel the investment options offered under the Deferred Profit-Sharing Plan for Salaried Employees and determine the “earnings” that are credited for bookkeeping purposes to a non-employee director’s account. The non-employee director will receive deferred awards of common stock and cash distributions of deferred retainers either prior to or following termination of service from our Board, as elected by the non-employee director.

In addition to cash payments and stock awards, non-employee directors are covered under our Business Travel Accident Insurance Plan, which is available generally to all employees.

Non-employee directors may also participate in our Matching Gift Program. This program is available to all employees and non-employee directors. We will match eligible donations of a minimum of $25 up to $30,000 per year per employee or non-employee director on a dollar-for-dollar basis to eligible non-profit organizations. In 2016, the following non-employee directors participated in this program: Governor Baliles, Mr. Casteen, Mr. Devitre, Mr. Jones, Ms. Kelly-Ennis, Mr. Kiely and Ms. McQuade. The aggregate amount of matching payments for these seven directors in 2016 was $165,585.

The following table presents the compensation received by the non-employee directors for service as directors in fiscal year 2016:

Non-Employee Director Compensation Table

 

Name   

Fees Earned

or Paid in Cash

($)

  

Stock Awards

    ($) (1)

  

All Other

Compensation

    ($) (2)

  

Total             

($)             

 

Gerald L. Baliles

 

  

 

140,000

 

  

 

175,008

 

  

 

21,000

 

  

 

336,008          

 

 

John T. Casteen III

 

  

 

125,000

 

  

 

175,008

 

  

 

14,750

 

  

 

314,758          

 

 

Dinyar S. Devitre

 

  

 

120,000

 

  

 

175,008

 

  

 

30,000

 

  

 

325,008          

 

 

Thomas F. Farrell II

 

  

 

145,000

 

  

 

175,008

 

  

 

         0

 

  

 

320,008          

 

 

Thomas W. Jones

 

  

 

140,000

 

  

 

175,008

 

  

 

29,585

 

  

 

344,593          

 

 

Debra J. Kelly-Ennis

 

  

 

125,000

 

  

 

175,008

 

  

 

10,000

 

  

 

310,008          

 

 

W. Leo Kiely III

 

  

 

150,000

 

  

 

175,008

 

  

 

30,000

 

  

 

355,008          

 

 

Kathryn B. McQuade

 

  

 

125,000

 

  

 

175,008

 

  

 

30,250

 

  

 

330,258          

 

 

George Muñoz

 

  

 

150,000

 

  

 

175,008

 

  

 

         0

 

  

 

325,008          

 

 

Nabil Y. Sakkab

 

  

 

140,000

 

  

 

175,008

 

  

 

         0

 

  

 

315,008          

 

 

(1) Pursuant to the Stock Compensation Plan for Non-Employee Directors, on May 19, 2016, each non-employee director received 2,779 shares of Altria common stock with an aggregate grant date fair market value of $175,008. The dollar value is slightly higher than $175,000 because the grant is made in whole shares. The fair market value of the shares of $62.975 per share was based on the average of the high and low trading prices of Altria common stock on May 19, 2016.

 

(2) All Other Compensation consists of matching gifts paid in 2016 under our Matching Gift Program to charitable entities designated by the non-employee director, as more particularly described above. In the case of Ms. McQuade, the amount includes a match overage of $250.00 by Altria due to an oversight by our Matching Gift Program third-party administrator.

Stock Ownership Guidelines for Non-Employee Directors and Prohibition on Hedging and Pledging

Our Board believes that stock ownership guidelines further align the interests of our Board with those of our shareholders. Our non-employee directors are expected to hold shares of our common stock in an amount equal to the lesser of five times the then-current annual cash retainer or 26,000 shares. Directors are expected to reach this ownership level within five years of being elected to Board membership and to hold the requisite number of shares until retirement. The ownership requirement for non-employee directors may be satisfied with all beneficially owned shares, including deferred shares and share equivalents. As of December 31, 2016, all of our directors who had served on our Board for five or more years since their election held a sufficient number of shares to satisfy these guidelines.

Our non-employee directors are not permitted to engage in hedging and pledging activities with respect to our stock.

 

20    ALTRIA GROUP, INC. – Proxy Statement


Table of Contents

AUDIT COMMITTEE MATTERS

 

 

AUDIT COMMITTEE MATTERS

Audit Committee Report for the Year Ended December 31, 2016

Management has the primary responsibility for Altria’s financial statements and the reporting process, including the systems of internal accounting control. The Audit Committee monitors Altria’s financial reporting processes and systems of internal accounting control, the independence and the performance of the independent registered public accounting firm and the performance of the internal auditors.

The Audit Committee has received representations from management that Altria’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America and that Altria maintained effective internal control over financial reporting, and the Audit Committee has reviewed and discussed the consolidated financial statements with management and the independent registered public accounting firm. The Audit Committee has discussed with the independent registered public accounting firm their evaluation of the accounting principles, practices and judgments applied by management, and the Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by applicable standards adopted by the Public Company Accounting Oversight Board (“PCAOB”).

The Audit Committee has received from the independent registered public accounting firm written disclosures and a letter required by applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence and has discussed with the independent registered public accounting firm the independent registered public accounting firm’s independence from Altria and its management. The Audit Committee pre-approved all fiscal year 2016 audit and permissible non-audit services provided by the independent registered public accounting firm and the fees for those services included on page 22. As part of this process, the Audit Committee reviewed non-audit services and fees to assure compliance with regulations prohibiting the independent registered public accounting firm from performing specified services that might impair their independence.

The Audit Committee discussed with Altria’s internal auditors and independent registered public accounting firm the overall scope of and plans for their respective audits. The Audit Committee has met with the internal auditors and the independent registered public accounting firm, separately and together, with and without management present, to discuss Altria’s financial reporting processes and internal control over financial reporting. The Audit Committee has reviewed significant audit findings prepared by the independent registered public accounting firm and those prepared by the internal auditors, together with management’s responses.

Based on the reviews and discussions referred to above, the Audit Committee recommended to our Board the inclusion of the audited consolidated financial statements in Altria’s 2016 Annual Report on Form 10-K.

Audit Committee:

George Muñoz, Chair

John T. Casteen III

Thomas W. Jones

Debra J. Kelly-Ennis

Kathryn B. McQuade

 

ALTRIA GROUP, INC. – Proxy Statement    21


Table of Contents

AUDIT COMMITTEE MATTERS

 

 

Independent Registered Public Accounting Firm’s Fees

Aggregate fees, including out-of-pocket expenses, for professional services rendered by our independent registered public accounting firm, PricewaterhouseCoopers, for fiscal years ended December 31, 2016 and 2015 were comprised of the following (in thousands):

 

       

2016

($)

    

    2015    

($)

       

 

Audit Fees (1)

 

      

 

 

 

 

6,928

 

 

 

    

 

6,289

 

    

 

Audit-Related Fees (2)

 

      

 

 

 

 

665

 

 

 

    

 

   735

 

    

 

Tax Fees (3)

 

      

 

 

 

 

1,397

 

 

 

    

 

   960

 

    

 

All Other Fees (4)

 

      

 

 

 

 

0

 

 

 

    

 

     36

 

      

 

TOTAL

 

      

 

 

 

 

8,990

 

 

 

    

 

8,020

 

      

 

(1) Fees and expenses associated with professional services rendered by PricewaterhouseCoopers in connection with (a) the audit of our consolidated financial statements and internal control over financial reporting, including statutory audits of the financial statements of our subsidiaries; (b) reviews of our unaudited condensed consolidated interim financial statements; and (c) reviews of documents filed with the SEC.

 

(2) Fees and expenses for professional services rendered by PricewaterhouseCoopers for audit-related services, which include certain employee benefit plan audits, accounting consultations and procedures relating to various other audit and special reports.

 

(3) Fees and expenses for professional services rendered by PricewaterhouseCoopers in connection with U.S. and foreign tax compliance and planning, and consultation and advice on tax examinations.

 

(4) Other fees in 2015 were related to a cybersecurity simulation exercise.

Pre-Approval Policy

The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval is detailed as to the particular service or category of service and is subject to a specific budget. The Audit Committee requires the independent registered public accounting firm and management to report on the actual fees charged for each category of service at Audit Committee meetings throughout the year.

During the year, circumstances may arise when it may become necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval. In those instances, the Audit Committee requires specific pre-approval before engaging the independent registered public accounting firm. The Audit Committee has delegated pre-approval authority to the Chair of the Audit Committee for those instances when pre-approval is needed prior to a scheduled Audit Committee meeting. The Chair of the Audit Committee must report on such approvals at the next scheduled Audit Committee meeting.

 

22    ALTRIA GROUP, INC. – Proxy Statement


Table of Contents

COMPENSATION COMMITTEE MATTERS

 

 

COMPENSATION COMMITTEE MATTERS

Introduction

The Compensation Committee consists entirely of non-management directors all of whom our Board has determined are independent within the meaning of the listing standards of the NYSE. The current members of the Committee are: W. Leo Kiely III (Chair); Gerald L. Baliles; Thomas F. Farrell II; Thomas W. Jones; and Kathryn B. McQuade. The Committee’s responsibilities are described below and set forth in the Compensation Committee Charter, which is available on our website at www.altria.com/governance.

Compensation Committee Interlocks and Insider Participation

During 2016, none of our executive officers served on the board of directors or compensation committee of another entity one or more of whose executive officers served as a member of our Board or the Compensation Committee. No member of the Compensation Committee at any time during 2016 or at any other time had any relationship with us that would be required to be disclosed as a related person transaction.

Compensation Committee Procedures

Scope of Authority

The responsibilities of the Compensation Committee are set forth in its Charter and include, among other duties, the responsibility to:

 

    review and approve our overall executive compensation philosophy and design;

 

    review and approve corporate goals and objectives relevant to the compensation of our CEO, evaluate the performance of our CEO in light of these goals and objectives and determine and approve the compensation of our CEO based on this evaluation;

 

    review and approve the compensation of all executive officers;

 

    make recommendations to our Board with respect to incentive compensation plans and equity-based plans, administer and make awards under such plans and review the cumulative effect of its actions;

 

    monitor compliance by executives with our stock ownership guidelines;

 

    monitor risks related to the design of our compensation program;

 

    review and assist with the development of executive succession plans, evaluate and make recommendations to our Board regarding potential candidates to become CEO and evaluate and approve candidates to fill other senior executive positions;

 

    review and discuss with management our Compensation Discussion and Analysis; and

 

    prepare and approve the Compensation Committee’s annual report for inclusion in our annual proxy statement.

In addition, the Compensation Committee determines ratings for Altria’s performance for the annual and long-term cash incentive awards formulas.

In accordance with its Charter, the Compensation Committee may delegate its authority to subcommittees or the Chair of the Committee when it deems appropriate, unless prohibited by law, regulation or NYSE listing standards.

Processes and Procedures for Establishing Executive Compensation

The primary processes and procedures for establishing and overseeing executive compensation include:

Compensation Committee Meetings. The Compensation Committee meets several times each year, including five times in 2016. The Chair of the Committee, in consultation with management and the other members, sets meeting agendas. The Committee reports its actions and recommendations to our Board.

