DEF 14A 1 d24358ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 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 §240.14a-12

THE ODP CORPORATION

(Name of Registrant as Specified In Its Charter)

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

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Table of Contents

 

 

LOGO  

THE ODP CORPORATION

2021 ANNUAL MEETING NOTICE

and PROXY STATEMENT

March 12, 2021

 

 


Table of Contents

 

NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS

To the Shareholders of The ODP Corporation:

 

 

Wednesday, April 21, 2021                     

9:00 a.m. Eastern Time

 

 

The ODP Corporation

www.virtualshareholdermeeting.com/ODP2021

 

 

Record Date

Close of business

February 25, 2021

 

Items of Business:

1. To elect ten (10) members of the Company’s Board of Directors named in, and for the term, described in the Proxy Statement;

2. To ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for fiscal year 2021;

3. To approve The ODP Corporation 2021 Long-Term Incentive Plan;

4. To approve, in a non-binding, advisory vote, the Company’s executive compensation; and

5. To consider such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.

Only shareholders of record at the close of business on February 25, 2021 (“Record Date”) are entitled to notice of and to vote at the Annual Meeting or any adjournment or postponement thereof.

Pursuant to rules promulgated by the U.S. Securities and Exchange Commission (the “SEC”), we have elected to provide access to our proxy materials by notifying you of the availability of our proxy materials on the Internet. Instead of mailing paper copies of our proxy materials, we sent shareholders the Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be held on April 21, 2021, with instructions for accessing the proxy materials and voting via the Internet (the “Notice”). The Notice, which was mailed on or around March 12, 2021, also provides information on how shareholders may obtain paper copies of our proxy materials if they so choose. The Proxy Statement and our Annual Report on Form 10-K for the fiscal year ended December 26, 2020 (“2020 Annual Report”) may be accessed at www.proxyvote.com. If requested, certain shareholders were sent a full set of printed proxy materials or an email with instructions on how to access the proxy materials electronically based on their previously indicated delivery preferences.

Your vote is important. To ensure your shares are voted, you may vote your shares over the Internet, by telephone or by requesting a proxy card to complete, sign and return by mail. Internet and telephone voting procedures are described in the section “Questions and Answers About Our Annual Meeting” beginning on page 94 of the Proxy Statement and on the proxy card.

Due to the COVID-19 pandemic, for the safety of our associates, including our shareholders, and in accordance with federal, state and local guidance, we have determined that the 2021 Annual Meeting will be held in a virtual meeting format only, via a live webcast, with no physical in-person meeting. If you plan to participate in the virtual meeting, please see “Questions and Answers About Our Annual Meeting” beginning on page 94. Shareholders will be able to attend, vote, submit questions and view the shareholder list during the Annual Meeting from any location via the Internet. A technical support phone number will be posted on the virtual meeting log-in page if you experience technical difficulties during the check-in process or during the webcast.

 

By Order of the Board of Directors,

 

 

LOGO

Lorna R. Simms

Corporate Secretary

Boca Raton, Florida

March 12, 2021

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING TO BE HELD ON APRIL 21, 2021. Financial and other information concerning The ODP Corporation is contained in our 2020 Annual Report. The Proxy Statement and 2020 Annual Report are available free of charge at www.proxyvote.com, a site that does not have “cookies” that identify visitors to the site.


Table of Contents
      TABLE OF CONTENTS  

 

TABLE OF CONTENTS

 

  Table of Contents      1      
  Proxy Statement Summary      1         
        
 

 

Proposal No. 1: Election of Directors

 

  

 

 

 

 

7

 

 

 

 

 

LOGO

 
  The Role of the Board of Directors      7      
  Director Nomination Process      7      
  Board Oversight of Risk      10      
  2021 Director Nominees      11      
  Director Compensation      20      
  Director Compensation Table for Fiscal Year 2020      21      
  Equity Compensation Paid to Directors for Fiscal Year 2020      22      
  Corporate Governance      23      
 

Audit Committee Report

     38      
        
 

 

Proposal No. 2: Ratification of Appointment of Independent Registered Public Accounting Firm

  

 

 

 

    

39

 

 

 

 

LOGO

 
 

Audit and Non-Audit Fees

     39      
  Audit Committee Pre-Approval Policies and Procedures      40      
        
 

 

Proposal No. 3: To Approve the ODP Corporation 2021 Long-Term Incentive Plan

  

 

 

 

    

41

 

 

 

 

LOGO

 
  Overview      41      
  Why ODP Believes You Should Vote to Approve the 2021 Plan      42      
  Determination of Shares Available under 2021 Plan      42      
  Plan Summary      44      
  Certain Federal Income Tax Consequences      49      
  Section 162(m)      51      
  New 2021 Plan Benefits      51      
  Compensation Discussion and Analysis      53      
  Executive Summary      53      
  Primary Elements of Total Direct Compensation      58      
  Executive Compensation Process and Governance      64      
  Other Compensation and Governance Matters      66      
  Forward Looking Statements      68      
  Compensation & Talent Committee Interlocks and Insider Participation      68      
  Compensation & Talent Committee Report      68      
  Compensation Programs Risk Assessment      68      
  Compensation Tables      70      
  Summary Compensation Table      70      
  Other Compensation Table for Fiscal Year 2020      71      
  Grants of Plan-Based Awards in Fiscal Year 2020      72      
  Outstanding Equity Awards at 2020 Fiscal Year-End      73      
  Option Exercises and Stock Vested in Fiscal Year 2020      74      
  Summary of Executive Agreements and Potential Payments Upon Termination or Change in Control      75      
  Tabular Information Regarding Potential Payments Upon Termination or a Change in Control      83      
  Pay Ratio Disclosure      90      
  Security Ownership of Certain Beneficial Owners and Management      91      
        
 

 

Proposal No. 4: Non-Binding Advisory Vote on Company’s Executive Compensation

  

 

 

 

    

93

 

 

 

 

LOGO

 
  Questions and Answers About Our Annual Meeting      94      
  Website Access to Reports and Other Information      99      
  2022 Shareholder Proposals      99      
  Incorporation by Reference      99      
  Other Business      100      
  Annex A       
  The ODP Corporation 2021 Long-Term Incentive Plan      A-1      
 

 

 
The ODP Corporation  |  2021 Proxy Statement


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Proxy Statement Summary

 

 

Proxies are being solicited by the Board of Directors of The ODP Corporation (“ODP,” the “Company,” “we,” or “our”) to be voted at our Annual Meeting of Shareholders to be held virtually on Wednesday, April 21, 2021 at 9:00 a.m. Eastern Time (“Annual Meeting”). The proxy materials were first made available to shareholders on or about March 12, 2021. This summary provides an overview of selected information in the Proxy Statement. We encourage you to read the entire Proxy Statement and our Annual Report on Form 10-K for the fiscal year ended December 26, 2020 (“2020 Annual Report”) before voting. Questions and Answers about our Annual Meeting can be found beginning on page 94.

Annual Meeting Agenda and Voting Recommendations

 

     

Agenda Item

 

Board Vote Recommendation

 

Page Reference

     

Proposal 1:

Election of ten Directors named in, and for the term, described in the Proxy Statement

 

FOR

ALL NOMINEES

  7
     

Proposal 2:

Ratification of the appointment of the independent registered public accounting firm

 

FOR

  39
     

Proposal 3:

Approval of The ODP Corporation 2021 Long-Term Incentive Plan

 

FOR

  41
     

Proposal 4:

Approval, in a non-binding advisory vote, of the Company’s executive compensation

 

FOR

  93

Casting your vote:

 

   

Your vote is very important. Please cast your vote immediately, but no later than 11:59 p.m. Eastern Time on April 20, 2021.

 

   

For more information on how to cast your vote, please see page 95:

 

INTERNET   PHONE   MAIL   VIA LIVE WEBCAST

 

LOGO

  LOGO   LOGO   LOGO
     

Visit www.proxyvote.com.

You will need the control number in your notice, proxy card or voting instruction form.

 

Dial toll-free (1-800-690-6903) or the telephone number on your voting instruction form. You will need the control number in your notice, proxy card or voting instruction form.

 

If you received a paper copy of your proxy materials, send your completed and signed proxy card or voting instruction form using the enclosed postage-paid envelope.

 

Participate in the Annual Meeting and vote your shares electronically by visiting www.virtualshareholdermeeting.com/ODP2021. Online access begins at 8:45 a.m. Eastern Time. You will need the control number in your notice, proxy card or voting instruction form.

 

  

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Strong Board Diversity

Our Board of Directors values a board that reflects diverse perspectives. While we do not have a specific diversity policy for our Board, our Corporate Governance Guidelines provide for selecting Directors who reflect a diverse set of skills, professional and personal backgrounds, perspectives and experiences. We are proud to have Directors who are highly diverse, including with respect to gender, ethnicity and experience.

Our Board of Directors consists of individuals with diverse and complementary business, leadership and financial expertise. Many of our Directors have leadership experience at major U.S. and multinational companies, as well as experience on the boards of other companies and organizations, which provide an understanding of different business processes, challenges and strategies. In addition, many of our Directors have industry and public policy experience that provides insight into issues faced by public companies.

 

 

LOGO     LOGO     LOGO
90%     40%     40%
9 of 10 director nominees are independent    

4 director nominees are women

3 women Board committee chairs

    4 director nominees are ethnically diverse

Relevant Skills and Experience of our Board of Directors

 

Strategic Leadership   Operations Management Expertise

Experience driving strategic direction and growth of an organization

 

LOGO

 

 

Expertise in managing operations of a business or organization

 

LOGO

 

Industry Background   Public Company Board Service

Knowledge of or experience in one or more of the Company’s business segments

 

LOGO

 

 

Experience as a board member of other public-traded companies

 

LOGO

 

Financial Acumen and Literacy   Finance and Capital Allocation
Experience in financial accounting and reporting or financial management of a company or major organization   Experience in corporate borrowing, capital allocation, mergers or acquisitions, capital markets transactions or investment banking

 

LOGO

 

 

 

LOGO

 

Senior Management Leadership   Technology Background/Expertise
Experience serving in executive or senior leadership role of a company or major organization   Experience in information technology/the use of digital media or technology to facilitate business objectives, generate disruptive innovation and extend or create new business models

 

LOGO

 

 

 

LOGO

 

Sales & Marketing   Talent Development & Succession Planning
Experience in developing strategies to grow sales and market share, build brand awareness and equity, and enhance enterprise reputation   Experience and insight into how companies attract, develop and retain talent and overseeing succession planning for both the Board and management

 

 

LOGO

 

 

 

 

LOGO

 

 

  

2


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The ODP Corporation At-A-Glance

The ODP Corporation (NASDAQ:ODP) is a leading provider of business services, supplies, products and digital workplace technology solutions to small, medium and enterprise businesses, through an integrated business-to-business (B2B) distribution platform, which includes world-class supply chain and distribution operations, dedicated sales professionals and technicians, online presence, and approximately 1,100 stores.

 

u       OUR  LOGO  CULTURE PERMEATES EVERYTHING WE DO

Our 5C Culture

Customer:

We relentlessly focus on serving our

customers to ensure their success.

Commitment:

We do what we say we will do with

transparency and integrity.

Change:

We seek and embrace change in the pursuit

of excellence.

Caring:

We challenge ourselves to be our best, treating

each other, our customers and communities

as we want to be treated.

Creativity:

We are innovators, disrupting to deliver new ways of

doing business that drive sustainable, profitable growth.

 

u

 KEY LEADERSHIP APPOINTMENTS AND HIRES IN 2020

 

   

D. Anthony Scaglione was appointed as Executive Vice President and Chief Financial Officer (“CFO”) of the Company and as a member of the Company’s Executive Committee. Mr. Scaglione is responsible for overseeing all financial aspects of the Company, including financial planning and analysis, financial reporting and accounting, as well as leading investor relations, internal audit, tax, and treasury functions. Mr. Scaglione brings extensive financial, operational and strategic experience to our executive team and is a key asset to the Company as we continue to build upon our B2B platform and create value for our shareholders. During his eleven-year tenure with ABM Industries Incorporated, Mr. Scaglione was instrumental in the development and implementation of ABM’s successful, long-term strategic transformation.

 

   

Terry Leeper was appointed as Executive Vice President and Chief Technology Officer of the Company. Mr. Leeper is responsible for setting our technical vision and leading our technological advancement, ensuring that we align our product and service platforms and architecture with business priorities and growth initiatives. With his extensive technology background and experience, Mr. Leeper is playing a key role in the acceleration of our pivot toward a broader business and technology platform.

 

  

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CREATING VALUE FOR OUR SHAREHOLDERS

Highlights as of the end of fiscal 2020 include the following:

 

Strong Balance Sheet   LOGO   $1.7B available Liquidity   LOGO   $743M in Cash   LOGO   $1B available under Credit Facility

Reinstated Share Buyback Program

 

 

   
Leverage Broad B2B Ecosystem   LOGO   Global Sourcing & Supply Chain  

 

LOGO   Multiple Routes to Market

 

LOGO   Go-to-Market Engine

 

  LOGO   Broad Products & Services
Advanced Key Operational Initiatives    Initiated Maximize B2B Plan generating resources to fuel B2B pivot & growth
   Drive Low-Cost Business Model

 

OUR COMMITMENT TO ESG

 

   

We believe that environmental, social and governance (“ESG”) issues play an essential role in the success of our Company, our industry and our communities, now and for future generations.

 

   

We are committed to conducting our business in a sustainable manner and maintain policies and procedures that establish the foundation of our environmental responsibility program. We are committed to empowering our employees and suppliers at all levels to promote safe and environmentally responsible practices.

 

   

In this regard, we focus on initiatives such as the reduction of facility energy consumption, reduction in transmission emissions in our private fleet, increasing sales of high-quality, sustainable products with greener attributes, improved recycling programs, and the responsible use of chemicals in compliance with all laws and regulations.

 

   

We utilize a “triple bottom line” approach as the framework for our sustainability initiatives: Planet (environmental), People (social) and Prosperity (economic). While the environmental and social aspects help us lower emissions, capture community impacts, and quantify other metrics, they ultimately impact our success by creating greater business value.

 

   

We provide substantial information about our sustainability practices and goals on our website and in our annual Sustainability Report. These efforts are visible in the following areas among others:

 

   

Achieved 44% (kWh) facilities’ energy consumption reduction between 2016 and 2020, exceeding our 10% energy reduction goal1;

 

   

100% of electricity used in the Company’s corporate headquarters offset by Green-e Energy® certified Wind Renewable Energy Credits;

 

   

Achieved an 18% increase in miles per gallon in our private fleet between 2018 and 2020, exceeding our 15% fuel efficiency goal;

 

   

Achieved an 11% reduction in greenhouse gas (GHG) emissions from 2019 (MT CO2e Scopes 1 and 2);

 

   

Recycled 40% of waste generated at our facilities, diverting over 15,000 mt of waste from landfills; and

 

   

Recycled more than 6 million pounds of e-waste from customers.

 

1 

Our energy consumption in 2020 has been impacted by the COVID-19 pandemic. Specifically, since March 2020, we have temporarily closed certain offices (including our corporate headquarters) and we temporarily reduced our retail location hours which continues to be in effect in some of our retail locations. As such, our energy consumption in 2020 may not be indicative of our energy consumption in future years.

 

  

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Corporate Governance Highlights

Our Board of Directors is committed to strong governance practices, which promote the long-term value of the Company for its shareholders. The Board of Directors regularly reviews our governance practices to ensure they reflect the evolving governance landscape and appropriately support and serve the best interests of the Company and its shareholders. The Corporate Governance section beginning on page 23 describes our governance framework in further detail, which includes the following highlights:

 

 
 
Separation of Chairman and CEO positions; with
independent Chairman
  Directors possess deep and diverse skills set and
expertise relevant to oversee business operations and
strategy
9 of 10 Directors are independent   Shareholder right to call a special meeting and act by
written consent
Annual election of Directors   100% independent Board committees
Annual say-on-pay shareholder vote   Shareholder right to amend bylaws by majority vote
Majority voting for Directors in uncontested elections;
resignation policy for Directors who do not receive a
majority of the votes cast
  Any director or entire Board of Directors may be
removed by a shareholders’ majority vote
Stock ownership guidelines for executive officers and
Directors; Directors are required to hold shares of
Company common stock until they leave the Board
  Regular executive sessions of non-management
Directors at Board meetings (chaired by independent
Chairman) and committee meetings (chaired by
independent committee chairs)
Active Board and committee oversight of the
Company’s strategy and risk management
  Annual assessment of Director skills and commitment
to Director refreshment to ensure Board meets the
Company’s evolving oversight needs
Ongoing Director education   Proxy access right for shareholders
Anti-pledging and anti-hedging policies in place   Executive compensation driven by pay for performance
Clawback policy to recapture incentive payments   Annual Board and Committee self-evaluations

 

  

5


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Snapshot of Director Nominees

All Director nominees meet The NASDAQ Stock Market governance standards (“Nasdaq rules”) for director independence except for Gerry P. Smith, who is not independent due to his position as our Chief Executive Officer (“CEO”).

 

       

  Nominee and Principal Occupation

    Age           Director    
       Since
      Committee Membership

  Quincy L. Allen

  Former Executive Officer and Chief Marketing

  Officer IBM Corporation

      61       2020       Audit

  Kristin A. Campbell

  Executive Vice President and General Counsel

  Hilton Worldwide Holdings Inc.

      59       2016  

    Compensation & Talent

    Corporate Governance & Nominating (C)

  Marcus B. Dunlop

  Partner

  HG Vora Capital Management, LLC

      34       2021       None

 

  Cynthia T. Jamison LOGO

  Former Executive Officer and Chief Financial

  Officer

  AquaSpy, Inc.

      61       2013  

    Audit (C)

    Compensation & Talent

  Francesca Ruiz de Luzuriaga

  Former Executive Officer

  Mattel Interactive, a business unit of Mattel,

  Inc.

      67       2013  

    Compensation & Talent (C)

    Corporate Governance & Nominating

  Shashank Samant

  President and Chief Executive Officer

  GlobalLogic Inc.

      52       2020       Corporate Governance & Nominating

 

  Wendy L. Schoppert LOGO

  Former Executive Officer and Chief Financial

  Officer

  Sleep Number Corporation

      54       2020       Audit

  Gerry P. Smith

  Chief Executive Officer

  The ODP Corporation

      57       2017       None

  David M. Szymanski

  President and Professor of Marketing

  University of North Florida

      64       2013  

    Audit

    Compensation & Talent

  Joseph S. Vassalluzzo

  Consultant

  Non-Executive Chairman of the Board

      73       2013       None

  C = Committee Chair

   LOGO = Financial Expert

 

  

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PROPOSAL No. 1: ELECTION OF DIRECTORS

 

 

The Role of the Board of Directors

Our Board of Directors is currently comprised of ten (10) talented directors, four (4) of whom are women, with diverse skill sets and professional backgrounds as reflected in their biographies beginning on page 12. Under our Amended and Restated Bylaws (the “Bylaws”), the Board of Directors has the authority to determine its size and to fill any vacancies. On February 3, 2020, the Board of Directors, upon recommendation of the Corporate Governance & Nominating Committee, increased its size from eight (8) to ten (10) members, and, as part of its focus on refreshment and diversity, appointed Quincy L. Allen and Shashank Samant, effective as of February 6, 2020, to fill the newly created vacancies for terms which expired at the Company’s annual meeting of shareholders held on May 11, 2020 (the “2020 Annual Meeting”). On February 14, 2020, Messrs. V. James Marino and Nigel Travis notified the Company of their separate decisions not to stand for reelection at the expiration of their current terms at the 2020 Annual Meeting. Messrs. Allen and Shashank were elected, along with the reelection of the other Director nominees, at the 2020 Annual Meeting and the size of the Board consisted of eight (8) members. On July 27, 2020, the Board of Directors, upon recommendation of the Corporate Governance & Nominating Committee, increased its size from eight (8) to nine (9) members, and, in connection with its efforts to continually refresh itself, appointed Wendy L. Schoppert, effective as of July 27, 2020, to fill the newly created vacancy for a term to expire at the Company’s 2021 Annual Meeting or any postponement or adjournment thereof. Ms. Schoppert was recommended to the Board of Directors by a third-party independent search firm retained by the Corporate Governance & Nominating Committee to assist it in identifying director candidates for consideration. On January 25, 2021, the Company entered into a Cooperation Agreement (the “Cooperation Agreement”) with HG Vora Capital Management, LLC (“HG Vora”) pursuant to which the Board, upon recommendation of the Corporate Governance & Nominating Committee, agreed to increase its size from nine (9) to ten (10) members, and appointed Marcus B. Dunlop to the Board to fill the resulting vacancy effective as of January 26, 2021. Pursuant to the Cooperation Agreement, the Company agreed to nominate Mr. Dunlop for election at the 2021 Annual Meeting or any postponement or adjournment thereof. Currently, there are no vacancies on the Board.

The Board of Directors, elected annually by our shareholders, oversees the business and management of the Company. Members of the Board monitor and evaluate the Company’s business performance and advise on strategic direction through regular communication with the CEO, other key members of management, and by participating in Board and Board committee meetings. Corporate review sessions are also provided to Directors to give them more detailed views of specific areas of our business, including targeted presentations, operational visits and facility tours. The Board is committed to sound and effective corporate governance policies and high ethical standards.

Director Nomination Process

Board Membership Criteria

We believe that a director should possess the highest professional ethics, integrity and values, and be committed to representing the long-term interests of our shareholders. He or she should have an inquisitive and objective perspective, practical wisdom and mature judgment. We endeavor to have a board representing a range of experiences in business and in areas that are relevant to our business operations. We believe that directors with significant leadership experience, especially those serving in CEO positions, provide the Company with special insights.

As such, in identifying Director nominees, we seek individuals with:

 

   

experience as senior executives, directors or in other leadership roles;

 

   

an understanding of finance and financial reporting processes;

 

   

qualifications to be designated as financially literate for those being considered for the Audit Committee;

 

   

a strong corporate governance background;

 

   

an exemplary reputation and record for honesty in his or her personal dealings and business or professional activity;

 

  

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qualities of independence in thought and action;

 

   

strong collaboration skills, with the potential to influence management; and

 

   

the ability to dedicate time to serve on the Board of Directors while being committed to the interests of all shareholders.

Director Independence and Independence Determinations

The Corporate Governance Guidelines require that a majority of the Board of Directors must be “independent” under the Nasdaq rules, and all Directors who are members of the Company’s Audit, Compensation & Talent and Corporate Governance & Nominating committees, must also be independent. To maintain its objective oversight of management, the Board of Directors consists, currently, of all independent Directors, with the exception of Gerry P. Smith, the current CEO of the Company.

The Board of Directors evaluates the independence of each Director nominee in accordance with the Corporate Governance Guidelines, which incorporate the Nasdaq rules and the SEC rules. The Board considered transactions and relationships between the Company and its subsidiaries and affiliates on the one hand and, on the other hand, Directors, immediate family members of Directors, or entities of which a Director or an immediate family member is an executive officer, general partner or significant equity holder. Specifically, the Board of Directors considered that Mr. Dunlop is an employee of HG Vora, affiliates of which own approximately 9.5% of ODP’s common stock as of January 19, 2021. However, the Board determined that this relationship does not impair the independence of Mr. Dunlop under the Nasdaq rules and SEC rules. The Board also considered whether there were any transactions or relationships between any of these persons or entities and any members of the Company’s senior management or their affiliates.

Based on an annual evaluation performed, and recommendations made, by the Corporate Governance & Nominating Committee, the Board of Directors affirmatively determined that each of the following Directors who served in fiscal year 2020 was, or is a current Director nominee is, independent of the Company and its management under the standards set forth in the Corporate Governance Guidelines.

 

     

Quincy L. Allen

   Cynthia T. Jamison    Wendy L. Schoppert
     

Kristin A. Campbell

   Francesca Ruiz de Luzuriaga    David M. Szymanski
     

Marcus B. Dunlop

   Shashank Samant    Joseph S. Vassalluzzo

The only member of the Board of Directors who is not independent is Gerry P. Smith. Mr. Smith, our CEO, is the only employee member of the Board.

The Board of Directors also affirmatively determined that, none of its members has a material relationship with the Company that would impair independence from management, and that all members serving on the Audit, Compensation & Talent and Corporate Governance & Nominating committees have been determined by the Board to be comprised of independent Directors. The Board of Directors’ evaluation included consideration that a relative by marriage of Ms. Campbell is a managing director of Deloitte Consulting LLP, which is a separate legal entity from the Company’s independent registered public accounting firm Deloitte & Touche LLP, and such relative does not personally perform any audit or other services for the Company while working at Deloitte Consulting LLP. In addition, none of the Directors serve as an executive officer of a charitable organization to which the Company made contributions during fiscal year 2020.