 

ALTRIA GROUP, INC. – Proxy Statement    23


Table of Contents

COMPENSATION COMMITTEE MATTERS

 

 

Role of Consultants. As part of our annual compensation process, management engages Hewitt Associates, LLC d/b/a Aon Hewitt (“Aon Hewitt”).

 

    Aon Hewitt conducts a survey of CSG companies. See page 35 for a description of the companies included in the CSG and the criteria and process for their selection. The survey collects compensation data and competitive practices. The Committee reviews the data to help it assess competitive levels of pay and the competitive mix of pay elements.

 

    Based on parameters developed by management, Aon Hewitt provides competitive compensation information focused on chief executive officer pay primarily from public filings, including annual proxy filings, by companies within our CSG. The Committee also reviews this data.

 

    Aon Hewitt provides background information on companies as reference for evaluating our CSG.

Aon Hewitt also reviews our risk assessment process with respect to its executive compensation program as described on page 35. Aon Hewitt provides neither advice nor recommendations on the form or amount of our executive or director compensation, nor does Aon Hewitt attend any Board or Committee meetings.

Role of Management.

 

    Our management provides input on overall executive compensation program design for the Compensation Committee’s consideration.

 

    Each year, our Chairman and CEO presents to the Compensation Committee compensation recommendations for our named executive officers other than himself, as well as certain other officers. The Committee reviews and discusses these recommendations with our CEO and, exercising its discretion, makes the final decision with respect to the compensation of these individuals. Our CEO has no role in setting his own compensation.

 

    At the beginning of each year, our Chairman and CEO presents his proposed annual performance goals to the Compensation Committee for its consideration.

Compensation Committee Report for the Year Ended December 31, 2016

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained on pages 26 through 43 of this Proxy Statement with management. Based on its review and discussions with management, the Committee recommended to our Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

Compensation Committee:

W. Leo Kiely III, Chair

Gerald L. Baliles

Thomas F. Farrell II

Thomas W. Jones

Kathryn B. McQuade

 

24    ALTRIA GROUP, INC. – Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION – TABLE OF CONTENTS

 

COMPENSATION DISCUSSION AND ANALYSIS

 

INTRODUCTION

 

    

 

26

 

 

 

 

OVERVIEW

     26  

 

Compensation Philosophy

     26  

Say on Pay

     26  

Shareholder Engagement

     26  

Financial Performance

     26  

Pay For Performance

 

    

 

29

 

 

 

 

2016 PERFORMANCE OF NEOs

 

  

 

 

 

 

29

 

 

 

 

 

EXECUTIVE COMPENSATION DESIGN

     31  

 

Principles

     31  

Elements

 

    

 

32

 

 

 

 

DECISION-MAKING PROCESS

     35  

 

Risk Assessment

     35  

Benchmarking

 

    

 

35

 

 

 

 

2016 EXECUTIVE COMPENSATION PROGRAM DECISIONS

     36  

 

Salary

     36  

Annual Incentives

     37  

Long-Term Incentives

     38  

Long-Term Incentives: Equity Awards

     39  

Long-Term Incentives: 2014 – 2016 Long-Term Incentive Plan Awards

     40  

Perquisites

     42  

Post-Termination Benefits and Change in Control Payments

 

    

 

42

 

 

 

 

OTHER CONSIDERATIONS

     42  

 

Stock Ownership and Holding Requirements and Prohibition on Hedging and Pledging

     42  

“Clawback” Policy Regarding the Adjustment or Recovery of Compensation

     43  

Tax and Accounting Considerations

 

    

 

43

 

 

 

 

COMPENSATION TABLES

 

Summary Compensation Table      44  
Grants of Plan-Based Awards during 2016      47  
Outstanding Equity Awards as of December 31, 2016      48  
Stock Option Exercises and Stock Vested during 2016      49  
Pension Benefits      50  
Non-Qualified Deferred Compensation      53  

Payments upon Change in Control or Termination of Employment

 

    

 

54

 

 

 

 

ALTRIA GROUP, INC. – Proxy Statement    25


Table of Contents

EXECUTIVE COMPENSATION

 

 

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Introduction

In this section, we provide a detailed description of our executive compensation program, with a focus on the Compensation Committee’s decisions with respect to our NEOs:

 

 

Name

 

    

 

Position during 2016

 

 

Martin J. Barrington

 

    

 

Chairman of the Board, Chief Executive Officer and President, Altria Group, Inc.

 

 

William F. Gifford, Jr.

 

    

 

Executive Vice President and Chief Financial Officer, Altria Group, Inc.

 

 

Howard A. Willard

 

    

 

Executive Vice President and Chief Operating Officer, Altria Group, Inc.

 

 

Denise F. Keane

 

    

 

Executive Vice President and General Counsel, Altria Group, Inc.

 

 

Craig A. Johnson

 

    

 

President and Chief Executive Officer, Altria Group Distribution Company

 

Overview

Compensation Philosophy

Our executive compensation program aligns with our Mission, Mission goals and Values, including investing in leadership. We believe that such an investment requires:

 

    clear alignment of the interests of our executives and shareholders;

 

    clear articulation of corporate and individual performance goals;

 

    transparent measurement of performance against those goals; and

 

    a competitive, financially disciplined executive compensation program that rewards past success and creates the appropriate incentives for future conduct.

Say on Pay

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) provides shareholders with an advisory vote (“Say on Pay”) on the compensation of a company’s named executive officers, as disclosed in the company’s annual proxy statement. We hold this vote annually. At the 2016 Annual Meeting, 93% of the votes cast approved our NEO compensation on an advisory basis. While the Committee acknowledges the consistently strong shareholder support for our executive compensation program, it is also committed to regularly reviewing the program in the context of our compensation philosophy. In reviewing the program in 2016, the Committee implemented changes that are highlighted under “Executive Compensation Program Highlights” on page 4 and in “Long-Term Incentives” beginning on page 38.

Shareholder Engagement

We periodically engage with large investors, including in 2016 and early 2017, to gain their perspectives on our executive compensation programs and corporate governance policies. Shareholders’ feedback has been generally positive and no significant concerns have been raised.

Financial Performance

Our business performance is a key factor in determining executive compensation. We delivered excellent business performance in 2016 and with respect to the LTIP, over the three-year performance period, as reflected in the “2016 Business Highlights” section beginning on page 3. The following graphs summarize our one and three-year performance against key financial measures:

 

26    ALTRIA GROUP, INC. – Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION

 

 

2016 Total Shareholder Return

 

LOGO

 

(1) See “Decision-Making Process—Benchmarking—Compensation Survey Group and Altria Peer Group” for more information on the 2016 Altria Peer Group.

 

  Source: Bloomberg Daily Return (December 31, 2015 – December 31, 2016)

 

  Note: Assumes reinvestment of dividends as of the ex-dividend date.

Three-Year Total Shareholder Return

(2014 – 2016)

 

LOGO

 

(1) See “Decision-Making Process—Benchmarking—Compensation Survey Group and Altria Peer Group” for more information on the 2016 Altria Peer Group.

 

  Source: Bloomberg Daily Return (December 31, 2013 – December 31, 2016)

 

  Note: Assumes reinvestment of dividends as of the ex-dividend date.

 

ALTRIA GROUP, INC. – Proxy Statement    27


Table of Contents

EXECUTIVE COMPENSATION

 

 

Adjusted Diluted EPS

(12/31/2013—12/31/2016)

 

LOGO

 

(1) Three-year compound annual growth rate (“CAGR”) based on 2013 adjusted diluted EPS of $2.38.

Dividend Rate (1)

 

LOGO

 

(1) Annualized dividend based on quarterly dividend rate per common share declared in August of each year.

 

(2) Three-year CAGR based on the annualized dividend rate per common share of $1.92 that was declared in August 2013, with each August dividend similarly annualized.

 

28    ALTRIA GROUP, INC. – Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION

 

 

Pay For Performance

The following graph illustrates the relationship between Mr. Barrington’s total pay (including annualized LTIP compensation) and our indexed TSR:

CEO Pay (1) vs. Indexed TSR (2)

 

LOGO

 

(1) CEO pay is calculated using an annualized allocation of the 2014 – 2016 LTIP award. All other pay elements are based on the Summary Compensation Table values.

 

(2) Indexed TSR reflects a December 31, 2013 starting point (with a nominal value of 100) and represents the total growth (including dividends) from that date through each December 31.

2016 Performance of NEOs

The Compensation Committee considered several factors in approving each element of compensation. For example, the Compensation Committee evaluated our financial and strategic performance, as described above and beginning on page 26, in the context of the 2016 Annual Incentive Award program and the 2014 – 2016 LTIP (discussed under “2016 Executive Compensation Program Decisions – Annual Incentives” on page 37 and “2016 Executive Compensation Program Decisions – Long-Term Incentives” on page 38). The Compensation Committee also considered the individual performance of each NEO for purposes of approving salary increases, annual cash incentive awards, equity awards and LTIP awards. Each executive, including our NEOs, is evaluated on a five-point scale of “Extraordinary,” “Outstanding,” “Valued,” “More Expected” or “Unacceptable.” Executives receive variable elements of compensation only after the relevant performance period – whether short- or long-term – has ended and the Compensation Committee has assessed Altria’s actual performance and considered executive performance relative to stated goals.

 

ALTRIA GROUP, INC. – Proxy Statement    29


Table of Contents

EXECUTIVE COMPENSATION

 

 

The Compensation Committee concluded that our NEOs’ successes in achieving their performance goals contributed significantly to our strong overall 2016 performance. We discuss the performance of each NEO below.

 

  Martin J. Barrington. Mr. Barrington provided extraordinary strategic leadership to our Board, the executive team and employees in a dynamic competitive and regulatory environment. Among other accomplishments, Mr. Barrington drove execution of our strategy to maximize the core business while innovating for future value creation; pursued long-term strategic options for new revenue and income growth; strengthened our culture; and maintained strong relationships with external stakeholders. Specifically, Mr. Barrington guided the efforts of Altria and our companies to:

 

    deliver 2016 TSR of 20.5%, outpacing both the S&P 500 and the S&P Food, Beverage & Tobacco Index and marking the fourth consecutive year that TSR exceeded 20%;

 

    reward our shareholders by paying out over $4.5 billion in dividends, raising our dividend by 8% and repurchasing approximately $1 billion of Altria stock under an expanded $3 billion share repurchase program;

 

    strengthen our cost competitiveness with a productivity initiative and manufacturing facility consolidation that are expected to deliver approximately $350 million in annualized savings by year-end 2018;

 

    oversee the building of infrastructure to pursue U.S. Food and Drug Administration (“FDA”) approval of reduced-harm products;

 

    lead the cultural and system changes to improve our leadership and organizational capabilities, particularly regarding diversity and inclusion, business simplification and innovation; and

 

    support the ABI/SABMiller transaction, which ultimately led to Altria’s 10.2% ownership interest in AB InBev and enhanced the value of our beer investment and our position in the global brewing profit pool.

 

  William F. Gifford, Jr. Mr. Gifford’s responsibilities included oversight of the Finance function, Strategy and Business Development, Procurement, Investor Relations and Philip Morris Capital Corporation. He effectively managed the balance sheet and helped deliver adjusted diluted EPS growth of 8.2% and strong returns for our shareholders. Under his leadership, we continued to manage our debt profile by purchasing through a tender offer over $0.9 billion of 2038 and 2039 high-coupon debt and repurchased approximately $1 billion of Altria stock under an expanded $3 billion share repurchase program. Mr. Gifford also had extensive involvement in supporting the complex ABI/SABMiller transaction, working to secure attractive terms for Altria.

 

  Howard A. Willard. Mr. Willard oversaw PM USA, John Middleton Co. (“Middleton”), USSTC, Nu Mark LLC (“Nu Mark”), Ste. Michelle and Altria Group Distribution Company (“AGDC”), along with the Consumer & Marketplace Insights function of Altria Client Services LLC. Under his leadership, the operating companies continued to deliver strong adjusted OCI growth and grow retail share in the smokeable and smokeless segments. The smokeable products segment grew adjusted OCI by 5.3% while growing cigarette retail share to 51.4%. Mr. Willard also oversaw the successful acquisition of Sherman Group Holdings, LLC and its subsidiaries (manufacturer of super-premium cigarettes and premium cigars), which closed in January 2017. The smokeless products segment grew adjusted OCI by 11.0% and the combined retail share of Copenhagen and Skoal by 0.9 share points with an enhanced brand portfolio strategy in a highly competitive environment. Nu Mark continued its expansion of MarkTen, which at year-end was available in stores representing about 55% of the e-vapor category volume in retail channels, including convenience stores. Ste. Michelle had a strong year, growing net revenues by 7.8%, adjusted OCI by nearly 10% and shipment volume by 5.3%. Ste. Michelle continued to expand and diversify its brand portfolio with the acquisition of Patz & Hall Winery and the development of five new innovation brands.

 

  Denise F. Keane. Ms. Keane’s responsibilities included managing diverse litigation challenges and efficiently deploying the resources of the Law department to help Altria and its subsidiaries meet regulatory and business requirements. Under her leadership, the Law department concluded the Miles/Price “lights” class action, obtained defense verdicts in the Missouri “lights” class action and the Massachusetts medical monitoring case and settled favorably the Arkansas “lights” case. Ms. Keane also oversaw the management of a number of state Engle-progeny trials and post-verdict matters and supervised the non-participating manufacturer arbitration and litigation process. In addition, Ms. Keane oversaw the Law department’s outstanding delivery of legal services to our companies on a wide range of complex legal and regulatory issues. Ms. Keane also had extensive involvement in supporting the complex ABI/SABMiller transaction, working to capture attractive terms for Altria.

 

30    ALTRIA GROUP, INC. – Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION

 

 

 

  Craig A. Johnson. Mr. Johnson’s responsibilities included providing sales, distribution and consumer engagement services to our tobacco operating companies. Under his leadership, AGDC:

 

    formed a Digital & Marketing Services organization to drive engagement with adult tobacco consumers through enhanced digital marketing platforms, resulting in significant increases in consumer interactions and mobile coupon redemptions;

 

    completed a major redesign of its field sales, key account and headquarters structure to enhance services to Altria’s tobacco operating companies, while better aligning with our trade partners; and

 

    enhanced PM USA’s retail trade programs.

In addition to assessing Altria’s and individual performance against stated goals to determine incentive compensation, the Compensation Committee looks at industry compensation market data and tally sheets for each of the NEOs that include their total cash and long-term compensation for the last three years.

Executive Compensation Design

Principles

We strategically design our executive compensation program to promote our Mission, which is to own and develop financially disciplined businesses that are leaders in responsibly providing adult tobacco and wine consumers with superior branded products. In pursuing our Mission, we remain focused on four goals: Invest in Leadership, Align with Society, Satisfy Adult Consumers and Create Substantial Value for Shareholders.

Our Values guide our behavior as we pursue our Mission and our goals. Our Values are Integrity, Trust and Respect; Passion to Succeed; Executing with Quality; Driving Creativity into Everything We Do; and Sharing with Others.

Our executive compensation program includes multiple performance metrics to assess the efforts of all executives in pursuing our Mission and goals, while assuring that such efforts are guided by our Values. Specifically, our program is designed to satisfy the following objectives:

 

    promote pursuit of business strategies that create substantial value for shareholders and are executed with integrity;

 

    reward quality execution by making a significant portion of the compensation of our executives dependent on the achievement by Altria of key financial and strategic goals and their individual performance;

 

    align the interests of shareholders and executives through equity and cash-based long-term incentive awards, stock ownership and retention guidelines and anti-hedging and anti-pledging policies with respect to our stock;

 

    support the attraction, development and retention of world-class leaders; and

 

    promote internal fairness and a disciplined qualitative and quantitative assessment of performance.

The elements of our executive compensation program serve these objectives with the following design principles (as shown in the chart below):

 

    a mix of fixed and at-risk variable and performance-based compensation, with executives at higher levels having a higher proportion of variable compensation;

 

    a mix of short- and long-term compensation to appropriately reward and motivate the achievement of both annual and long-term goals and objectives; and

 

    a mix of cash and equity compensation that seeks to discourage actions solely driven by our stock price to the detriment of strategic goals and to minimize the potentially dilutive nature of equity compensation on shareholder value.

 

ALTRIA GROUP, INC. – Proxy Statement    31


Table of Contents

EXECUTIVE COMPENSATION

 

 

2016 CEO and NEO Pay Mix (1)

 

LOGO

 

(1) Includes 2016 actual salary, annual incentive award, grant date fair value of long-term equity awards and annualized cash LTIP award. Pay components may not add to 100% due to rounding.

Elements

The table below provides a brief side-by-side comparison of the elements of our 2016 executive compensation program.

 

                  Long-Term Incentive Awards
    Salary   Annual Incentive   Equity   Cash
         

 Form of  Compensation

 

   

Cash

  Cash   RSUs   Cash
         

 Performance

 Period

    Ongoing   Annual  

Annual with

three-year vesting

periods

 

 

Three years;

end-to-end cycles

         

 Award

 Criteria

   

Individual

performance

 

Company and

individual performance

 

Individual performance

and advancement

potential

 

 

Company and

individual

performance

         

 Company

 Performance

 Alignment

       

•   Adjusted diluted EPS growth

•   Adjusted discretionary cash flow

•   Strategic initiatives

 

 

•   Stock price appreciation for RSUs

 

•   Adjusted diluted EPS growth

•   Relative TSR

•   Strategic initiatives

 

32    ALTRIA GROUP, INC. – Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION

 

 

The table below summarizes the elements and objectives of the 2016 executive compensation program for the NEOs. In addition, the general objective of each element is to attract and retain world-class leaders.

2016 Executive Compensation Program

 

    Element   Summary Description   Objective
       

 Annual

 Compensation

    Salary   Fixed cash compensation based on role at Altria.  

•   Provide financial stability

 

•   Recognize individual role, experience, responsibility and performance

 

       
    Annual Incentive Awards   Cash-based incentive plan based on prior year’s performance.  

•   Recognize annual financial and strategic performance after it is delivered

 

•   Recognize annual individual performance after it is delivered

 

       

 Long-Term Incentive

 Compensation

    Equity Awards   RSU awards based on prior year’s individual performance and advancement potential, vesting over a three-year period.  

•   Align NEOs’ interests with shareholders through stock ownership

 

•   Recognize individual performance after it is delivered and advancement potential

 

•   Build stock ownership

 

•   Retain talented leaders

 

       
   

Long-Term

Incentive Plan

 

Cash-based incentive plan based on three-year financial and strategic goals. 

 

•   Align NEOs’ interests with shareholders

 

•   Recognize long-term financial and strategic performance after it is delivered 

 

•   Retain talented leaders

 

•   No dilutive impact

 

       

 Post-Termination  Benefits and

 Change in Control  Payments

   

Defined Benefit

Plans

 

Retirement plans providing for the continuation of a portion of compensation upon retirement or separation from service. Generally, employees hired prior to January 1, 2008 are eligible.

 

 

•   Provide opportunity for financial security in retirement

       
   

Defined

Contribution

Plans

 

Annual cash contribution based on a formula related to adjusted diluted EPS growth for 2016 and, for employees not participating in a defined benefit plan, a supplemental contribution and matching contributions. Includes an Altria stock investment option.

 

 

•   Provide opportunity for financial security in retirement

 

•   Provide additional opportunity to build stock ownership

 

ALTRIA GROUP, INC. – Proxy Statement    33


Table of Contents

EXECUTIVE COMPENSATION

 

 

 

    Element   Summary Description   Objective
       

Post-Termination

Benefits and

Change in Control

Payments

 

 

   

 

Change in Control Payments

 

 

Payments to executives in connection with a defined change in the ownership of Altria. Change in control provisions are contained in the 2010 and 2015 Performance Incentive Plans.

 

 

•   Allow NEOs to focus on delivering shareholder value in a period of uncertainty

 

•   Allow NEOs to receive awards granted for periods of performance before a change in control

 

       
   

 

Termination

Payments

 

 

For certain types of involuntary separations, potential for severance benefits (including continuation of salary and health insurance based on years of service). Our NEOs are eligible for the same severance benefits as our other salaried employees.

 

 

 

•   Provide opportunity for protection upon an unexpected event

       

Perquisites

 

 

       

 

For the Chairman, CEO and President for safety and security purposes, home security system and personal use of our aircraft subject to an annual allowance.

 

For all NEOs, Altria-paid executive physical and leased vehicle (not used by the Chairman, CEO and President).

 

 

 

•   Provide security

 

•   Provide comprehensive annual preventive health screening

 

•   Effective January 1, 2016, we discontinued reimbursement for financial counseling services

       

Other Benefits

 

 

       

 

Medical coverage, group life insurance and other welfare benefits generally available to all salaried employees.

 

 

•   Promote health and financial security

 

34    ALTRIA GROUP, INC. – Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION

 

 

Decision-Making Process

Risk Assessment

 

A cross-functional team of executives in the Human Resources & Compliance, Law, Corporate Audit and Finance departments annually reviews Altria’s compensation program (executive and non-executive) to identify features that could encourage excessive risk-taking by program participants and to assess the potential of such risks to have a material adverse effect on Altria. Management requested that the external compensation consultant, Aon Hewitt, review this risk assessment process – specifically, the features identified as potentially encouraging excessive risk-taking, features that mitigate risk and management’s assessment of those features – to confirm consistency with prevailing best practices.

 

After reviewing management’s assessment, the Compensation Committee believes that neither the compensation program’s design nor the individual elements of executive compensation encourage employees, including our NEOs, to take unnecessary or excessive risks. The executive compensation program also incorporates risk-mitigating features such as those shown in the chart on the right, which the Compensation Committee considered as part of its assessment. We believe that any risks arising from our compensation policies and practices are not likely to have a material adverse effect on Altria.