Board Diversity

Pursuant to the Corporate Governance Guidelines, the Corporate Governance & Nominating Committee seeks to create a board of directors that represents diversity as to skills, experiences, age, race, gender and ethnicity. While the Board of Directors does not have a formal diversity policy, the Board is committed to a diversified membership. The Corporate Governance & Nominating Committee considers the Board’s overall composition when seeking a potential new candidate, including whether the Board has an appropriate combination of professional experience, skills, knowledge and variety of viewpoints and backgrounds in light of the Company’s current and future business needs. The Corporate Governance & Nominating Committee also considers, among others, the character, expertise, sound judgement, ability to make

 

  

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independent analytical inquires, business experiences, understanding of the Company’s business environment, ability to make time commitments to the Company, demonstrated teamwork, and the ability to bring unique and diverse perspectives and understandings to the Board. In identifying prospective Director candidates, the Corporate Governance & Nominating Committee may seek advice and recommendations from other Board members, management, shareholders or outside advisors. In addition, the Corporate Governance & Nominating Committee may, but need not, retain a third-party independent search firm in order to assist it in identifying candidates to serve as Directors of the Company.

In 2020, the Corporate Governance & Nominating Committee engaged a third-party independent search firm to help identify, evaluate, and conduct due diligence on potential director candidates. Using an independent search firm helps the Corporate Governance & Nominating Committee ensure that it is conducting a broad search and helps it consider a diverse slate of candidates with the qualifications and expertise that are needed to provide effective oversight of management and assist in long-term value creation. The firm identifies Director candidates who meet the criteria of our search, provides requested background and other relevant information regarding Director candidates, and coordinates arrangements for interviews as necessary. Three non-incumbent Directors nominated for election at the Annual Meeting, Ms. Schoppert and Messrs. Allen and Samant, were identified by the third-party independent search firm engaged by the Corporate Governance & Nominating Committee, while Mr. Dunlop was appointed pursuant to the Cooperation Agreement.

After considering the many skills and attributes that each of Ms. Schoppert and Messrs. Allen, Dunlop and Samant would bring to the Board, including their professional backgrounds, leadership experience, public company governance, technology, financial and operational expertise, and their diverse perspectives, our Corporate Governance & Nominating Committee recommended Ms. Schoppert and Messrs. Allen, Dunlop and Samant be nominated for election to the Board. In addition to the diverse set of skills that these four new, non-incumbent Directors bring to the Board, they also serve to further enhance our Board’s diversity as one is a female and the other three identify as ethnic minorities.

Service on Other Public Company Boards

Each member of the Board of Directors must have the time and ability to make constructive contributions to the Board as well as a clear commitment to fulfilling the fiduciary duties required of directors and serving the interest of the Company’s shareholders. To that end, the CEO and any independent Directors who serve as the chief executive officer of a publicly traded company may not serve on more than two public company boards in addition to our Board, and other independent Directors should not sit on more than four public company boards in addition to our Board.

Candidates Recommended by Shareholders

The Corporate Governance & Nominating Committee will consider Director candidates recommended by shareholders using proxy access. Proxy access permits a shareholder, or group of up to 20 shareholders, owning at least 3% of the Company’s outstanding common stock continuously for at least three years as of both the date of nomination to nominate and include in the proxy statement director nominees and the record date for determining shareholders eligible to vote at the applicable annual meeting and through the date of the annual meeting, constituting up to the greater of two individuals and 20% of the number of directors then serving. The shareholder(s) and the nominee(s) must satisfy the requirements specified in our Bylaws, including that written notice of a nomination be provided to the Corporate Secretary at the Company’s address not less than 120 days nor more than 150 days prior to the first anniversary of the date on which the Company’s definitive proxy statement was released to shareholders in connection with the prior year’s annual meeting. Additional information, including Company address, and submission of non-proxy access director nominations and other shareholder proposals can be found under the caption “2022 Shareholder Proposals.”

All nominations received by the Corporate Secretary that satisfy our Bylaw requirements relating to director nominations will be presented to the Corporate Governance & Nominating Committee for consideration. Shareholders also must satisfy the notification, timeliness, consent and information requirements set forth in this Proxy Statement and in our Bylaws. The Corporate Governance & Nominating Committee’s evaluation of shareholder-proposed director candidates will be the same as for any other proposed candidates.

 

  

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Majority Vote Standard for Election of Directors

Each Director nominee must be elected by a majority of the votes cast in an uncontested election. This means that the number of votes cast “FOR” a Director nominee must exceed the number of votes cast “AGAINST” the Director nominee. If a nominee who currently serves as a Director is not re-elected, Delaware law provides that the Director would continue to serve on the Board until his or her successor has been elected and qualified.

Director Resignation Policy

Under our Bylaws, if a nominee for Director who is an incumbent Director is not re-elected and no successor has been elected at such meeting, the Director is required to promptly tender his or her resignation to the Board of Directors. In that situation, the Corporate Governance & Nominating Committee would make a recommendation to the Board of Directors about whether to accept or reject the resignation, or whether to take other action. Within ninety (90) days from the date that the Director submitted his or her resignation, the Board of Directors would act on the Corporate Governance & Nominating Committee’s recommendation and publicly disclose its decision and the rationale behind it. If the Board of Directors determines that there is a compelling reason for such incumbent Director to remain on the Board and does not accept the resignation, the Director will continue to serve until the next annual meeting or until his or her successor is duly elected, or his or her earlier resignation or removal. If a Director’s resignation is accepted by the Board of Directors, then the Board, in its sole discretion, may fill any resulting vacancy. The Director who tenders his or her resignation will not participate in the Board’s decision.

Retirement Age and Term Limits

As stated in our Corporate Governance Guidelines, the Board of Directors recommends, but does not require, that a Director not be nominated for re-election or reappointment to the serve on the Board after having attained the age of 75 years. The Board of Directors recognizes, however, that a Director who has attained the age of 75 years may continue to be involved in activities, positions or relationships which are compatible with continued service on the Board and the Corporate Governance & Nominating Committee will review annually such Director’s fitness to serve on the Board.

The Board of Directors does not believe that it should establish term limits. Term limits could result in the loss of Directors who have been able to develop, over a period of time, increasing insight into the Company and its business and operations, and an institutional memory that benefits the entire Board as well as management. As an alternative to term limits, the Corporate Governance & Nominating Committee annually reviews with each Director his or her desire to continue as a member of the Board which allows the Company the opportunity to conveniently replace Directors who are no longer interested or effective.

Board Oversight of Risk

Risk is an inherent part of ODP’s business activities and risk management is critical to the Company’s innovation and success. The Board of Directors has overall responsibility for risk oversight and focuses on the most significant risks facing the Company. The Board of Directors discharges its risk oversight responsibilities, directly and through delegation to its committees, and is responsible for evaluating the Company’s major risks for determining that appropriate risk management and control procedures are in place ensuring that management takes the appropriate steps to manage all major risks. The Board oversees a formal enterprise-wide approach to risk management, designed to support the achievement of organizational and strategic objectives, to improve long-term performance and enhance shareholder value. A fundamental part of risk management is not only understanding the risks a company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for the Company.

For example, in response to the COVID-19 global pandemic, the Board regularly received reports from a cross-functional team of executive officers and members of management to assess risks to the Company’s business and to implement the steps necessary to navigate the impact of the pandemic on the Company’s employees, customers, and the communities in which the Company operates. The Board had regularly scheduled informal update calls throughout the COVID-19 crisis in 2020 (24 in total) and actively counseled management on strategies to position the Company to weather the impacts of the global pandemic and emerge in a strong position post-COVID-19. The involvement of the Board of Directors in setting ODP’s business strategy is a key part of its assessment of management’s appetite for risk and determination of what constitutes an appropriate level of risk for the Company. The Company’s risk governance is facilitated through a top-down

 

  

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and bottom-up approach, with the tone established at the top by Mr. Smith, our CEO, and other members of senior management, specifically the Senior Leadership Team. The senior leadership team utilizes an Enterprise Risk Management (ERM) steering committee as described below. For additional information see “Corporate Governance” under subheading “Role of the Board Committees in Risk Oversight.”

2021 Director Nominees

The Board of Directors has nominated ten (10) individuals listed below for election as Directors to each serve a one-year term of office to expire at the 2022 annual meeting of shareholders, or until their successors have been elected and qualified, or until their resignation or removal. At the Annual Meeting, proxies cannot be voted for a greater number of individuals than the ten nominees named in this Proxy Statement. Each of the nominees is an incumbent Director of ODP recommended for election or re-election by the Corporate Governance & Nominating Committee. Biographical information regarding each of the Director nominees is set forth below.

The Board of Directors has determined that nine (9) Director nominees satisfy the definition of independent director under the Nasdaq rules. In making these nominations, the Board reviewed the backgrounds, qualifications, attributes, experiences and contributions to the Board of the Director nominees and determined to nominate each of the current Directors for re-election. See “Director Independence and Independence Determinations” above for more information.

Pursuant to our Bylaws, should any of the Director nominees be unavailable or unable to serve at the time of the Annual Meeting, the Corporate Governance & Nominating Committee may propose a substitute nominee. If a substitute nominee is named, all proxies voting FOR the Director nominee who is unable to serve will be voted for the substitute nominee so named. If a substitute nominee is not named, all proxies will be voted for the election of the remaining Director nominees (or as directed on your proxy). Each individual nominated for election has agreed to serve if elected and the Board has no reason to believe that any Director nominee would be unavailable or unable to serve. Pursuant to the Cooperation Agreement, except in the event HG Vora (together with any affiliates of HG Vora) ceases to own at least five percent (5%) of the Company’s then outstanding shares of common stock (the “Company Ownership Level Minimum”) or HG Vora has materially breached the Cooperation Agreement and failed to cure such breach within five (5) business days of notice thereof, the Board of Directors has agreed to nominate Marcus B. Dunlop for election as one of the Directors of the Company at the Annual Meeting.

Pursuant to the Cooperation Agreement, in the event that Marcus B. Dunlop (or any replacement director appointed in accordance with the provisions of the Cooperation Agreement) is unable to serve, resigns or is removed as a Director during the term of the Cooperation Agreement, HG Vora has the ability to recommend a replacement director who is a “Partner” or a more senior member of HG Vora and meets the conditions set forth in the Cooperation Agreement (a “Replacement Director”), so long as HG Vora (together with any affiliates of HG Vora) satisfies the Company Ownership Level Minimum and HG Vora has not materially breached the Cooperation Agreement and failed to cure such breach within five (5) business days of notice thereof.

The Cooperation Agreement provides that Mr. Dunlop, or the Replacement Director, as the case may be, must offer to resign from the Board on December 31, 2021, or earlier if (a) HG Vora (together with any affiliates of HG Vora) ceases to satisfy the Company Ownership Level Minimum, (b) HG Vora otherwise ceases to comply with or breaches any material provision of the Cooperation Agreement, or (c) HG Vora submits a notice of director nominations in connection with the 2022 annual meeting of shareholders of the Company (the “2022 Annual Meeting”).

 

  

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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” EACH NAMED DIRECTOR NOMINEE.
 
 

  GERRY P. SMITH

 

Age 57

 

 

Director since:

2017

 

 

Executive

 

 

 

 BIOGRAPHY:

Mr. Smith was appointed as Chief Executive Officer and a Director effective February 27, 2017. Mr. Smith has been leading the Company’s transformation from a tactical, product-based transactions company to a services-driven B2B platform. Prior to joining the Company and since 2006, Mr. Smith was at Lenovo Group Limited (“Lenovo”) and previously served as Lenovo’s Executive Vice President and Chief Operating Officer since 2016 where he was responsible for all operations across Lenovo’s global product portfolio. Prior to assuming this role, also in 2016, Mr. Smith was Executive Vice President and President, Data Center Group. From 2015 to 2016, he served as Chief Operating Officer of the Personal Computing Group and Enterprise Business Group, and from 2013 to 2015 he served as President of the Americas. In these roles, Mr. Smith oversaw Lenovo’s fast-growing enterprise business worldwide and Lenovo’s overall business in the America’s region. Prior to that, Mr. Smith was President, North America and Senior Vice President, Global Operations of Lenovo from 2012 to 2013, and Senior Vice President of Global Supply Chain of Lenovo from 2006 until 2012 where he was responsible for end-to-end supply chain management. Prior to Lenovo, Mr. Smith held a number of executive positions at Dell Inc. from 1994 until 2006, as the company became a global leader in personal computers.