 

Benchmarking

 

Compensation Strategy

   

 

RISK-MITIGATING FEATURES

 

   Appropriate compensation mix of fixed versus at-risk variable pay, annual versus long-term pay, cash versus equity and performance-based versus non-performance-based pay

 

   Multiple objective performance factors used for annual and long-term cash incentive awards, coupled with the Compensation Committee’s discretion to approve awards at lower than target

 

   Caps on annual and long-term incentive plan formulas

 

   Peer company benchmarking

 

   Significant stock ownership, holding requirements and anti-hedging/anti-pledging policies

 

   A “clawback” policy providing for the adjustment or recovery of executive compensation upon the restatement of our financial statements

 

   Individual performance assessments that emphasize behavior consistent with our Mission goals and Values

 

We design our executive compensation program to deliver total compensation (salary, annual and long-term cash awards, equity awards and benefits) upon attainment of performance targets at levels between the 50th and the 75th percentiles of compensation paid to executives in the CSG, discussed below. We believe that this approach is critical to attracting and retaining world-class leaders to pursue our Mission goals, particularly given the unique challenges of our industry. We also believe this approach contributes to low executive turnover across all of our businesses. Actual total compensation can exceed the 75th percentile or be below the 50th percentile depending on business and individual performance in relation to performance targets.

Compensation Survey Group and Altria Peer Group

We annually compare our executive compensation program with the programs of the companies in the CSG. The purpose of this annual review is to assure that our executive compensation program supports our ability to attract and retain executive talent. When determining the companies to include in the CSG, the Compensation Committee identifies companies that compete with us for talent and:

 

    are direct competitors;

 

    have similar market capitalization;

 

    are primarily focused on consumer products; or

 

    have businesses generally focused within the United States.

The Altria Peer Group is a subset of the CSG that we use, along with major external indices, to assess financial performance for purposes of determining variable compensation payments. The Altria Peer Group consists of U.S.-headquartered consumer product companies that compete with our tobacco operating subsidiaries or that we believe otherwise provide useful financial performance comparisons on the basis of market capitalization or reported revenue.

 

ALTRIA GROUP, INC. – Proxy Statement    35


Table of Contents

EXECUTIVE COMPENSATION

 

 

Based on these criteria, the Compensation Committee included the following companies in the 2016 CSG and the 2016 Altria Peer Group and used this list for compensation-related decisions during 2016. The list is sorted by market capitalization as of December 31, 2016.

 

Compensation Survey Group Companies

 

  

Market

    Capitalization (1)

($B)

 

  

Altria

Peer

        Group        

 

 

The Coca-Cola Company

 

   179

 

  

 

 

Merck & Co., Inc.

 

   162

 

  

 

PepsiCo, Inc.

 

   150

 

  

 

 

Philip Morris International Inc. (2)

 

   142

 

  

 

Altria

 

   132

 

  

 

3M Company

 

   107

 

  

 

The Kraft Heinz Company

 

   106

 

  

 

 

McDonald’s Corporation

 

   101

 

  

 

Bristol-Myers Squibb Company

 

   98

 

  

 

Eli Lilly and Company

 

   81

 

  

 

Median

 

   81

 

  

 

Reynolds American Inc.

 

   80

 

  

 

 

Mondelēz International, Inc.

 

   68

 

  

 

 

Colgate-Palmolive Company

 

   58

 

  

 

 

Kimberly-Clark Corporation

 

   41

 

  

 

 

General Mills, Inc.

 

   36

 

  

 

 

Kellogg Company

 

   26

 

  

 

 

The Hershey Company

 

   22

 

  

 

 

Campbell Soup Company

 

   19

 

  

 

 

ConAgra Brands, Inc.

 

   17

 

  

 

 

(1) Market capitalization is calculated using shares outstanding as of the most recent public disclosure as of January 3, 2017 per Bloomberg multiplied by the closing stock price as of December 30, 2016.

 

(2) Although Philip Morris International Inc. does not meet all of the criteria set forth above, we compete for executive talent.

2016 Executive Compensation Program Decisions

Salary

The Compensation Committee considers a number of factors when reviewing and setting salaries for our NEOs, including each executive’s individual performance, level of responsibility, experience, the relationship between salaries paid to other Altria executives and the position of the executive’s salary within the applicable salary range. Additionally, as appropriate, the Compensation Committee compares the salaries of our NEOs to others holding comparable positions at CSG companies. The Compensation Committee analyzes all these factors in the aggregate in determining NEO salaries.

Salaries are relevant in establishing annual and long-term incentive target awards and factor into retirement, group life insurance and certain other benefits available to all salaried employees. The Compensation Committee reviews salaries on an annual basis and any increases generally are effective March 1.

The 2016 salary ranges for our NEOs were as follows:

 

36    ALTRIA GROUP, INC. – Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION

 

 

 

     

 

2016 Salary Range      

 

Band

 

  

Minimum

($)

 

  

Maximum      

($)      

 

 

A (Mr. Barrington)

 

  

 

910,000

 

  

 

2,090,000      

 

 

B (Other NEOs)

 

  

 

480,000

 

  

 

1,100,000      

 

The Compensation Committee increased the salaries of our NEOs based on the criteria noted above as follows, effective March 1, 2016:

2016 Salary Increases

 

Name   

2015

Salary

($)

  

2016      

Salary      

($)      

 

Martin J. Barrington

 

  

 

1,350,000

 

  

 

1,420,000      

 

 

William F. Gifford, Jr.

 

  

 

   610,000

 

  

 

   647,000      

 

 

Howard A. Willard

 

  

 

   800,000

 

  

 

   840,000      

 

 

Denise F. Keane

 

  

 

   916,000

 

  

 

   943,000      

 

 

Craig A. Johnson

 

  

 

   875,000

 

  

 

   907,000      

 

Annual Incentives

The Annual Incentive Award program is a cash-based, pay-for-performance plan for management employees, including our NEOs. Participants have an annual award target based on salary band and expressed as a percentage of salary. Our benchmarking process establishes award targets, which are paid only after both business and individual results are assessed against targeted levels of performance. While the Compensation Committee reviews and approves the targets annually, no individual is guaranteed an award.

Each December, the Compensation Committee reviews the financial and strategic performance of Altria as well as the performance of each of our tobacco and wine businesses for that year. The Compensation Committee uses adjusted diluted EPS growth and adjusted discretionary cash flow as the key financial measures in determining Annual Incentive Awards because these measures link to our long-term financial goals to:

 

    grow adjusted diluted EPS at an average annual rate of 7% to 9%; and

 

    maintain a target dividend payout ratio of approximately 80% of adjusted diluted EPS.

The Compensation Committee believes that the combination of these metrics provides the best alignment between Altria’s business strategy and our shareholders’ interests: our executives are rewarded when our shareholders are rewarded.

In determining Altria’s financial performance for 2016, the Compensation Committee considered the following:

Key Financial Measures

(millions, except per share data)

 

     

Target Range

 

 

2016

Results

 

 

Rating

(from 0% - 130%)

 

 

Weighting

 

 

Weighted    
Result    

 

Adjusted Diluted EPS Growth (1) (2)    $2.97 - $3.02   $3.03   114%   75%     86%    

(Rating Range)

 

   (90% - 110%)

 

       
Adjusted Discretionary Cash Flow (2)    $4,993 - $5,518   $5,653   117%   25%     29%    

(Rating Range)

   (90% - 110%)        

Rating for Financial Metrics

 

  115%    

 

 

(1) In early 2016, when the Compensation Committee approved an original target range of $3.00 to $3.05 (based on the initial guidance that we disclosed for 2016 full-year adjusted diluted EPS), the ABI/SABMiller transaction had not closed and the Committee acknowledged that if the transaction closed in 2016 the target range would be adjusted to reflect the absence of fourth quarter equity earnings from AB InBev due to the application of lag accounting for such earnings. The ABI/SABMiller transaction closed in October 2016 and the original target range was so adjusted.

 

ALTRIA GROUP, INC. – Proxy Statement    37


Table of Contents

EXECUTIVE COMPENSATION

 

 

 

(2) Adjusted diluted EPS growth and adjusted discretionary cash flow are non-GAAP financial measures. See Annex A to this Proxy Statement for information regarding non-GAAP financial measures and reconciliations of such non-GAAP financial measures to the most directly comparable GAAP financial measures.

In addition to financial metrics, the Compensation Committee evaluates our performance and the performance of each of our tobacco and wine businesses against key strategic initiatives that are designed to promote our long-term success, as well as any significant events during the year. The key strategic initiatives in 2016 included:

 

    brand-building initiatives in our core businesses;

 

    enhancing adult tobacco consumer engagement through digital marketing technologies and consumer insights;

 

    advancing our innovation and harm reduction strategies;

 

    enhancing our information technology;

 

    enhancing our retail engagement system;

 

    productivity and business simplification initiatives; and

 

    developing organizational talent and enhancing our culture to improve diversity and inclusion.

The Compensation Committee also considers TSR in its evaluation of overall performance. Our 2016 TSR of 20.5% exceeded the 8.8% TSR of the 2016 Altria Peer Group, the 8.8% TSR of the S&P Food, Beverage & Tobacco Index and the 12.0% TSR of the S&P 500 Index.

Based on its overall review of financial measures and strategic initiatives, the Compensation Committee assigns an Annual Incentive Award business performance rating for us and each of our business segments. Performance at planned levels receives a rating of 100%. Depending on performance, Annual Incentive Award ratings for business performance can range from 0% to 130%. Performance against the financial metrics reflected above resulted in a rating of 115% for 2016. The Committee also considered performance against the 2016 strategic measures described above and our TSR relative to our Peer Group and major indexes and assigned an overall Annual Incentive Award business performance rating of 123%. The Committee used this rating, together with individual performance (see “2016 Performance of NEOs” on page 29), in determining the 2016 awards below. The following formula is the basis for determining Annual Incentive Awards:

 

Salary

 

 

 

 

 

 

X

 

 

 

 

 

Target

(% of salary)

 

 

 

 

 

 

X

 

 

 

 

 

Business

Performance

Rating

 

 

 

 

 

 

X

 

 

 

 

 

Individual

Performance

Factor

 

 

 

 

 

 

=

 

 

 

 

 

Annual

Incentive

Award

 

2016 Annual Incentive Award Target Percentages, Award Ranges and Actual Awards

 

Name

 

 

Band

 

 

Salary

($)

 

 

Target
(% of
salary)

 

 

2016

Business

Performance

Rating

(0 - 130%)

 

   Individual
Performance

    Factor Range (1)
(% of target)

 

  

Award Range

for 2016

Performance

($)

 

   

Actual
Award

for 2016

Performance

($)

 

 
          

Minimum

 

  

Maximum

 

    

 

Martin J. Barrington

 

  A

 

  1,420,000

 

  150

 

  123

 

   85

 

   175

 

    

 

2,226,915 - 4,584,825

 

 

 

   

 

3,900,000

 

 

 

 

William F. Gifford, Jr.

 

  B

 

     647,000

 

    95

 

  123

 

   85

 

   155

 

    

 

642,617 - 1,171,830

 

 

 

   

 

950,000

 

 

 

 

Howard A. Willard

 

  B

 

     840,000

 

    95

 

  123

 

   85

 

   155

 

    

 

834,309 - 1,521,387

 

 

 

   

 

1,300,000

 

 

 

 

Denise F. Keane

 

  B

 

     943,000

 

    95

 

  123

 

   85

 

   155

 

    

 

936,611 - 1,707,938

 

 

 

   

 

1,450,000

 

 

 

 

Craig A. Johnson

 

  B

 

     907,000

 

    95

 

  123

 

   85

 

   155

 

    

 

900,855 - 1,642,736

 

 

 

   

 

1,219,000

 

 

 

 

(1) The individual performance ranges are stated as a percentage of target and are based on individual performance between “Valued” and “Extraordinary.”

Long-Term Incentives

We have historically awarded long-term incentives to senior executives through a combination of RSU awards and performance-based long-term cash incentive awards. The mix of these awards focuses executives on TSR, adjusted diluted EPS growth, long-term operational performance and progress against strategic and societal alignment objectives, while minimizing shareholder dilution.

 

38    ALTRIA GROUP, INC. – Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION

 

 

Long-Term Incentives: Equity Awards

 

Equity awards in the form of RSUs focus executives on increasing long-term shareholder value, enhance executive retention and promote executive stock ownership. Awards recognize prior year performance and advancement potential and generally vest three years after the date of the award, subject to earlier vesting on death, disability or retirement on or after age 65 or in connection with a change in control. This vesting period is intended to retain and motivate executives, while promoting long-term performance. Recipients receive cash dividend equivalents during the vesting period. The Compensation Committee annually reviews equity award targets against competitive data and decided to maintain the current targets for each salary band for the 2016 grants. The awards are granted on the date of Compensation Committee approval, and no individual is guaranteed an award.

 

The Compensation Committee exercises discretion in making equity awards to our Chairman, CEO and President (salary band A) based on its assessment of competitive data and its review of our Chairman, CEO and President’s individual performance. The Compensation Committee reviews various equity award scenarios, including past practices of those companies within the 2016 CSG, to establish an appropriate range of awards.

   

 

2016 EQUITY AWARD HIGHLIGHTS

 

   RSUs

 

   Vesting period of three years

 

   Cash dividend equivalent payments

 

   NEO awards based on:

 

–  Executive’s individual performance in year prior to the grant;

 

–  Executive’s advancement potential;

 

–  Compensation Committee discretion; and

 

–  Competitive benchmarking

 

   Number of shares awarded is based on fair market value of our stock on the date of the grant

 

The equity awards granted to our NEOs in 2016 were as follows:

2016 Equity Awards

 

Name    Band   

Equity

Target

($)

  

Equity

    Award Range (1)

($)

  

Actual

Equity
      Award (1) (2)

($)

 

Martin J. Barrington

 

  

 

A

 

  

 

 

  

 

 

  

 

6,500,010

 

 

William F. Gifford, Jr.

 

  

 

B

 

  

 

1,275,000

 

  

 

765,000 - 1,912,500

 

  

 

1,700,038

 

 

Howard A. Willard

 

  

 

B

 

  

 

1,275,000

 

  

 

765,000 - 1,912,500

 

  

 

1,700,038

 

 

Denise F. Keane

 

  

 

B

 

  

 

1,275,000

 

  

 

765,000 - 1,912,500

 

  

 

1,700,038

 

 

Craig A. Johnson

 

  

 

B

 

  

 

1,275,000

 

  

 

765,000 - 1,912,500

 

  

 

1,275,058

 

 

(1) Ranges and actual awards are a function of individual performance and, for our NEOs other than Mr. Barrington, advancement potential.

 

(2) Represents the grant date fair value of stock awards granted in 2016 pursuant to Financial Accounting Standards Board (“FASB”) Codification Topic 718. Please see footnote 1 to the Summary Compensation Table on page 44.

The Committee decided that for the equity awards granted in January 2017, executives will receive a mix of 60% RSUs and 40% PSUs. The addition of PSUs, combined with our existing cash LTIP, will increase to over 60% the portion of our executives’ long-term incentives that is tied to business performance.

Target Long-Term Incentive Mix

 

LOGO

 

ALTRIA GROUP, INC. – Proxy Statement    39


Table of Contents

EXECUTIVE COMPENSATION

 

 

Long-Term Incentives: 2014 – 2016 Long-Term Incentive Plan Awards

 

The LTIP is a long-term cash performance plan that uses a three-year, end-to-end performance cycle, an approach consistent with our long-term strategic planning process. At the beginning of each three-year cycle, the Compensation Committee approves long-term financial and strategic performance goals for us that can only be measured effectively after completion of the cycle. Awards are payable in cash after the end of each three-year cycle, based on an assessment of actual overall business and individual performance during the entire award cycle. Each executive has an award target based on his or her salary band, expressed as a percentage of each year-end salary over the three-year cycle. The Compensation Committee retains the discretion to adjust awards upward or downward, and no individual is guaranteed an award.

 

   

 

LTIP HIGHLIGHTS

 

   Three-year, end-to-end performance cycle

 

   Awards based on our performance against long-term financial and strategic goals and individual performance

 

   The lump sum cash payment of the three-year 2014 – 2016 LTIP award significantly increases the NEOs’ 2016 total compensation when compared to 2015 and 2014, when no LTIP awards were made.

 

 

Although the Compensation Committee takes our executives’ earnings opportunity under the LTIP into account when setting their compensation each year, those opportunities remain at risk until the end of the three-year performance cycle.

The Compensation Committee has previously considered alternative LTIP design approaches, such as overlapping three-year cycles (with a new three-year cycle beginning each year), resulting in annual payouts versus payouts every three years. Although such an approach would result in less fluctuation in the annual compensation of executives, the Compensation Committee has concluded that reducing fluctuations is outweighed by the clarity of long-term performance incentives and the retention value of end-to-end performance cycles.

2014 – 2016 LTIP Performance Measures

The 2014 – 2016 LTIP performance cycle concluded on December 31, 2016. This performance cycle rewarded achievement of key financial and strategic performance measures intended to create substantial value for shareholders. Financial and strategic measures each were weighted 50% in evaluating performance.

The following table illustrates our performance against the financial measures:

 

Financial Measures (50%)    Performance Against Financial Measures

 

 

Relative 2014 – 2016 TSR growth versus Altria Peer

Group and major indices

  

 

Altria

 

 

 

99.5%

 

  

 

S&P 500 Food, Beverage &

Tobacco Index

 

 

 

42.3%

 

  

 

S&P 500 Index

 

 

 

29.0%

 

  

 

2016 Altria Peer Group

 

 

 

42.0%

 

 

Adjusted Diluted EPS 2014 - 2016 compound annual 

growth rate of 6.7% - 8.6% (1)

 

  

 

8.4%

 

   

 

(1) In early 2016, when the Compensation Committee reviewed the original target range of 7% to 9%, the ABI/SABMiller transaction had not closed and the Committee acknowledged that if the transaction closed in 2016 the target range would be adjusted to reflect the absence of fourth quarter equity earnings from AB InBev due to the application of lag accounting for such earnings. The ABI/SABMiller transaction closed in October 2016 and the original target range was so adjusted.

 

40    ALTRIA GROUP, INC. – Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION

 

 

The following table illustrates our performance against the strategic measures:

 

Strategic Measures (50%)        Performance Against Strategic Measures

 

Enhance our infrastructure to maintain or improve our operating companies’ major brands’ franchises among adult tobacco consumers.

 

     

Our tobacco companies enhanced branded websites, and developed mobile apps and digital coupons to increase adult tobacco consumer engagement. PM USA also successfully expanded product offerings and enhanced packaging to exceed adult smoker expectations.

 

 

Build the infrastructure to pursue regulatory pathways for innovative reduced harm products and effective engagement and advocacy with the FDA.

 

     

We made significant progress in preparing FDA applications related to reduced harm products and developing a scientific framework to support such applications.

 

 

Build the infrastructure to achieve a leading position in the U.S. e-vapor market by year-end 2017.

 

     

Nu Mark launched in approximately 54,000 stores making good progress toward establishing MarkTen as a leading brand in the e-vapor market.

 

 

Build an innovation system and culture that provides sustainable competitive advantage.

 

     

Our operating companies developed five-year product portfolio plans with a sharper focus on innovation, including harm reduction.

 

 

Simplify the business, streamline business process and improve productivity.

 

     

We significantly streamlined business processes to reduce costs and announced a productivity initiative and a manufacturing consolidation plan to reduce costs and streamline operations and achieve greater efficiencies.

 

 

Enhance our talent system, including diversity and inclusion, to improve our leadership capability.

 

     

We developed and launched programs to build leadership capability around our culture change initiatives of innovation, business simplification and diversity and inclusion.

 

The Compensation Committee also considered our support of the ABI/SABMiller transaction that resulted in ultimately securing 10.2% ownership in the new AB InBev. We believe this transaction enhances the value of our beer investment and will deliver strong long-term financial returns to shareholders.

Following the conclusion of the 2014 – 2016 LTIP cycle, the Compensation Committee assessed our performance on each of the above financial and strategic measures to determine the final LTIP rating, which could have ranged from 0% to 130%. The Compensation Committee assigned an LTIP business performance rating of 120% to Altria, then used that rating to determine the 2014 – 2016 award ranges and actual awards below. The Compensation Committee determined that all LTIP awards would be based on the business performance factor with no adjustment for individual performance, reflecting an emphasis on the collaboration required to pursue the financial and strategic measures rather than individual efforts. The following formula is the basis for determining LTIP awards:

 

Year-end

Salaries for

Each Plan Year

 

 

 

 

 

X

 

 

 

Award 

Target 

(prorated for 

time in Band) 

 

 

 

 

 

X

 

 

 

Business 

Performance 

Rating 

 

 

 

 

 

X

 

 

 

Individual 

Performance 

Factor 

 

 

 

 

 

=

 

 

 

Three-Year 

LTIP Award 

 

 

ALTRIA GROUP, INC. – Proxy Statement    41


Table of Contents

EXECUTIVE COMPENSATION

 

 

2014 – 2016 Long-Term Incentive Plan Award Target Percentages and Actual Awards

 

Name    Band  

Award

Target

    (%) (1)

  

Business

Performance

Rating

(%)

  

2014 - 2016    

Actual    

    Award (2)    

($)    

 

Martin J. Barrington

 

    

 

 

 

 

A

 

 

 

 

 

 

250

 

  

 

120

 

    

 

 

 

 

12,060,000    

 

 

 

 

 

William F. Gifford, Jr.