 

   

 

 QUALIFICATIONS AND EXPERIENCE:

•   Extensive leadership experience and strong track record in increasing operating profit and managing complex integrations for corporations.

 

•   Strategic, operational, and managerial expertise gained through a more than 25-year career with Lenovo and Dell Inc.

 

•   Expertise in corporate turnarounds and positioning companies for future growth and success.

 

   

 

 OTHER PUBLIC DIRECTORSHIPS:

•   Arrow Electronics, Inc. (since 2020); currently Corporate Governance Committee member

 

 

  

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  QUINCY L. ALLEN

 

Age 60

 

 

Director since:

2020

 

 

Independent

 

 

Committees:

•  Audit

 

 BIOGRAPHY:

Mr. Allen joined our Board in February 2020. Mr. Allen has over 35 years of leadership experience in the technology services industry, most recently serving as IBM Corporation’s (“IBM”) Go-To-Market Leader of Cognitive Process Services and Chief Marketing Officer for IBM Cloud from 2015 to 2018. Prior to joining IBM, Mr. Allen served as Chief Marketing and Strategy Officer at Unisys Corporation, a global information technology company, from 2012 to 2015. From 2009 to 2010, Mr. Allen served as Chief Executive Officer for Vertis Communications, a direct marketing and advertising company. Vertis Communications filed for voluntary bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in November 2010 and emerged from bankruptcy in March 2012. In October 2012, Vertis Communications filed for bankruptcy protection again. Prior to Vertis Communications, Mr. Allen held several leadership positions with Xerox Corporation, including serving as President of the Global Services and Strategic Marketing Group and President of Production Systems Group, as well as Senior Vice President, North American Services and Solutions and Vice President, Worldwide Customer Services Strategy of Xerox Corporation. Mr. Allen previously served as a board member of NCR Corporation and Gateway, Inc.

 

   

 

 QUALIFICATIONS AND EXPERIENCE:

•   Significant executive management experience as a technology executive, chief executive officer, and public company board member.

 

•   Expertise in enterprise technology, supply chain, sales and marketing and product development.

 

•   Financial, operational and organizational expertise gained as executive management at several public corporations.

 

   

 

 OTHER PUBLIC DIRECTORSHIPS:

•   ABM Industries Incorporated (since 2021)

 

 

  

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  KRISTIN A. CAMPBELL

 

 

Age 59

 

 

Director since:

2016

 

 

Independent

 

 

Committees:

•  Compensation & Talent

•  Corporate Governance & Nominating (Chair)

 

 

 BIOGRAPHY:

Ms. Campbell has served as the Executive Vice President and General Counsel for Hilton Worldwide Holdings Inc., a global hospitality company, since June 2011, and since February 2021 has been appointed as its Chief ESG Officer. Prior to Hilton Worldwide, Ms. Campbell spent 18 years at Staples, Inc., where she served as Senior Vice President, General Counsel and Corporate Secretary from 2007 to 2011. Before joining Staples in 1993, Ms. Campbell worked at law firms Goodwin Procter LLP and Rackemann, Sawyer & Brewster. Ms. Campbell is an Advisory board member of each of New Perimeter and LegalMation.

 

 

 

 

 QUALIFICATIONS AND EXPERIENCE:

•  Extensive corporate retail experience in the office products and services industry, operational as well as consumer business experience.

 

•  Expertise in strategic development and execution, mergers and acquisitions, and integration.

 

•  Executive management experience with a large global company, including legal, regulatory, risk management, crisis management, and relevant board and governance experience.

 

 
 

  MARCUS B. DUNLOP

 

Age 34

 

 

Director since:

2021

 

 

Independent

 

 

 BIOGRAPHY:

Mr. Dunlop has served as an investment professional at HG Vora since 2009. Mr. Dunlop became a partner and member of the Investment Committee at HG Vora in 2018 and is involved in idea generation, fundamental research and portfolio risk management. Prior to joining HG Vora, he was an analyst at Goldman Sachs Group, Inc. in the Bank Debt Portfolio Group with focus on credit analysis for bank loan sales and trading desk, and debt restructurings of non-investment grade companies from 2008 to 2009.

 

 

 

 

 QUALIFICATIONS AND EXPERIENCE:

•  Financial expertise and extensive experience in corporate finance, capital structure optimization and capital allocation strategy.

 

•  Significant experience evaluating strategic alternatives including mergers and acquisitions, divestitures and spin-offs.

 

•  Industry experience in consumer, retail and real estate-oriented businesses.

 

 

  

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  CYNTHIA T. JAMISON

 

 

Age 61

 

 

Director since:

2013

 

 

Independent

Financial Expert

 

 

Committees:

•  Audit (Chair)

•  Corporate Governance & Nominating

 

 

 BIOGRAPHY:

Ms. Jamison was a partner with Tatum, LLC, an executive services firm focused exclusively on providing chief financial officer support to public and private companies from 1999 to 2009, and from 2005 to 2009, she led the CFO Services practice and was a member of Tatum’s Operating Committee. After retiring from Tatum, Ms. Jamison joined AquaSpy, Inc., a provider of soil moisture sensors to monitor soil moisture levels, and served as its Chief Financial Officer from 2009 to 2012. Prior to joining Tatum, she served as Chief Financial Officer of Chart House Enterprises (food retailer) and previously held various financial positions at Allied Domecq Retailing USA, Kraft General Foods, and Arthur Andersen LLP. Ms. Jamison’s experience also includes her service, from 2004 to 2015, as a director of B&G Foods, Inc., including chair of its audit committee.

 

 

 

 

 QUALIFICATIONS AND EXPERIENCE:

•  Extensive experience in financial and accounting matters, including public company reporting, strategy and capitalization expertise.

 

•  Served as Chief Financial Officer or on the board of directors in leadership positions of many public and private companies.

 

•  Brings key senior management, leadership, financial and strategic planning, corporate governance and public company executive and board experience.

 

 

 

 OTHER PUBLIC DIRECTORSHIPS:

•  Tractor Supply Company (since 2002); currently Chairman of the Board

 

•  Darden, Inc. (since 2014); currently Audit Committee Chair, Compensation Committee member, and Finance Committee member

 

•  Big Lots, Inc. (since 2015); currently Nominating/Corporate Governance Committee Chair, Capital Allocation Planning Committee member, and Compensation Committee member

 

 

  

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  FRANCESCA RUIZ DE LUZURIAGA

 

 

Age 67

 

 

Director since:

2013

 

 

Independent

 

 

Committees:

•  Compensation & Talent (Chair)

•  Corporate Governance & Nominating

 

 

 BIOGRAPHY:

Ms. Luzuriaga was a director of OfficeMax from 1998 to November 2013. From 1999 to 2000, Ms. Luzuriaga served as the Chief Operating Officer of Mattel Interactive, a business unit of Mattel, Inc., one of the major toy manufacturers in the world. Prior to holding this position, she served Mattel as its Executive Vice President, Worldwide Business Planning and Resources, from 1997 to 1999, and as its Chief Financial Officer from 1995 to 1997. Since leaving Mattel in 2000, Ms. Luzuriaga worked as an independent business development consultant, and is currently retired. From 2002 until 2005, she served as a director of Providian Financial Corporation, and as a director of the formerly public corporation SuperValu, Inc. from 2015 until its acquisition by United Natural Foods, Inc. in 2018. Since January 2012, she has been a director of SCAN Health Plan, a not-for-profit Medicare Advantage health plan (“SCAN”), and currently serves as chairperson of its governance committee. Ms. Luzuriaga previously served as SCAN’s board chairperson from January 2017 to 2020. Ms. Luzuriaga has been a board member of the SCAN Foundation since 2017. In June 2020, Ms. Luzuriaga joined the board of directors of Alive Ventures, an affiliate of the SCAN Foundation, which is a startup innovation studio that markets brands to older adults. As of January 2021, she was appointed as board chairperson of Alive Ventures.

 

 

 

 

 QUALIFICATIONS AND EXPERIENCE:

•  Substantial prior leadership experience in the operations and strategy side of businesses, both in the United States and internationally.

 

•  Financial expertise and experience in corporate finance and accounting matters and strategy development and execution.

 

•  Extensive experience as a board member for public and private companies.

 

 
 

  SHASHANK SAMANT

 

Age 52

 

 

Director since:

2020

 

 

Independent

 

 

Committees:

•  Corporate Governance & Nominating

 

 

 BIOGRAPHY:

Mr. Samant joined our Board in February 2020. Mr. Samant brings over 30 years of technology, product development and services experience, and has served as President and Chief Executive Officer of GlobalLogic Inc., since 2011. GlobalLogic is a leader in digital product engineering helping enterprises design and develop innovative products, platforms and digital experiences. Prior to joining GlobalLogic, Mr. Samant was President of Ness Technologies, an IT services company, where he founded and built their product engineering services business. Prior roles include leading professional services for Hewlett-Packard’s Verifone business and establishing IBM’s first India-based engineering lab, globalizing the company’s R&D and software engineering efforts.

 

 

 

 

 QUALIFICATIONS AND EXPERIENCE:

•  Significant experience as a technology services senior executive at both small and large companies.

 

•  Extensive experience in strategic development and execution and operations.

 

•  Industry expertise in enterprise technology, product development and services.

 

 

  

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  WENDY L. SCHOPPERT

 

 

Age 54

 

 

Director since:

2020

 

 

Independent

Financial Expert

 

 

Committees:

•  Audit

 

 

 BIOGRAPHY:

Ms. Schoppert joined our Board in July 2020. Ms. Schoppert has over 30 years of diverse finance and operational leadership experience, and has been serving as a professional director since her retirement from Sleep Number Corporation in 2014. Ms. Schoppert served as Executive Vice President and Chief Financial Officer of Sleep Number from 2011 to 2014. During her tenure at Sleep Number, Ms. Schoppert served as Senior Vice President and Chief Information Officer from 2008 to 2011 and Senior Vice President, International and New Channel Development from 2005 to 2008. Prior to joining Sleep Number, Ms. Schoppert led U.S. Bank’s Private Asset Management team and served as Head of Product, Marketing & Corporate Development for U.S. Bank’s Asset Management division from 2002 to 2005. Ms. Schoppert began her career in the airline industry, serving in various financial, strategic and general management leadership positions with increasing roles and responsibilities at American Airlines, Northwest Airlines and America West Airlines. Ms. Schoppert is a director of Bremer Financial Corporation, a Minnesota-based financial services firm, and chairs its audit committee and serves on its compensation committee. Ms. Schoppert also serves and has served as a member of not-for-profit and professional organizations.

 

 

 

 

 QUALIFICATIONS AND EXPERIENCE:

•  Broad based experience in business, including extensive retail and B2B experience, information technology, digital, marketing, international, and corporate development.

 

•  Financial expertise and extensive experience leading all finance functions such as financial planning and analysis, accounting, tax, treasury, investor relations, decision support and IT.

 

•  Executive and senior leadership positions at various corporations.

 

 

 

 OTHER PUBLIC DIRECTORSHIPS:

•  Big Lots, Inc. (since 2015); currently Capital Allocation Planning Committee Chair, Audit Committee member, and Nominating/Corporate Governance Committee member

 

•  The Hershey Company (since 2017); currently Audit Committee member and Finance and Risk Management Committee member

 

 

  

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  DAVID M. SZYMANSKI

 

Age 64

 

 

Director since:

2013

 

 

Independent

 

 

Committees:

•  Audit

•  Corporate Governance & Nominating

 

 

 BIOGRAPHY:

Dr. Szymanski was a director of OfficeMax from 2004 to November 2013. Dr. Szymanski became the President of and Professor of Marketing at the University of North Florida in May 2018. Prior to that, Dr. Szymanski was Dean of and a Professor of Marketing at the University of Cincinnati Lindner College of Business from 2010 to 2018. Prior to that, Dr. Szymanski was a Professor of Marketing and holder of the JC Penney Chair of Retailing Studies at Texas A&M University, where he served from 1987 until 2010. Dr. Szymanski served as the Director of the Center for Retailing Studies at Texas A&M University from 2000 to 2006. From 2004 to 2010, Dr. Szymanski was a director of Zale Corporation, and from 2004 to 2006, Dr. Szymanski was a director of the National Retail Federation Foundation Board.

 

 

 

 QUALIFICATIONS AND EXPERIENCE:

•  Significant leadership positions held at major universities.

 

•  Extensive knowledge regarding marketing, business strategy, and all aspects of the retail industry arising from his academic focus, extensive business engagements, and significant financial experience.

 

•  Experience spearheading strategic plans for growth within a major organization through his experience as President of the University of North Florida.

 

 
 

  JOSEPH S. VASSALLUZZO

 

Age 73

 

 

Director since:

2013

 

 

Independent

 

 

Non-executive

Chairman of the

Board

 

 

 BIOGRAPHY:

Mr. Vassalluzzo was appointed as the independent non-executive Chairman of the Board in February 2017. Since 2002, he has served as a director of the Federal Realty Investment Trust, where he is chairman of the board of trustees. Mr. Vassalluzzo was previously a director of LifeTime Fitness, from 2006 to 2015, where he was its lead director and chair of the compensation committee. Mr. Vassalluzzo also served on the board of directors of iParty Corp. from 2004 to 2013 and on the board of directors of Commerce Bancorp from 2005 to 2008 where he chaired various committees of both companies. He also operates a retail consulting business. Previously, Mr. Vassalluzzo was employed by Staples, Inc. from 1989 until 2005 and his duties included worldwide responsibility for all of Staples’s real estate activities, including, but not limited to, the development and management of all retail stores; distribution; office and warehouse centers; engineering, construction and design activities; facilities management; M&A activities; and the Legal Department function. Mr. Vassalluzzo also served as Staples’ vice chairman.

 

 

 

 QUALIFICATIONS AND EXPERIENCE:

•  Broad based experience in business, including extensive experience in retail businesses and the office supplies business.

 

•  Board service to a number of retailers, with retail and retail real estate expertise that is essential to our core business.

 

•  Executive and senior leadership positions at numerous retailers.

 

 

 

 OTHER PUBLIC DIRECTORSHIPS:

•  Federal Realty Investment Trust (since 2002); currently Non-Executive Chairman of the Board of Trustees

 

 

  

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The Right Board at the Right Time

The Corporate Governance & Nominating Committee and the Board believe that the Director nominees for 2021 provide the Company with the right mix of skills and experience necessary for an optimally functioning Board. The following reflects Board demographics of our Director nominees. Further information on each Director nominee’s qualifications and relevant experience is provided in the individual biographical descriptions above.

 

                     
      Allen       Campbell       Dunlop       Jamison     Ruiz de
Luzuriaga
    Samant       Schoppert       Smith       Szymanski       Vassalluzzo  

Demographics

                                                                           

Race/Ethnicity:

                                                                           

African American

    X               X                                                      

Asian/Pacific Islander

                                  X     X                                  

White

            X               X                   X       X       X       X  

Hispanic/Latino

                                  X                                        

Native American

                                                                           

Gender:

                                                                           

Male

    X               X                   X               X       X       X  

Female

            X               X     X             X                          

 

  

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DIRECTOR COMPENSATION

The Compensation & Talent Committee, together with its independent compensation consultant, Frederic W. Cook & Co., Inc. (“FW Cook”), regularly reviews our non-management Directors’ compensation program to ensure that it is appropriate in light of market circumstances and prevailing “best practices” for corporate governance and to determine its competitiveness against the compensation of the boards of directors of our peer group (as shown in the Compensation Discussion and Analysis or “CD&A” section of this Proxy Statement). In May 2020, FW Cook presented its review to the Compensation & Talent Committee and after consideration the Compensation & Talent Committee determined that the compensation elements reflect the Board’s view that compensation to our non-management Directors should consist of an appropriate mix of cash and equity awards and did not recommend any changes to the compensation of our non-management Directors at that time.

Compensation for our non-management Directors consists of an annual retainer fee in the amount of $210,000 per year, of which $75,000 is payable in cash in equal installments on a quarterly basis during which the Director served. The non-Executive Chairman receives an additional $200,000 retainer fee. No deferrals of cash payments are permitted by the Directors. The remaining $135,000 of the annual retainer fee is granted as stock unless the Director elects to defer his/her stock in the form of Restricted Stock Units (“RSUs”) to be distributed in shares following termination of service on the Board, with such election made by the end of the prior tax year for existing Directors and prior to appointment to the Board for new Directors. The equity portion is typically granted in a lump sum as soon as administratively practicable following the release of voting results from the annual shareholders’ meeting.

For fiscal year 2020, the following compensation for services as a chair or as a member of the Board committees was paid in cash on a pro-rated, quarterly basis to the incumbent Directors:

 

Board Committee   Annual Fee for Chair   Annual Fee for Committee Members (excludes Chair)
Audit Committee   $25,000   $12,500
Compensation & Talent Committee   $20,000   $10,000
Corporate Governance & Nominating Committee   $15,000   $ 7,500

In connection with his appointment as a director, Mr. Dunlop is entitled to receive the pro rata portion of the standard compensation for service on the Board of Directors by the Company’s non-management Directors for the period from January 26, 2021 through the date of the next annual meeting of shareholders. Mr. Dunlop has waived his right to compensation as a member of the Board of Directors.

Effective January 1, 2021, the Compensation & Talent Committee approved an increase in the annual retainer fee for our non-management Directors by $25,000, for a total of $235,000 per year. Total cash payments were increased by $10,000 to a total of $85,000 per year and equity compensation was increased by $15,000 to a total of $150,000 per year. The Compensation & Talent Committee did not approve any other changes to Director compensation at that time. The increase in Director compensation was recommended by FW Cook to reflect current market practice and in recognition of the time commitment of the Directors.

Director Stock Ownership Guidelines

Non-management Directors are required to own five times the directors’ cash portion of the annual retainer fee (equal to $425,000) in shares of our common stock. Directors must also retain 100% of net shares awarded until termination of their service on the Board.

The Compensation & Talent Committee reviews these ownership guidelines, on an annual basis, with the assistance from its independent compensation consultant, to ensure that such guidelines align with best market practices, including the practices of a majority of our peer group, and with management’s ownership guidelines. In addition, the Compensation & Talent Committee annually reviews each Director’s progress toward meeting the ownership guidelines.

 

  

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Indemnification Agreements

The Company has entered into indemnification agreements with its Directors and certain of its officers. The indemnification agreements require the Company to indemnify these Directors and officers to the full extent permitted by Delaware law against any and all expenses (including advances of expenses), judgments, fines, penalties, and amounts paid in settlement incurred in connection with any claim against the indemnified person arising out of services as a director, officer, employee, trustee, agent, or fiduciary of the Company or for another entity at the request of the Company, and maintain directors and officers liability insurance coverage.

DIRECTOR COMPENSATION TABLE FOR FISCAL YEAR 2020

 

Director Compensation Table for Fiscal Year 2020

 

               
(a)   (b)      (c)     (d)     (e)     (f)     (g)   (h)  
Name  

(1)   

Fees Earned     

or Paid in   

Cash ($)   

  (2)(3)(4)
Stock
Awards ($)
    (5)
Option
Awards ($)
   

Non-Equity
Incentive

Plan
Compensation

($)

   

Change in Pension

Value and NQ
Deferred
Compensation
Earnings ($)

   

(6)
All Other
Compensation

Total Other ($)

  Total  
     
                                             
               

Quincy L. Allen

  $75,549     $169,664       -         -         -       -     $245,213  
               

Kristin A. Campbell

  $107,500     $135,002       -         -         -       -     $242,502  
               

Cynthia T. Jamison

  $121,593     $135,002       -         -         -       -     $256,595  
               

V. James Marino (7)

  $42,610     -         -         -         -       $114,927   $157,537  
               

Francesca Ruiz de Luzuriaga

  $105,247     $135,002       -         -         -       -     $240,249  
               

Shashank Samant

  $72,363     $169,664       -         -         -       -     $242,027  
               

Wendy L. Schoppert

  $37,568     $107,270       -         -         -       -     $144,838  
               

David M. Szymanski

  $96,593     $135,002       -         -         -       -     $231,595  
               

Nigel Travis (7)

  $35,357     -         -         -         -       $6,027   $41,384  

Joseph S. Vassalluzzo

  $275,000     $135,002       -         -         -       -     $410,002  

 

 

(1)        Since February 2017, Mr. Vassalluzzo has served as the independent non-executive Chairman of the Board to lead the Board of Directors and receives an annual cash retainer of $200,000 to serve as non-Executive Chairman. For fiscal year 2020, the Directors, excluding Mr. Vassalluzzo, receive annual compensation of: (a) $75,000 in cash, prorated for time in position, and (b) fees paid in cash for both serving as the Chair of a Committee and as the member of a Committee prorated for time in position.

(2)        The dollar amounts in column (c) reflect the aggregate grant date fair value of equity awards granted within the fiscal year in accordance with the FASB Accounting Standards Codification Topic 718 for stock-based compensation. These amounts reflect the total grant date fair value for these awards, and do not correspond to the actual cash value that will be recognized by each of the Directors when received. See Notes 1 and 14 of the consolidated financial statements in our 2020 Annual Report regarding the underlying assumptions used in the valuation of equity awards.

(3)        The “Equity Compensation Paid to Directors for Fiscal Year 2020” table that follows represents the aggregate grant date fair value of stock or RSUs granted to our Directors under the Company’s 2019 Long-Term Incentive Plan (the “2019 Plan”). Annual awards are calculated by a dollar value that is then translated into stock or RSUs based on the closing stock price of our common stock on the date of grant.

(4)        As of December 26, 2020, the aggregate number of RSUs convertible into shares of our common stock, outstanding for our Directors is set forth as follows: Quincy Allen 8,168, Kristin Campbell 24,239, Francesca Ruiz de Luzuriaga 50,348, Cynthia Jamison 28,380, Shashank Samant 8,168, Wendy Schoppert 4,832, David Szymanski 49,994, and

 

  

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Joseph Vassalluzzo 29,799. The number of shares reflects the number of shares after adjustment for our reverse stock split. All RSUs are fully vested as of December 28, 2019, but distribution is deferred until either the Director’s separation date or six months following the Director’s separation date, as applicable. Please see the “Equity Compensation Paid to Directors for Fiscal Year 2020” table that follows for all equity awards granted in fiscal year 2020.

(5)        As of December 26, 2020, the aggregate number of option awards outstanding for our Directors is set forth as follows: Francesca de Luzuriaga 1,213. All options are fully vested. There were no options granted to Directors in fiscal year 2020.

(6)        The dollar amounts in column (g) represent the dividend equivalents that were paid to Messrs. Marino and Travis following each Director’s separation from service with the Company. Dividend equivalents are paid without interest, at the same time the corresponding RSU’s are distributed. Messrs. Marino and Travis were paid $6,027 for dividend equivalents associated with a RSU Grant dated May 7, 2019 that was distributed on May 12, 2020. Mr. Marino was paid $108,900 for dividend equivalents associated with RSU grants dated October 19, 2011, July 25, 2012, and July 24, 2013 that were distributed on November 11, 2020.

(7)        Messrs. V. James Marino and Nigel Travis elected not to stand for reelection to the Board of Directors at the 2020 Annual Meeting, so their terms expired on May  11, 2020.

EQUITY COMPENSATION PAID TO DIRECTORS FOR FISCAL YEAR 2020

 

 

Equity Compensation Paid to Directors for Fiscal Year 2020

 

         
(a)    (b)               (c)               (d)               (e)           
Directors    Grant Date              

(1)           

Stock           

Awards           

  

 

(2)           

  Grant Date Fair             

Value of Stock           

Awards           

  

Total Value of           

  Equity Awards for             

2020           

         

Quincy L. Allen (3)

   5/12/20               8,440               $20.10               $169,664           
         

Kristin A. Campbell

   5/12/20               6,716               $20.10               $135,002           
         

Cynthia T. Jamison

   5/12/20               6,716               $20.10               $135,002           
         

V. James Marino (4)

   -                 -                 -                 -             
         

Francesca Ruiz de Luzuriaga

   5/12/20               6,716               $20.10               $135,002           
         

Shashank Samant (3)

   5/12/20               8,440               $20.10               $169,664           
         

Wendy L. Schoppert (5)

   7/29/20               4,832               $22.20               $107,270           
         

David M. Szymanski

   5/12/20               6,716               $20.10               $135,002           
         

Nigel Travis (4)

   -                 -                 -                 -             
         

Joseph S. Vassalluzzo

   5/12/20               6,716               $20.10               $135,002           

 

 

(1)        The number of shares reflect the number of shares after adjustment for our reverse stock split.