 

    

 

 

 

 

B

 

 

 (3) 

 

 

 

200

 

  

 

120

 

    

 

 

 

 

3,700,600    

 

 

 

 

 

Howard A. Willard

 

    

 

 

 

 

B

 

 

 

 

 

 

200

 

  

 

120

 

    

 

 

 

 

5,572,800    

 

 

 

 

 

Denise F. Keane

 

    

 

 

 

 

B

 

 

 

 

 

 

200

 

  

 

120

 

    

 

 

 

 

6,612,000    

 

 

 

 

 

Craig A. Johnson

 

    

 

 

 

 

B

 

 

 

 

 

 

200

 

  

 

120

 

    

 

 

 

 

6,331,200    

 

 

 

 

 

(1) The award target is stated as a percentage of each year-end salary over the three-year performance cycle.

 

(2) The Compensation Committee did not make adjustments for individual performance.

 

(3) Per plan rules, Mr. Gifford’s LTIP award was prorated for 424 days as a salary band C employee and 672 days as a salary band B employee.

Perquisites

The Compensation Committee believes that a competitive executive compensation package includes reasonable perquisites that supplement our retention efforts. The perquisites we provided to our NEOs in 2016 are set forth in the All Other Compensation table on page 46. In addition to these perquisites, our NEOs received the same benefits that were available to our salaried employees generally. Mr. Barrington is required to use our aircraft for all air travel for purposes of security. For Mr. Barrington, the Compensation Committee considers the potential value of personal aircraft usage in determining the other components of his total compensation. Mr. Barrington did not accept the Altria-paid automobile and executive physical in 2016. Effective January 1, 2016, we discontinued reimbursement for financial counseling services.

Post-Termination Benefits and Change in Control Payments

We provide post-termination benefits to our NEOs, including retirement benefits and termination payments if applicable, as well as payments in connection with a change in control.

 

  Retirement Benefits. Our NEOs participate in certain qualified and non-qualified retirement plans, which we believe promote executive retention and provide the opportunity for financial security in retirement. These retirement benefits are discussed in more detail in the narrative following the Pension Benefits table (pages 51 to 52) and the Non-Qualified Deferred Compensation table (page 54).

 

  Change in Control Payments. Our 2015 Performance Incentive Plan (“2015 PIP”) includes a double-trigger provision for annual incentive awards, equity awards and long-term incentive cash awards, provided that the successor entity continues or assumes the plans and awards or replaces them with substantially similar awards. In contrast, our 2010 Performance Incentive Plan (“2010 PIP”), under which some awards remain unvested, provides for the vesting and acceleration of certain elements of compensation immediately upon a change in control. The details of these provisions are discussed in the “Payments upon Change in Control or Termination of Employment” section (pages 54 to 57).

 

  Termination Payments. The Severance Pay Plan for Salaried Employees provides an opportunity for financial protection against the unexpected event of an involuntary termination of employment. The details of this plan are discussed in the “Payments upon Change in Control or Termination of Employment” section (pages 54 to 57).

Other Considerations

Stock Ownership and Holding Requirements and Prohibition on Hedging and Pledging

The Compensation Committee has established stock ownership requirements under which executives are expected to hold our common stock until their termination of employment in an amount equal to a multiple of salary, as determined by their salary band. If the stock price declines, an executive may satisfy the requirement by holding a fixed number of shares based on the stock price at the beginning of the executive’s acquisition period. The Compensation Committee set the requirements as 12

 

42    ALTRIA GROUP, INC. – Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION

 

 

times base salary for salary band A (CEO) and six times base salary for salary band B (other NEOs). In addition, effective October 1, 2016, the Compensation Committee adopted a stock holding requirement that prohibits executive officers from selling shares received as compensation until they meet their stock ownership requirement.

Stock ownership includes shares held as RSUs, PSUs and restricted stock. We expect executives to meet their ownership requirement within five years of becoming subject to the requirement (or three years from a subsequent promotion date and resulting increase in the ownership requirement). As of December 31, 2016, all of our NEOs substantially exceeded their stock ownership requirements.

We have had a long-standing policy prohibiting our NEOs from engaging in hedging activities with respect to our shares. Effective October 1, 2016, the Compensation Committee adopted an anti-pledging policy. While we did not previously have a formal policy prohibiting our NEOs from engaging in pledging activities with respect to our shares, our NEOs historically have not pledged their shares.

“Clawback” Policy Regarding the Adjustment or Recovery of Compensation

We have a “clawback” policy providing for the adjustment or recovery of compensation in certain circumstances. If our Board or an appropriate committee of our Board determines that, as a result of a restatement of our financial statements, an executive received more compensation than would have been paid absent the incorrect financial statements, our Board or its committee, in its discretion, will take such action as it deems necessary or appropriate to address the events that gave rise to the restatement and to prevent its recurrence. Such action may include, to the extent permitted by applicable law, in appropriate cases, requiring partial or full reimbursement of any bonus or other incentive compensation paid to the executive, causing the partial or full cancellation of RSUs, PSUs or restricted stock awards, adjusting the future compensation of such executive and dismissing or taking legal action against the executive, in each case as our Board or its committee determines to be in the best interests of Altria and our shareholders. Our RSUs, PSUs and restricted stock award agreements also include “clawback” provisions.

Tax and Accounting Considerations

In addition to our executive compensation objectives and design principles, we consider tax and accounting treatment when designing and administering our program. An important tax consideration is Internal Revenue Code Section 162(m), which limits our ability to deduct compensation paid to each covered officer for tax purposes to $1.0 million annually. Covered officers include the principal executive officer and our next three highest paid executive officers, other than our principal financial officer.

However, this limitation does not apply to performance-based compensation, provided we satisfy certain conditions. We have taken appropriate actions, to the extent feasible, to preserve the deductibility of annual and long-term cash incentive awards and equity awards. The Annual Incentive Awards and grants of RSUs that the Compensation Committee awarded to our covered officers in 2016 were subject to, and made in accordance with, previously implemented performance-based compensation arrangements that were intended to qualify as tax-deductible.

The Compensation Committee does not believe compensation decisions should be necessarily constrained by how much compensation is deductible for federal income tax purposes. As a result, the Compensation Committee has authorized, and retains the discretion to authorize, other payments that may not be deductible if it believes that they are in the best interests of Altria and our shareholders. Such determinations include, for example, payment of a salary to an officer that exceeds $1.0 million, with the result that a portion of such officer’s salary exceeds the deductibility limit. Similarly, a covered officer’s compensation may exceed the $1.0 million deductibility limit due to other elements of annual compensation, such as vesting of certain stock grants, dividends or dividend equivalents paid on certain stock and perquisites.

 

ALTRIA GROUP, INC. – Proxy Statement    43


Table of Contents

EXECUTIVE COMPENSATION

 

 

Compensation Tables

Summary Compensation Table

The following table provides the compensation information of our NEOs for 2016, 2015 and 2014. The table does not show compensation information for Mr. Gifford for 2014 because he was not an NEO in 2014.

 

                           Non-Equity Incentive Plans                     
Name and Principal Position   Year     

Salary

($)

   

Stock Awards

    Grant Value (1)

($)

   

Annual

Incentive

Plan

($)

   

Long-Term

Incentive

    Plan (2)

($)

 

Change in

Pension

    Value (3)

($)

   

All Other

    Compensation (4)

($)

   

Total

($)

 

 

Martin J. Barrington,

 

 

 

 

 

 

2016

 

 

 

 

  

 

 

 

 

1,408,333

 

 

 

 

 

 

 

 

 

6,500,010    

 

 

 

 

 

 

 

 

 

3,900,000

 

 

 

 

 

 

12,060,000

 

 

 

 

 

 

3,363,075

 

 

 

 

 

 

 

 

 

342,148      

 

 

 

 

 

 

 

 

 

27,573,566

 

 

 

 

Chairman, Chief Executive Officer and

 

   

 

2015

 

 

 

    

 

1,333,333

 

 

 

   

 

5,600,071    

 

 

 

   

 

3,500,000

 

 

 

 

 

   

 

2,606,735

 

 

 

   

 

256,229      

 

 

 

   

 

13,296,368

 

 

 

President, Altria Group, Inc.

 

   

 

2014

 

 

 

    

 

1,241,667

 

 

 

   

 

5,250,206    

 

 

 

   

 

2,950,000

 

 

 

 

 

   

 

2,629,203

 

 

 

   

 

249,914      

 

 

 

   

 

12,320,990

 

 

 

 

William F. Gifford, Jr.,

 

 

 

 

 

 

2016

 

 

 

 

  

 

 

 

 

640,833

 

 

 

 

 

 

 

 

 

1,700,038    

 

 

 

 

 

 

 

 

 

950,000

 

 

 

 

 

 

3,700,600

 

 

 

 

 

 

879,815

 

 

 

 

 

 

 

 

 

96,713      

 

 

 

 

 

 

 

 

 

7,967,999

 

 

 

 

Executive Vice President and Chief

 

   

 

2015

 

 

 

    

 

594,167

 

 

 

   

 

2,650,282    

 

 

 

   

 

900,000

 

 

 

 

 

   

 

650,130

 

 

 

   

 

76,596      

 

 

 

   

 

4,871,175

 

 

 

Financial Officer, Altria Group, Inc.

 

   

 

2014

 

 

 

              

 

Howard A. Willard,

 

 

 

 

 

 

2016

 

 

 

 

  

 

 

 

 

833,333

 

 

 

 

 

 

 

 

 

1,700,038    

 

 

 

 

 

 

 

 

 

1,300,000

 

 

 

 

 

 

5,572,800

 

 

 

 

 

 

1,400,173

 

 

 

 

 

 

 

 

 

120,080      

 

 

 

 

 

 

 

 

 

10,926,424

 

 

 

 

Executive Vice President and Chief

 

   

 

2015

 

 

 

    

 

780,333

 

 

 

   

 

3,150,551    

 

 

 

   

 

1,200,000

 

 

 

 

 

   

 

998,455

 

 

 

   

 

106,113      

 

 

 

   

 

6,235,452

 

 

 

Operating Officer, Altria Group, Inc.

 

   

 

2014

 

 

 

    

 

676,833

 

 

 

   

 

1,650,054    

 

 

 

   

 

908,000

 

 

 

 

 

   

 

1,190,965

 

 

 

   

 

99,460      

 

 

 

   

 

4,525,312

 

 

 

 

Denise F. Keane,

 

 

 

 

 

2016

 

 

  

 

 

 

938,500

 

 

 

 

 

 

1,700,038    

 

 

 

 

 

 

1,450,000

 

 

 

 

6,612,000

 

 

 

 

755,050

 

 

 

 

 

 

139,165      

 

 

 

 

 

 

11,594,753

 

 

Executive Vice President and General

 

   

 

2015

 

 

 

    

 

912,667

 

 

 

   

 

1,650,289    

 

 

 

   

 

1,350,000

 

 

 

 

 

   

 

390,030

 

 

 

   

 

125,311      

 

 

 

   

 

4,428,297

 

 

 

Counsel, Altria Group, Inc.