(2)        Amounts are determined using the closing stock price of our common stock on the grant date. See footnote 2 in the previous “Director Compensation Table for Fiscal Year 2020” for additional information. The Grant Date Fair Value of Stock Awards has been adjusted for our reverse stock split.

(3)        Messrs. Allen and Samant were appointed as new directors effective as of February 6, 2020 and received prorated Restricted Stock Awards for the period from February 6, 2020 to February 20, 2020, and prorated RSU awards for the period from February 21, 2020 through May 10, 2020 as well as an annual grant on May 12, 2020.

(4)        Messrs. Marino and Travis elected not to stand for reelection to the Board of Directors at the 2020 Annual Meeting and their terms expired on May 11, 2020.

(5)        Ms. Schoppert was appointed as a new director effective as of July 27, 2020 and was granted a prorated RSU award on July 29, 2020.

 

  

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CORPORATE GOVERNANCE

Corporate Governance Guidelines

Strong corporate governance principles and practices are a long-standing priority at ODP. The Board of Directors is committed to sound governance policies and practices that are designed and routinely assessed to enable the Company to operate its business responsibly, with integrity, and to position ODP to operate more effectively, sustain its success, and build long-term shareholder value. The Board of Directors has adopted Corporate Governance Guidelines, which set forth a framework within which the Board, assisted by its three standing committees, directs the affairs and business of the Company and engages in meaningful discussions with management to ensure long-term growth for the benefit of the shareholders and other stakeholders, becomes informed of the Company’s operating plans and strategic objectives, promotes public trust in the Company, and strengthens management accountability. The Corporate Governance & Nominating Committee reviews the Corporate Governance Guidelines annually to reflect evolving corporate governance standards identified by shareholders and other stakeholders, and any changes to these Guidelines are recommended to the Board of Directors for review and approval.

Board Leadership Structure

The Corporate Governance Guidelines specify that the Corporate Governance & Nominating Committee review the Board’s leadership structure periodically, considering the Company’s circumstances from time to time. After such review and evaluation, the Corporate Governance & Nominating Committee will make its recommendation to the full Board which will approve the leadership structure of the Board.

The Board of Directors annually elects one of its own members to serve as the Chairman of the Board of Directors. Our Bylaws provide that the Chairman of the Board may also serve as the CEO. The Board of Directors believes that there is a wide array of leadership structures that could apply to many different business models and, therefore, the Board should have the flexibility to consider the appropriate leadership structure for the Company, which leadership structure may change over time.

The Corporate Governance Guidelines provide that in the event that the offices of the CEO and the Chair of the Board of Directors are not separate, or the Chair of the Board has been determined by the non-management Directors to no longer satisfy the independence qualifications under the Nasdaq rules, the non-management Directors shall select a Director to serve as the “Lead Director” of the Board. The Lead Director must be a non-management Director. If applicable, upon recommendation by the Corporate Governance & Nominating Committee, the Board of Directors annually elects the Lead Director.

Since 2017, the roles of Chairman and CEO have been separated, enabling the Chairman to focus on leading the Board of Directors in its responsibilities and helping the Board ensure that management is acting in the best interests of the Company and its shareholders, and the CEO to lead the Company’s transformation from a tactical, product-based transactions company to a services-driven B2B platform and focus on the Company’s day-to-day business operations. In February 2021, the Board of Directors determined that the designation of Mr. Vassalluzzo as an independent, non-executive Chairman is the current optimal leadership structure for the Company because it provides the Board of Directors with independent leadership and meaningful coordination between management and the non-management Directors. This leadership structure has no impact on the Board of Directors’ oversight of risk.

Role of the Board Committees in Risk Oversight

The Board of Directors delegates oversight of certain specific risks to each Board committee based on the risk categories relevant to the subject matter of the Board committee. Below is a summary of the key risk oversight responsibilities that the Board has delegated to the Board committees.

 

  

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AUDIT

 

 

      

COMPENSATION &

TALENT

          

CORPORATE

GOVERNANCE &
NOMINATING

•    Oversees risks related to the Company’s major financial risk exposures, including cybersecurity, legal, regulatory and compliance, internal controls, financial statements and financial reporting and controls, and the steps taken by management to monitor and control such exposures

 

•    Receives an annual risk assessment report from the Company’s internal audit team

 

•    Oversees risks related to executive and employee compensation policies and programs, including by designing compensation plans that promote prudent risk management

 

•    Reviews management recommendations of executive compensation including retention risks to create incentives that encourage a level of risk-taking behavior consistent with ODP’s business strategy

 

•    Oversees risks related to compensation of the non- management Directors

 

•    Oversees risks related to the Company’s governance structure

 

•    Oversees risks related to director independence and potential risks arising from person transactions

 

•    Oversees risks related to ESG matters and our operations, products and services

 

•    Oversees risks related to public policy and political activities

   

In addition, the Audit and Compensation & Talent Committees annually have a joint meeting to review the Company’s incentive compensation plans for a risk assessment conducted by the Company’s internal audit team and the Compensation & Talent Committee’s independent compensation consultant. See “Compensation Programs Risk Assessment” on page 68.

Annual Risk Assessment

The Company conducts an enterprise risk management (ERM) process, led by the Company’s senior internal audit executive, where risk is assessed periodically by a steering committee, comprised of members of the senior leadership team from each business unit and corporate function, and is tasked with championing risk management practices and integrating them into their functional business unit or function. The steering committee discusses and monitors the most significant enterprise risks in a cross-functional setting and evaluates and prioritizes company-wide risks. The results of the enterprise risk assessment help the steering committee focus on and select the key risks that are first presented to, and evaluated by, the Company’s executive officers, and then presented to the Board of Directors. In addition to this annual presentation made to the full Board, the Audit Committee receives periodic updates on certain risk areas the Board has identified for focus, and the independent Directors periodically discuss risk management during executive sessions without management present.

Director Attendance

The Board of Directors held 14 meetings during fiscal year 2020. The non-management Directors met in 14 executive sessions during fiscal year 2020. In fiscal year 2020, each of the current Directors attended at least 75% of the total number of Board and applicable committee meetings on which each member served (and held during the periods they served). Pursuant to the Corporate Governance Guidelines, each Director is expected to attend the Annual Meeting. All incumbent Directors who are up for re-election attended the 2020 Annual Meeting of Shareholders, except for Ms. Schoppert whose appointment to the Board of Directors was effective on July 27, 2020 and Mr. Dunlop whose appointment to the Board of Directors was effective on January 26, 2021.

 

  

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Board and Committee Responsibilities

The Board of Directors has established three (3) standing committees — (i) Audit, (ii) Compensation & Talent and (iii) Corporate Governance & Nominating. The Board of Directors delegates various responsibilities and authority to its Board committees. The Board committees regularly report on their activities and actions to the full Board.

Each of the Board committees operates under a written charter and annually reviews such charter in light of new developments in applicable regulations and may make additional recommendations to the Board to reflect evolving best practices. Each Board committee can engage outside experts, advisors and counsel to assist each committee in its work. Each charter of the Board committees is posted to our website at http://investor.theodpcorp.com under the heading “Corporate Governance/Committee Charters.” We will also provide a printed copy of the Board committee charters to shareholders upon written request to our Corporate Secretary at The ODP Corporation, 6600 North Military Trail, Boca Raton, Florida 33496.

 

  

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The following describes the responsibilities and current membership of the standing committees of the Board and the number of times each committee met in regular and executive sessions in fiscal year 2020.

 

   

Audit Committee

 

 

Primary Responsibilities

 

 

(6 Meetings; 6 Executive Sessions in fiscal year 2020)

 

Cynthia T. Jamison (Chair)

 

Quincy L. Allen

 

Wendy L. Schoppert

 

David M. Szymanski

 

•  All members are financially literate and independent under the applicable Nasdaq and SEC requirements

•  Mmes. Jamison and Schoppert have been determined to be audit committee financial experts under the definitions provided by the SEC

•  No member serves on the audit committee of more than three public boards

 

•   Oversees the financial reporting process, including the integrity of our financial statements, compliance with legal and regulatory requirements and our Code of Ethical Behavior, and the independence and performance of our internal and external auditors.

 

•   Oversees the work of the independent registered public accounting firm (including appointment and compensation).

 

•   Reviews the annual audited financial statements and quarterly financial information with management and the independent registered public accounting firm.

 

•   Reviews with management the Company’s major financial risk exposures and the steps management has taken to monitor and control the exposures, including the Company’s risk assessment and business risk management process and policies.

 

•   Conducts an annual risk assessment (jointly with the Compensation & Talent Committee) of the Company’s compensation policies and practices.

 

•   Oversees the Company’s internal audit function, including its audit scope and plan, and reviews the systems of internal controls.

 

•   Reviews the scope and planning of the annual audit with both the independent registered public accounting firm and internal auditors.

 

•   Reviews the findings and recommendations of both internal auditors and the independent registered public accounting firm and management’s response to those recommendations.

 

•   Reviews policies and procedures with respect to officers’ expense accounts and perquisites, including their use of corporate assets.

 

 

  

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Compensation & Talent Committee

 

 

Primary Responsibilities

 

 

(7 Meetings; 7 Executive Sessions in fiscal year 2020)

 

Francesca Ruiz de Luzuriaga (Chair)

 

Kristin A. Campbell

 

Cynthia T. Jamison

 

David M. Szymanski

 

•  All members meet the Nasdaq requirements for independence

•  All members are “outside directors” under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) and “non-employee” directors under the SEC requirements

 

•   Sets and reviews overall compensation philosophy, strategies, plans, policies and programs.

 

•   Reviews and proposes to the non-management Directors incentive compensation plans and equity-based plans, including performance objectives and metrics associated with these plans, on an annual basis for the CEO.

 

•   Reviews annually CEO’s performance and proposes to the non-management Directors CEO compensation (including salary, bonus, equity-based grants and any other long-term cash compensation).

 

•   Reviews annual performance of the other executive officers and approves their compensation (including salary, bonus, equity-based grants and any other long-term cash compensation).

 

•   Reviews and approves employment, retirement, severance, benefit and perquisite practices and change-in-control agreements/arrangements for our executive officers.

 

•   Reviews and approves the peer group companies for benchmarking compensation levels and pay practices, as well as performance, for the CEO, executive officers and non-management Directors.

 

•   Reviews annually talent development and succession plans for executive officers other than the CEO and makes recommendations to the Board.

 

•   Administers the Company’s equity incentive plans, including the review and grant of stock option and other equity incentive grants to executive officers.

 

•   Responsible for enforcing the compensation clawback policy.

 

•   Conducts an annual risk assessment (jointly with the Audit Committee) of the Company’s compensation policies and practices.

 

•   Monitors compliance by executive officers and Directors with the Company’s stock ownership guidelines.

 

 

  

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Compensation & Talent Committee

 

 

Primary Responsibilities

 

   

•   Oversees the design, participation, adequacy, competitiveness, internal equity and cost effectiveness for the Company’s broadly applicable benefit programs.

   
   

•   Oversees the disclosure regarding executive compensation, including approving the report to be included in our annual proxy statement on Schedule 14A.

 

•   Oversees the Company’s strategies and policies related to human capital development matters, including diversity and inclusion, pay equity, recruiting, retention, training and development, and workplace environment and safety consistent with the Company’s culture and strategy.

 

   

Corporate Governance & Nominating Committee

 

 

Primary Responsibilities

 

 

(6 Meetings; 6 Executive Sessions in fiscal year 2020)

 

Kristin A. Campbell (Chair)

 

Francesca Ruiz de Luzuriaga

 

Shashank Samant

 

•  All members meet the Nasdaq requirements for independence

 

•   Develops and recommends to the Board our corporate governance principles, policies and practices and takes a leadership role in shaping our corporate governance.

 

•   Reviews and evaluates the adequacy of and recommends to our Board amendments to our Bylaws, Certificate of Incorporation, committee charters and other governance documents.

 

•   Evaluates Board leadership structure and makes recommendations to the Board.

 

•   Reviews and makes recommendations to our Board regarding membership of the Board committees.

 

•   Recommends to the Board criteria and qualifications for Board membership, including assessing independence.

 

•   Identifies, reviews and recommends to our Board individuals for election or re-election to the Board, consistent with criteria approved by the Board.

 

•   Oversees the CEO succession planning process, including any emergency succession plan, and makes recommendations to our Board.

 

•   Monitors compliance with the Company’s Related Person Transactions Policy.