 

   

 

2014

 

 

 

    

 

890,500

 

 

 

   

 

1,650,054    

 

 

 

   

 

1,137,000

 

 

 

 

 

   

 

854,996

 

 

 

   

 

125,805      

 

 

 

   

 

4,658,355

 

 

 

 

Craig A. Johnson,

 

 

 

 

 

 

2016

 

 

 

 

  

 

 

 

 

901,667

 

 

 

 

 

 

 

 

 

1,275,058    

 

 

 

 

 

 

 

 

 

1,219,000

 

 

 

 

 

 

6,331,200

 

 

 

 

 

 

348,405

 

 

 

 

 

 

 

 

 

132,544      

 

 

 

 

 

 

 

 

 

10,207,874

 

 

 

 

President and Chief Executive Officer,

 

   

 

2015

 

 

 

    

 

871,833

 

 

 

   

 

1,275,496    

 

 

 

   

 

1,100,000

 

 

 

 

 

   

 

660,369

 

 

 

   

 

111,585      

 

 

 

   

 

4,019,283

 

 

 

Altria Group Distribution Company

 

   

 

2014

 

 

 

    

 

850,833

 

 

 

   

 

1,275,092    

 

 

 

   

 

960,000

 

 

 

 

 

   

 

1,283,591

 

 

 

   

 

117,879      

 

 

 

   

 

4,487,395

 

 

 

 

(1) The amount shown is the grant date fair value of stock awards determined pursuant to FASB Codification Topic 718. The assumptions we used in calculating these amounts are incorporated herein by reference to Note 2 to our consolidated financial statements in the 2016 Annual Report on Form 10-K.

 

(2) The 2014 – 2016 LTIP performance cycle ended on December 31, 2016. The LTIP uses three-year, end-to-end performance cycles. We pay executives in a lump sum cash award only after the end of the three-year performance cycle, based on an assessment of overall corporate and individual performance during the entire award cycle. This end-to-end performance cycle significantly increases the NEOs’ 2016 total compensation in the Summary Compensation Table compared to 2015 and 2014, when no LTIP awards were made.

 

   The table below reflects the impact on the Summary Compensation Table if the lump sum value was allocated over the 2014 – 2016 performance period.

 

44    ALTRIA GROUP, INC. – Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION

 

 

2014 – 2016 LTIP Payment Allocated Over Three-Year Performance Cycle

 

                           Non-Equity Incentive Plans                       
Name   Year     

Salary

($)

   

Stock Awards

Grant Value

($)

   

Annual

Incentive

Plan

($)

   

    Long-Term    

Incentive

    Plan (a)

($)

   

Change in

Pension
Value

($)

   

All Other

Compensation

($)

   

Total

($)

 

 

Martin J. Barrington

 

 

 

 

 

 

2016

 

 

 

 

  

 

 

 

 

1,408,333

 

 

 

 

 

 

 

 

 

6,500,010  

 

 

 

 

 

 

 

 

 

3,900,000  

 

 

 

 

 

 

 

 

 

4,260,000    

 

 

 

 

 

 

 

 

 

3,363,075

 

 

 

 

 

 

 

 

 

342,148    

 

 

 

 

 

 

 

 

 

19,773,566

 

 

 

 

 

 

 

 

 

2015

 

 

 

 

  

 

 

 

 

1,333,333

 

 

 

 

 

 

 

 

 

5,600,071  

 

 

 

 

 

 

 

 

 

3,500,000  

 

 

 

 

 

 

 

 

 

4,050,000    

 

 

 

 

 

 

 

 

 

2,606,735

 

 

 

 

 

 

 

 

 

256,229    

 

 

 

 

 

 

 

 

 

17,346,368

 

 

 

 

 

 

 

 

 

2014

 

 

 

 

  

 

 

 

 

1,241,667

 

 

 

 

 

 

 

 

 

5,250,206  

 

 

 

 

 

 

 

 

 

2,950,000  

 

 

 

 

 

 

 

 

 

3,750,000    

 

 

 

 

 

 

 

 

 

2,629,203

 

 

 

 

 

 

 

 

 

249,914    

 

 

 

 

 

 

 

 

 

16,070,990

 

 

 

 

 

William F. Gifford, Jr.

 

 

 

 

 

 

2016

 

 

 

 

  

 

 

 

 

640,833

 

 

 

 

 

 

 

 

 

1,700,038  

 

 

 

 

 

 

 

 

 

950,000  

 

 

 

 

 

 

 

 

 

1,552,800    

 

 

 

 

 

 

 

 

 

879,815

 

 

 

 

 

 

 

 

 

96,713    

 

 

 

 

 

 

 

 

 

5,820,199

 

 

 

 

 

 

 

 

 

2015

 

 

 

 

  

 

 

 

 

594,167

 

 

 

 

 

 

 

 

 

2,650,282  

 

 

 

 

 

 

 

 

 

900,000  

 

 

 

 

 

 

 

 

 

1,375,300    

 

 

 

 

 

 

 

 

 

650,130

 

 

 

 

 

 

 

 

 

76,596    

 

 

 

 

 

 

 

 

 

6,246,475

 

 

 

 

 

 

 

 

 

2014

 

 

 

 

              

 

Howard A. Willard

 

 

 

 

 

 

2016

 

 

 

 

  

 

 

 

 

833,333

 

 

 

 

 

 

 

 

 

1,700,038  

 

 

 

 

 

 

 

 

 

1,300,000  

 

 

 

 

 

 

 

 

 

2,016,000    

 

 

 

 

 

 

 

 

 

1,400,173

 

 

 

 

 

 

 

 

 

120,080    

 

 

 

 

 

 

 

 

 

7,369,624

 

 

 

 

 

 

 

 

 

2015

 

 

 

 

  

 

 

 

 

780,333

 

 

 

 

 

 

 

 

 

3,150,551  

 

 

 

 

 

 

 

 

 

1,200,000  

 

 

 

 

 

 

 

 

 

1,920,000    

 

 

 

 

 

 

 

 

 

998,455

 

 

 

 

 

 

 

 

 

106,113    

 

 

 

 

 

 

 

 

 

8,155,452

 

 

 

 

 

 

 

 

 

2014

 

 

 

 

  

 

 

 

 

676,833

 

 

 

 

 

 

 

 

 

1,650,054  

 

 

 

 

 

 

 

 

 

908,000  

 

 

 

 

 

 

 

 

 

1,636,800    

 

 

 

 

 

 

 

 

 

1,190,965

 

 

 

 

 

 

 

 

 

99,460    

 

 

 

 

 

 

 

 

 

6,162,112

 

 

 

 

 

Denise F. Keane

 

 

 

 

 

 

2016

 

 

 

 

  

 

 

 

 

938,500

 

 

 

 

 

 

 

 

 

1,700,038  

 

 

 

 

 

 

 

 

 

1,450,000  

 

 

 

 

 

 

 

 

 

2,263,200    

 

 

 

 

 

 

 

 

 

755,050

 

 

 

 

 

 

 

 

 

139,165    

 

 

 

 

 

 

 

 

 

7,245,953

 

 

 

 

 

 

 

 

 

2015

 

 

 

 

  

 

 

 

 

912,667

 

 

 

 

 

 

 

 

 

1,650,289  

 

 

 

 

 

 

 

 

 

1,350,000  

 

 

 

 

 

 

 

 

 

2,198,400    

 

 

 

 

 

 

 

 

 

390,030

 

 

 

 

 

 

 

 

 

125,311    

 

 

 

 

 

 

 

 

 

6,626,697

 

 

 

 

 

 

 

 

 

2014

 

 

 

 

  

 

 

 

 

890,500

 

 

 

 

 

 

 

 

 

1,650,054  

 

 

 

 

 

 

 

 

 

1,137,000  

 

 

 

 

 

 

 

 

 

2,150,400    

 

 

 

 

 

 

 

 

 

854,996

 

 

 

 

 

 

 

 

 

125,805    

 

 

 

 

 

 

 

 

 

6,808,755

 

 

 

 

 

Craig A. Johnson

 

 

 

 

 

 

2016

 

 

 

 

  

 

 

 

 

901,667

 

 

 

 

 

 

 

 

 

1,275,058  

 

 

 

 

 

 

 

 

 

1,219,000  

 

 

 

 

 

 

 

 

 

2,176,800    

 

 

 

 

 

 

 

 

 

348,405

 

 

 

 

 

 

 

 

 

132,544    

 

 

 

 

 

 

 

 

 

6,053,474

 

 

 

 

 

 

 

 

 

2015

 

 

 

 

  

 

 

 

 

871,833

 

 

 

 

 

 

 

 

 

1,275,496  

 

 

 

 

 

 

 

 

 

1,100,000  

 

 

 

 

 

 

 

 

 

2,100,000    

 

 

 

 

 

 

 

 

 

660,369

 

 

 

 

 

 

 

 

 

111,585    

 

 

 

 

 

 

 

 

 

6,119,283

 

 

 

 

   

 

 

 

 

2014

 

 

 

 

  

 

 

 

 

850,833

 

 

 

 

 

 

 

 

 

1,275,092  

 

 

 

 

 

 

 

 

 

960,000  

 

 

 

 

 

 

 

 

 

2,054,400    

 

 

 

 

 

 

 

 

 

1,283,591

 

 

 

 

 

 

 

 

 

117,879    

 

 

 

 

 

 

 

 

 

6,541,795

 

 

 

 

 

  (a) This column shows an annualized allocation of the 2014 – 2016 LTIP awards instead of a lump sum payment for 2016 as shown in the Summary Compensation Table. Allocations are based on year-end salaries, percentage targets for each salary band and the respective time in each salary band.

 

(3) The amounts show the change in the present value of each NEO’s pension benefits from December 31, 2015 to December 31, 2016. The change in 2016 is due to a variety of factors, including growth in benefit due to additional pay and service, passage of time and a change in the discount rate.

 

(4) Details of other compensation for each of our NEOs appear in the All Other Compensation table shown below.

 

ALTRIA GROUP, INC. – Proxy Statement    45


Table of Contents

EXECUTIVE COMPENSATION

 

 

All Other Compensation

 

Name   Year     

Allocation to

Defined

Contribution

    Plans (a)

($)

   

Personal

Use of

Altria

    Aircraft (b)

($)

 

Car

    Expenses (c)

($)

 

Financial

Counseling

    Services (d)

($)

 

Security

($)

 

Executive

Physicals

($)

 

Total

($)

 

 

Martin J. Barrington

 

 

 

 

 

 

2016

 

 

 

 

  

 

 

 

 

169,000    

 

 

 

 

 

 

172,593

 

 

 

 

 

 

 

 

 

555

 

 

 

 

 

 

 

 

 

342,148

 

 

 

 

 

 

 

 

 

2015

 

 

 

 

  

 

 

 

 

133,333    

 

 

 

 

 

 

122,278

 

 

 

 

 

 

 

 

 

618

 

 

 

 

 

 

 

 

 

256,229

 

 

 

 

 

 

 

 

 

2014

 

 

 

 

  

 

 

 

 

124,167    

 

 

 

 

 

 

125,287

 

 

 

 

 

 

 

 

 

460

 

 

 

 

 

 

 

 

 

249,914

 

 

 

 

 

William F. Gifford, Jr.

 

 

 

 

 

 

2016

 

 

 

 

  

 

 

 

 

76,900    

 

 

 

 

 

 

 

 

 

16,513

 

 

 

 

 

 

 

 

 

3,300

 

 

 

 

 

 

96,713

 

 

 

 

 

 

 

 

 

2015

 

 

 

 

  

 

 

 

 

59,417    

 

 

 

 

 

 

 

 

 

17,179

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

76,596

 

 

 

 

 

 

 

 

 

2014

 

 

 

 

              

 

Howard A. Willard

 

 

 

 

 

 

2016

 

 

 

 

  

 

 

 

 

100,000    

 

 

 

 

 

 

 

 

 

16,780

 

 

 

 

 

 

 

 

 

3,300

 

 

 

 

 

 

120,080

 

 

 

 

 

 

 

 

 

2015

 

 

 

 

  

 

 

 

 

78,033    

 

 

 

 

 

 

 

 

 

18,016

 

 

 

  6,764

 

 

 

 

 

 

3,300

 

 

 

 

 

 

106,113

 

 

 

 

 

 

 

 

 

2014

 

 

 

 

  

 

 

 

 

67,683    

 

 

 

 

 

 

 

 

 

18,477

 

 

 

10,000

 

 

 

 

 

 

3,300

 

 

 

 

 

 

99,460

 

 

 

 

 

Denise F. Keane

 

 

 

 

 

 

2016

 

 

 

 

  

 

 

 

 

112,620    

 

 

 

 

 

 

 

 

 

23,245

 

 

 

 

 

 

 

 

 

3,300

 

 

 

 

 

 

139,165

 

 

 

 

 

 

 

 

 

2015

 

 

 

 

  

 

 

 

 

91,267    

 

 

 

 

 

 

 

 

 

20,744

 

 

 

10,000

 

 

 

 

 

 

3,300

 

 

 

 

 

 

125,311

 

 

 

 

 

 

 

 

 

2014

 

 

 

 

  

 

 

 

 

89,050    

 

 

 

 

 

 

 

 

 

23,455

 

 

 

10,000

 

 

 

 

 

 

3,300

 

 

 

 

 

 

125,805

 

 

 

 

 

Craig A. Johnson

 

 

 

 

 

 

2016

 

 

 

 

  

 

 

 

 

108,200    

 

 

 

 

 

 

 

 

 

21,044

 

 

 

 

 

 

 

 

 

3,300

 

 

 

 

 

 

132,544

 

 

 

 

 

 

 

 

 

2015

 

 

 

 

  

 

 

 

 

87,183    

 

 

 

 

 

 

 

 

 

19,417

 

 

 

  4,985

 

 

 

 

 

 

 

 

 

 

 

 

111,585

 

 

 

 

 

 

 

 

 

2014

 

 

 

 

  

 

 

 

 

85,083    

 

 

 

 

 

 

 

 

 

23,921

 

 

 

  5,575

 

 

 

 

 

 

3,300

 

 

 

 

 

 

117,879

 

 

 

 

 

(a) Amounts represent allocations to tax-qualified and non-qualified supplemental defined contribution plans.

 

(b) Mr. Barrington is required to use our aircraft for all air travel for security reasons. Pursuant to a time-sharing agreement with Altria, Mr. Barrington agreed to reimburse us for annual personal aircraft usage in excess of $250,000.

 

   Personal use of our aircraft reflects incremental costs, including trip-related crew hotels and meals, in-flight food and beverages, landing and ground handling fees, hourly maintenance contracts, hangar or aircraft parking, fuel (based on the average monthly cost of fuel per hour flown) and other smaller variable costs. For purposes of calculating incremental costs, we include the incremental costs of any deadhead flights, or portions thereof, made in connection with personal travel. Fixed costs incurred in any event to operate our aircraft (e.g., aircraft purchase costs, depreciation, maintenance not related to personal trips and flight crew salaries) are not included. Mr. Barrington pays his own taxes on imputed taxable income resulting from personal use of our aircraft.

 

(c) Car expenses include the annual cost of providing a leased vehicle and operating expenses, including insurance, maintenance and repairs. Executives pay their own taxes on imputed taxable income resulting from personal use of leased vehicles.

 

(d) Effective January 1, 2016, we discontinued reimbursement for financial counseling services.

 

46    ALTRIA GROUP, INC. – Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION

 

 

Grants of Plan-Based Awards during 2016

 

 

Name

      

 

Grant

Date

                

Estimated Possible Payouts

Under Non-Equity Incentive

  Plan Awards (1)

        

All Other
Stock Awards:

Number of

Shares of Stock
    or Units (2)

(#)

               

Grant Date Fair

Value of Stock

    Awards (2)

($)

    
               

Threshold

($)

           

Target

($)

             

Maximum

($)

               

 

Martin J. Barrington

 

     

 

2016

 

                 

 

 

             

 

 

 

 

2,130,000

 

 

 

 

             

 

10,000,000

 

                                       
   

 

1/26/2016

 

                           

 

 

 

 

110,123      

 

 

 

 

     

 

6,500,010

 

 

 

William F. Gifford, Jr.

 

   

 

2016

 

         

 

 

     

 

 

 

 

614,650

 

 

 

 

     

 

10,000,000

 

             
   

 

1/26/2016

 

                           

 

 

 

 

28,802      

 

 

 

 

     

 

1,700,038

 

 

 

Howard A. Willard

 

   

 

2016

 

         

 

 

     

 

 

 

 

798,000

 

 

 

 

     

 

10,000,000

 

             
   

 

1/26/2016

 

                           

 

 

 

 

28,802      

 

 

 

 

     

 

1,700,038

 

 

 

Denise F. Keane

 

   

 

2016

 

         

 

 

     

 

 

 

 

895,850

 

 

 

 

     

 

10,000,000

 

             
   

 

1/26/2016

 

                           

 

 

 

 

28,802      

 

 

 

 

     

 

1,700,038

 

 

 

Craig A. Johnson

 

   

 

2016

 

         

 

 

     

 

 

 

 

861,650

 

 

 

 

     

 

10,000,000

 

             
     

 

1/26/2016

 

                                                                     

 

 

 

 

21,602      

 

 

 

 

             

 

1,275,058

 

   

 

(1) Reflects the target and maximum 2016 Annual Incentive Awards. Actual awards paid under the 2016 Annual Incentive Award program are found in the Annual Incentive Plan column of the Summary Compensation Table. The maximum represents the maximum permitted under the 2015 PIP. Awards covered by Internal Revenue Code Section 162(m) are also subject to a maximum amount determined under a formula established by the Compensation Committee, which could produce a maximum award lower than $10 million.

 

(2) Reflects RSUs granted to our NEOs on January 26, 2016. The grant date fair value was determined using a share price of $59.025, which was the average of the high and low trading prices of Altria’s common stock on the grant date. The RSUs vest on February 7, 2019. Holders of RSUs are entitled to any cash dividend equivalents paid quarterly throughout the restriction period.

 

ALTRIA GROUP, INC. – Proxy Statement    47


Table of Contents

EXECUTIVE COMPENSATION

 

 

Outstanding Equity Awards as of December 31, 2016

 

      Option Awards   Stock Awards
Name   

Number of

Securities

Underlying

Unexercised

Options:

Exercisable

(#)

  

Option

Exercise

Price

($)

 

Option

  Expiration  

Date

 

     Stock Award    

     Grant Date (1)

 

Number of

Shares or

Units of Stock

That Have Not
Vested

(#)

  

Market Value

of Shares or

Units of Stock

That Have Not

    Vested (2)

($)

 

Martin J. Barrington

 

         

 

    1/26/2016    

 

 

 

110,123

 

  

 

  7,446,517

 

         

 

    1/28/2015    

 

 

 

102,650

 

  

 

  6,941,193

 

         

 

    1/28/2014    

 

 

 

142,960

 

  

 

  9,666,955

 

         

 

    5/16/2012  (a)

 

 

 

150,000

 

  

 

10,143,000

 

 

William F. Gifford, Jr.

 

         

 

    1/26/2016    

 

 

 

  28,802

 

  

 

  1,947,591

 

         

 

    1/28/2015    

 

 

 

  21,080

 

  

 

  1,425,430

 

         

 

    1/28/2015  (a)

 

 

 

  27,500

 

  

 

  1,859,550

 

         

 

    1/28/2014    

 

 

 

  31,320

 

  

 

  2,117,858

 

 

Howard A. Willard

 

         

 

    1/26/2016    

 

 

 

  28,802

 

  

 

  1,947,591

 

         

 

    1/28/2015    

 

 

 

  30,250

 

  

 

  2,045,505

 

         

 

    1/28/2015  (a)

 

 

 

  27,500

 

  

 

  1,859,550

 

         

 

    1/28/2014    

 

 

 

  44,930

 

  

 

  3,038,167

 

 

Denise F. Keane

 

         

 

    1/26/2016    

 

 

 

  28,802

 

  

 

  1,947,591

 

         

 

    1/28/2015    

 

 

 

  30,250

 

  

 

  2,045,505

 

         

 

    1/28/2014    

 

 

 

  44,930

 

  

 

  3,038,167

 

 

Craig A. Johnson

 

         

 

    1/26/2016    

 

 

 

  21,602

 

  

 

  1,460,727

 

         

 

    1/28/2015    

 

 

 

  23,380

 

  

 

  1,580,956

 

         

 

    1/28/2014    

 

 

 

  34,720

 

  

 

  2,347,766

 

 

(1) Awards vest 100% according to the following schedules:

 

Annual Grants          Special Grants (a)

       Grant Date

 

  

Vest Date

 

        

Grant Date

 

  

Vest Date

 

1/26/2016

 

   2/07/2019

 

    

1/28/2015

 

   2/11/2020

 

1/28/2015

 

   2/07/2018

 

    

5/16/2012

 

   5/16/2017

 

1/28/2014

 

   2/09/2017

 

       

 

(2) Market values are based on $67.62, the closing price of Altria’s common stock on December 30, 2016.

Dividends and dividend equivalents earned in 2016 on outstanding restricted stock awards and RSUs for each of our NEOs were: Mr. Barrington, $1,188,473; Mr. Gifford, $255,450; Mr. Willard, $308,983; Ms. Keane, $244,358; and Mr. Johnson, $187,300.

 

48    ALTRIA GROUP, INC. – Proxy Statement


Table of Contents

EXECUTIVE COMPENSATION

 

 

Stock Option Exercises and Stock Vested during 2016

 

      Option Awards         Stock Awards  
Name   

Number of

Shares Acquired

on Exercise

(#)

    

Value

Realized on

Exercise

($)

       

Number of

Shares

Acquired

on Vesting

(#)

    

Value

Realized on

Vesting

($)

 
 

Martin J. Barrington

 

                 160,000        9,558,400  
 

William F. Gifford, Jr.

 

                 32,600        1,947,524  
 

Howard A. Willard

 

                 48,900        2,921,286  
 

Denise F. Keane

 

                 48,900        2,921,286  
 

Craig A. Johnson

 

                 37,790        2,257,575