 

•   Oversees the Board and committees’ annual self-evaluations.

 

 

  

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Corporate Governance & Nominating Committee

 

 

Primary Responsibilities

 

   

•   Reviews shareholders’ proposals for inclusion in the Company’s annual proxy materials and recommends appropriate action to the Board.

 

•   Oversees the Company’s strategy on ESG matters including sustainability.

 

Delegation of Authority; Subcommittees

Beginning in December 2011 and from time to time, the Compensation & Talent Committee has delegated certain of its responsibilities to the Company’s internal compensation and benefits committee (the “CBC”) and employee benefits committee (the “EBC,” and together with CBC, the “subcommittees”). The subcommittees are comprised of certain senior executives of the Company. The Compensation & Talent Committee provides oversight for the establishment and termination, amendment, participating employers, administration, claims review and service provider functions of the qualified retirement, non-qualified deferred compensation and health and welfare benefit plans sponsored by the Company or its subsidiaries for eligible employees of the Company or its subsidiaries who work in North America, with the exception of all such plans sponsored separately by entities acquired by the Company or its subsidiaries other than such plans sponsored by CompuCom Systems, Inc. During fiscal year 2020, the Compensation & Talent Committee delegated authority to the CBC to make certain amendments to and carry out certain administrative responsibilities regarding the tax-qualified retirement plans, health and welfare benefit plans and nonqualified deferred compensation plans sponsored by the Company or its subsidiaries. Day-to-day administration and the authority to make certain other amendments to such plans were further delegated to the EBC.

Certain Relationships and Related Person Transactions Policy

The ODP Corporation Related Person Transactions Policy sets forth the policies and procedures governing the review and approval or ratification by the Corporate Governance & Nominating Committee of transactions between the Company, on the one hand, and (i) an executive officer; (ii) Director; (iii) an immediate family member of an executive officer or Director; (iv) any security holder who is known by the Company to own of record or beneficially more than five percent of any class of ODP’s voting securities at the time of the transaction; or (v) an immediate family member of such five percent security holder, on the other hand. Persons in the categories described above are collectively referred to as “related persons.”

This Policy applies to all related person transactions, and under the Policy a “related person transaction” is any transaction:

 

   

in which ODP was or is to be a participant;

 

   

in which the amount exceeds $120,000 (including any contribution of $120,000 or more to a charitable organization in which a related person is a trustee, director, executive officer or has a similar relationship); and

 

   

in which any related person has, or will have, a direct or indirect material interest.

No related person transaction shall be approved or ratified if such transaction is contrary to the best interests of the Company and its stakeholders. Unless different terms are specifically approved or ratified by the Corporate Governance & Nominating Committee, any approved or ratified transaction must be on terms that are no less favorable to the Company than would be obtained in a similar transaction with an unaffiliated third party under the same or similar circumstances. All related person transactions or series of similar transactions must be presented to the Corporate Governance & Nominating Committee for review and pre-approval or ratification. A copy of the Policy is available for review on our website at http://investor.theodpcorp.com under the headings “Corporate Governance/Governance Documents.”

On an annual basis, each Director and executive officer of the Company is required to complete a questionnaire which requires disclosure of any related person transaction. The Company’s Chief Legal & Administrative Officer (“CLAO”) is

 

  

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responsible for determining whether any related person transaction is required to be disclosed in the Company’s applicable SEC filings and will ensure that such transaction or any series of similar transactions required to be disclosed will be presented to the Corporate Governance & Nominating Committee for pre-approval or ratification if required under the Policy. During fiscal year 2020, all transactions that were potentially subject to the Policy were reviewed and approved or ratified by the Corporate Governance & Nominating Committee and, there were no related person transactions that were required to be disclosed pursuant to Item 404(a) of Regulation S-K or affected our Directors’ independence.

Executive Sessions

The non-management Directors of the Company meet in executive sessions without management on a regular basis. The non-executive Chairman of the Board presides at such executive sessions. In the absence of the non-executive Chairman of the Board, the non-management Directors will designate another Director to preside over such executive sessions.

Board and Committee Evaluations

The Board of Directors is committed to continuous improvement and recognizes the importance of a rigorous evaluation process to enhance Board performance and effectiveness. The evaluations focus on the Board’s and each committee’s and their respective members’ performances and contributions to the Company as well as provide constructive feedback. The Corporate Governance & Nominating Committee is responsible for overseeing a formal evaluation process to assess the composition and performance of the Board and each committee on an annual basis. The assessment is conducted to identify opportunities for improvement and skill set needs, as well as to ensure that the Board, committees, and individual members have the appropriate blend of diverse experiences and backgrounds and are effective and productive. As part of the process, each Director completes an evaluation form, or participates in an interview or other method the Corporate Governance & Nominating Committee utilizes to seek feedback. While results are aggregated and summarized for discussion purposes, individual responses are not attributed to any individual and are kept confidential to ensure honest and candid feedback is received.

 

Our board evaluations are designed to solicit input and perspective on various topics, including:

•   board structure, size and composition, including director skills and experience;

 

•   committee structure and allocation of responsibilities;

 

•   conduct of meetings, including cadence, length and opportunity for director input and meaningful discussion;

 

•   materials and information, including quality, timeliness and relevance;

 

•   director orientation and continuing education;

 

•   director performance, including attendance, preparation and participation;

 

 

•   access to management and internal and external experts, resources, and support;

 

•   key areas of focus for the board, including strategy, sustainability, crisis management and shareholder engagement;

 

•   committee structure and process, member and chair performance, duties and functions and management support; and

 

•   performance of the board chair, including communication, relationship with management, availability, focus on appropriate issues and inclusiveness.

 

The Corporate Governance & Nominating Committee discusses opportunities and makes recommendations for improvement as appropriate to the full Board, which implements agreed upon improvements. A Director will not be nominated for reelection unless it is affirmatively determined that he or she is substantially contributing to the overall effectiveness of the Board.

Director Orientation and Continuing Education

In accordance with the Corporate Governance Guidelines, the Corporate Governance & Nominating Committee will arrange an orientation program for newly elected Directors and, together with the CEO, determine the content of such orientation. The orientation enables new Directors to become familiar with the Company’s business and strategic plans; significant financial matters; core values, including ethics; compliance programs; corporate governance practices; and other key policies and practices.

 

  

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It is important for Directors to stay abreast and informed on developments in corporate governance best practices in order to effectively discharge their duties. Our Directors are provided updates on corporate governance developments at regularly scheduled Board meetings, and Directors are encouraged to participate in programs that specialize in director education on a regular basis but at least one session every two (2) years. The Company pays for attendance fees to participate in such programs and reimburses the Directors for their reasonable out-of-pocket costs associated with attending these programs.

Code of Business Conduct (Code of Ethical Behavior)

The Board of Directors has adopted a Code of Ethical Behavior which is applicable to all Company employees, including the principal executive officer, the principal financial officer, the principal accounting officer, and the Board of Directors. If the Board amends or waives the Code of Ethical Behavior with respect to the executive officers of the Company, the Company will post the amendment or waiver on its website at http://investor.theodpcorp.com, under the headings “Corporate Governance/Governance Documents.”

The Company has established a confidential hotline to assist its employees in complying with their ethical and legal obligations and to report suspected violations of applicable laws or Company policies or procedures. The hotline enables employees, vendors and the public to express their concerns about possible violations of law or Company policies by the Company and/or management without fear of retribution or retaliation of any kind. It is the Company’s express policy that no retaliatory action be taken against any employee for using the hotline procedure. The hotline is operated by an independent third party, not by Company personnel. The hotline can be accessed by either calling the following toll-free number or visiting the following website:

1-866-634-6854

www.odhotline.com

The Corporate Governance Guidelines and the Code of Ethical Behavior are available on the Company’s website at http://investor.theodpcorp.com, under the heading “Corporate Governance/Governance Documents.” In addition, a printed copy of such documents will be provided to any shareholder upon written request to the Corporate Secretary at The ODP Corporation, 6600 North Military Trail, Boca Raton, Florida 33496.

Shareholder Engagement and Investor Outreach

Management and the Board of Directors are committed to a proactive shareholder engagement program. We believe that strong corporate governance should include meaningful dialogue with our shareholders and key stakeholders to understand their perspectives on corporate governance, executive compensation, ESG and sustainability matters and other issues that are important to them. Engagement with shareholders builds mutual understanding and a basis for progress, and the feedback we receive from them impacts our corporate governance practices. Senior management from Legal and Investor Relations and subject matter experts from the Company communicate with institutional investors throughout the year to gain their perspectives on current issues and address any questions or concerns. We also respond to individual shareholders and other stakeholders who provide feedback about our business. Our Vice President of Investor Relations and/or our CFO provide feedback from the investor and analyst meetings formally to the Board and its committees, where applicable, on a quarterly basis.

During fiscal year 2020, we sought feedback from our top 20 shareholders representing approximately 70% of the Company’s outstanding common stock to discuss risk management, governance practices, executive compensation, board composition, ESG issues, and other matters that the shareholders wished to discuss.

We will continue our shareholder engagement and investor outreach during fiscal year 2021, including our regular participation at analyst meetings and industry conferences and communication of the Company’s strategy to continue to roll out its B2B integrated distribution platform providing high value products and services. We remain committed to these ongoing discussions and welcome feedback from all shareholders, who may reach our Investor Relations team by calling (561) 438-4629 or visiting http://investor.theodpcorp.com or can contact our Directors or executive officers as described below.

 

  

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Communicating with our Board of Directors

As stated in the Corporate Governance Guidelines, shareholders and other interested parties who wish to communicate with the Board of Directors may contact any member (or all members) of the Board of Directors, or the non-management Directors as a group, any committee of the Board or any chair of any such committee by mail. The Corporate Secretary reviews all communications sent to the Board related to the duties and responsibilities of the Board and its committees and provides these communications to the non-executive Chairman of the Board, the applicable committee chair or the full Board as necessary.

In addition, any person who desires to communicate a confidential specific matter to the Audit Committee may do so by addressing a letter to the Chair of the Audit Committee, c/o Corporate Secretary, at the corporate headquarters address below. Mark “Confidential” on the outside of the envelope. Any confidential communications submitted anonymously will not be opened for any purpose other than for appropriate security inspections. Such communications will be reviewed by the Chair of the Audit Committee with follow-up action as he or she deems appropriate.

Correspondence should be sent “c/o Corporate Secretary,” The ODP Corporation, 6600 North Military Trail, Boca Raton, Florida 33496.

Corporate Responsibility and Sustainability

The ODP Corporation, together with its subsidiaries Office Depot, LLC (“Office Depot”), Grand & Toy Limited and CompuCom Systems, Inc. (collectively, the “Company”), provides business services, products and digital workplace technology solutions aligned around the shared purpose of being exceptional corporate citizens. The Company is focused on managing environmental, social, and governance (“ESG”) factors that support its “5C” culture based on Customer, Commitment, Change, Caring and Creativity. We aim to incorporate the 5Cs into every aspect of our work, integrate sustainability solutions into our operations and support causes that align with our business and speak to who we are as an organization.

Our Response to the COVID-19 Pandemic

From the beginning of the COVID-19 pandemic, our focus at ODP has been and continues to be on two key priorities: the health, safety and well-being of our associates and customers; and providing our customers and communities with the products they need at this time. Due to the nature of products sold in our retail locations and integrated business-to-business distribution platform, our business was considered essential commerce by most local jurisdictions and has remained open and operational. Based upon the guidance of the U.S. Centers for Disease Control (“CDC”) and local health authorities, we have put appropriate measures in place to help reduce the spread of infection to our associates and customers, including the institution of social distancing protocols and increased frequency of cleaning and sanitizing in those facilities. Since March 2020, associates who are able to, have been working from home, with only essential employees in our retail stores, customer support and distribution centers working on site at our facilities, as well as technicians and field support on-site at customer locations, as necessary. We have also limited employee business travel to only essential business needs.

ODP’S Sustainability Strategy

Governance

The Board of Directors recognizes the increasing importance of sustainability and ESG issues and seeks to integrate sustainability considerations into the Company’s business strategies, products, services, thought leadership and operations. The oversight, management, and program implementation of the Company’s sustainability and ESG efforts are structured to ensure these topics are integrated into the foundation of its strong governance framework. In 2020, the charter of the Corporate Governance & Nominating Committee was amended to explicitly state that the committee’s responsibilities include oversight of the Company’s strategy and programs on corporate social responsibility, the environment and sustainability. The Company’s sustainability strategy focuses on conducting its business to ensure that it preserves the environment for future generations and provides a safe and healthy working environment for all its employees. The Company’s Sustainability Governance Council (the “Council”) consists of Company-wide leaders representing key departments across the organization. Working under the Corporate Governance & Nominating

 

  

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Committee, the Council implements and supports the Company’s vision and mission by identifying the sustainability issues most critical to our business and our stakeholders, recommends initiatives to advance the Company’s public facing goals and identifies the metrics needed to measure and report progress. In 2020, the Council created a cross-functional subcommittee, the Sustainability Operating Committee (“SOP”) comprised of members of management representing a broad cross-section of our business to further operationalize and execute on these initiatives.

 

 

LOGO

A copy of our current sustainability report and our landing page are available for review on our website at http://investor.theodpcorp.com under the heading “Corporate Sustainability.” 2

Protecting Our Planet

The Company believes that sustainability plays an essential role in the success of our Company, our industry and our communities, and is committed to operating in a socially responsible manner. To that end, we are not only managing our own environmental footprint as we continue to grow, we also participate in initiatives to help our customers, suppliers and vendors achieve their own sustainability goals.

The Company has an environmental policy to buy greener, be greener and sell greener. We have adopted a “cradle to grave” approach with our products and services and offer several high-quality, long-lasting products with reduced life cycle costs, and when those products have met the end of their useful life, we assist with the correct disposal in an environmentally responsible way. As an example, under “buy greener,” we are committed to sourcing, using and selling paper products that reduce our impact on the world’s forests. We remain committed to using recycled fiber, supporting responsible forestry certification, increasing supply chain transparency and growing markets for greener paper products.

Some of our accomplishments in other areas include the following:

 

   

Achieved 44% (kWh) facilities’ energy consumption reduction between 2016 and 2020, exceeding our 10% energy reduction goal3;

 

   

100% of electricity used in the Company’s corporate headquarters is offset by Green-e Energy® certified Wind Renewable Energy Credits;

 

   

Achieved an 18% increase in miles per gallon in our private fleet between 2018 and 2020, exceeding our 15% fuel efficiency goal;

 

   

Achieved an 11% reduction in greenhouse gas (GHG) emissions from 2019 (MT CO2e Scopes 1 and 2);

 

   

Recycled 40% of waste generated at our facilities, diverting over 15,000 mt of waste from landfills; and

 

   

Recycled more than 6 million pounds of e-waste from customers.

 

2 

Company goals are aspirational and may change. Statements regarding the Company’s goals are not guarantees or promises that they will be met.

3 

Our energy consumption in 2020 has been impacted by the COVID-19 pandemic. Specifically, since March 2020, we have temporarily closed certain offices (including our corporate headquarters) and we temporarily reduced our retail location hours which continues to be in effect in some of our retail locations. As such, our energy consumption in 2020 may not be indicative of our energy consumption in future years.

 

  

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Supplier Guiding Principles

The Company requires its suppliers who produce private brand products for Office Depot to follow and adhere to its Supplier Guiding Principles. The Supplier Guiding Principles is our supplier code of conduct and represents the Company’s commitment to source from suppliers that strive to comply with all applicable laws and regulations. Office Depot endeavors to partner with suppliers who meet internationally recognized standards in dealing with its workers, the environment in which products are made as well as their supply chain operations.

ODP’S Social Responsibility Strategy

Investing in Our People

Diversity and Inclusion or “D&I”. We are committed to maintaining a diverse and inclusive workplace in which our associates from all backgrounds can fully contribute to the growth and success of our business. In 2020, the charter of the Compensation & Talent Committee was amended to explicitly state that the committee’s responsibilities include oversight with respect to diversity and inclusion, pay equity, recruiting, retention, training and development, and workplace environment and safety consistent with the Company’s culture, objectives and strategy. We create a culture of inclusion for associates regardless of gender, race, color, creed, religion, marital status, age, national origin, physical or mental disability, medical condition, veteran status, citizenship, sexual orientation, gender identity, or any other protected group status. The Company has been recognized in local communities and on a national level for its inclusion efforts and is committed to an inclusive work environment that values and respects the talents and contributions of every associate. The Company creates a diverse and inclusive workplace culture when it attracts and hires associates of all abilities and backgrounds. The Company’s commitment to equal opportunity is driven by its 5C Culture, and diversity and inclusion are intrinsic to the Company’s values and contribute to the Company’s success in the markets it serves. In addition to the Company’s values, it also lives by the following diversity values:

 

   

Employs a diverse workforce that reflects the communities in which the Company does business.

 

   

Offers equal opportunities for advancement and encourages all employees to develop to their full potential.

 

   

Embraces new ideas and perspectives and respects individual differences.

 

   

Does not tolerate harassment of any kind.

The Company’s Diversity Council is comprised of leaders from across the business, including the executive sponsors of our Associate Resource Groups (ARGs) as further described below. The Diversity Council provides oversight and counsel for the Company’s diversity and inclusion efforts and provides a platform for identifying and advising on areas of opportunity to continue evolving processes, policies and procedures in alignment with our 5C Culture.

In 2020, the Company was named Top Employer on the 2020 Best of the Best list by Black EOE Journal, Hispanic Network Magazine, and Professional Woman’s Magazine. The Company was also recognized as one of America’s Top Corporations for Women’s Business Enterprises by Women’s Business Enterprise National Council (WBENC), 2020 Top 50 Best Companies for Latinas to Work for in the U.S. by LATINA Style Magazine, 2020 Best of the Decade for Supplier Diversity by Minority Business News magazine, and Best Place to Work for LGBT Equality by the Human Rights Campaign Foundation.

The Company recognizes that disability inclusion is a fundamental value tightly interwoven into the Company’s everyday function and long-term goals. The Company devotes resources and efforts for disability training and hiring initiatives and works closely with local communities to maximize the benefits of these programs. In 2018, through its corporate citizen efforts, the Company and the LaunchAbility Academy Training program partnered with the Texas Department of Assistive and Rehabilitative Services to offer an eight-week program for disabled individuals to help them gain professional experience. In 2020, the Company celebrated its five-year anniversary of this program. In addition, the Company is an active participant and sponsor of Disability: In and has participated in Disability: In’s Disability Equality Index survey. We are proud to have received a 100% score on the Human Rights Campaign (HRC) Foundation’s Corporate Quality Index for the ninth consecutive year.

 

  

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The 2020 U.S. workforce data provided below is from EEO-1 Reports for Office Depot and CompuCom Systems, Inc. and is based on employees’ voluntarily self-disclosure of gender and race/ethnicity. The information below does not include data from certain regional office supply companies recently acquired by Office Depot, which continue to operate as separate entities, and may not be required to collect and compile such data.

Office Depot — Gender Representation:

 

MANAGEMENT   ALL OTHER EMPLOYEES
LOGO   LOGO

Office Depot — Racial/Ethnic Group Representation:

 

MANAGEMENT   ALL OTHER EMPLOYEES
LOGO   LOGO

CompuCom — Gender Representation:

 

MANAGEMENT   ALL OTHER EMPLOYEES
LOGO   LOGO

 

  

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CompuCom — Racial/Ethnic Group Representation:

 

MANAGEMENT   ALL OTHER EMPLOYEES
LOGO   LOGO

Employee Engagement. We maintain a robust and ongoing survey process to monitor employee engagement. In 2020, we added two D&I questions to our annual employee engagement survey to more formally assess associate perspectives on our commitment to driving an inclusive culture in which associates feel they belong and can bring their authentic selves to work. To further foster employee engagement and promote diversity and inclusion, we have encouraged the formation of ARGs. ARGs are voluntary, employee-led, and company-sanctioned organizations of employees who share similar backgrounds, such as age, gender, race, ethnicity, sexual orientation, military experience, life experiences, and other non-merit factors. ARGs work to foster a welcoming and inclusive work environment, drive awareness, and facilitate engagement, leadership, development and support within affinity groups. At the end of 2020, we had 13 ARGs representing various dimensions of diversity: Asian Professionals, Blacks in CompuCom, Men of Color, two LGBTQ+, two Military-Veterans, SOMOS Office Depot, Sustainability, Women in Leadership, Women in Technology, Women of Color, and Young Professionals. Our SOMOS ARG was selected as one of the top 16 employee resource groups of the year for 2020 by LATINA Style, Inc.

Supplier Diversity. We believe supplier diversity is an imperative business practice in today’s economic environment. It helps us identify and deliver quality products and services across all business channels, while driving value and economic development in the communities we serve. We are committed to supporting diverse suppliers and are proud to offer an exceptional choice of innovative products and services to our customers through our Supplier Diversity program. There are over 1,700 featured items in our Diverse Suppliers Catalog. We work continuously to increase sourcing opportunities with diverse businesses — including certified minority-, women-, disabled-, LGBT-, veteran-owned and small businesses.

During 2020, we worked with over 300 diverse suppliers and spent over $273 million dollars with diverse businesses. In 2020, Office Depot was recognized as America’s Top Corporation for Women’s Business Enterprises by Women’s Business Enterprise National Council for successfully driving sustainable inclusion of women-owned businesses within corporate and government supply chains and empowering local communities through economic growth and job creation. The Company was also named Best of the Best Top Supplier Diversity program by Professional Woman’s Magazine and as 2020 Best of the Decade for Supplier Diversity by Minority Business News magazine.

Health and Safety. We are committed to be an environmental steward that supports healthy communities and helps our customers do the same. ODP makes every effort to maintain a safe and healthy work environment. It is our intent to comply with all required U.S. Federal and state safety and health regulations and standards. Our Injury and Illness Prevention Program helps in eliminating or reducing the severity of job-related illnesses and injuries within our Company with the engagement of our leadership and associates by assigning responsibility, requiring ongoing training at all levels, driving a safety culture through constant communication, identifying and eliminating hazards, recognizing safe acts and correcting unsafe behaviors, and accurate incident reporting, investigations, and recordkeeping.

Community Investment. The Company including its subsidiaries believes that part of being responsible corporate citizens is improving the communities where its associates live and work. This commitment spans a wide variety of engagement and activities, both in terms of the Company’s associates’ volunteerism, in-kind contributions and monetary donations on behalf of the Company and by its associates, with the aim of strengthening our communities. We encourage associate

 

  

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volunteerism at all our locations through organized activities and by contributing to local charitable organizations and educational efforts. Our associates are passionate about their communities and enjoy working together for the greater good.

Examples of how the Company supported local communities in 2020 include:

 

   

Converted annual “Depot Day of Service” from a school makeover campaign into a Teacher Support Grant Program and donated separate grants in amounts of $20,000 to help teachers meet teach-from-home needs due to COVID-19

 

   

Launched $200,000 “slowing the summer slide” grant program to help low-income youth overcome the learning loss challenges caused by COVID-19

 

   

Donated $1.5 million dollars to Feeding America’s COVID-19 Response Fund

 

   

Partnered with 5 school districts to launch COVID-19 device drives for underserved students and virtual teaching supply drives for Title 1 schools

 

   

Partnered with 18 Title 1 school districts and donated 1,000 fully stocked backpacks, Office Depot gift cards, and teacher supplies in socially distant-compliant backpack distribution events

 

   

Transformed mentoring programs to virtual options to support at-risk youth throughout the 2020-21 school year

 

   

Launched In-Store point-of-sale “Customer Philanthropy” nationwide for various charities

 

   

Together with HP Canada repurposed and donated 125 laptops to students in need (versus being disposed of in landfills) as part of the HP Refresh Program

 

   

Donated $10,000 of protective personal equipment to help support seniors in long term care facilities

CEO and Executive Management Succession Planning

The Corporate Governance & Nominating Committee oversees CEO succession planning, which is formally reviewed at least annually, in executive session with only non-management Directors present. During these executive sessions, the non-management Directors evaluate the requirements for the CEO position and regularly review potential permanent and interim candidates for the CEO role.

The Compensation & Talent Committee annually evaluates the succession planning process for the executive management team (other than the CEO), including the professional development of senior and midlevel management employees identified as potential successors to the executive management team to ensure that plans are in place for orderly succession of executive management, whether arising from natural career growth and development, voluntary turnover, retirements, or other reasons.

The Board of Directors also established steps to address emergency CEO succession planning in extraordinary circumstances. Our emergency CEO succession planning is intended to enable the Company to respond in the event of our CEO’s termination of employment with the Company for any reason (including death or disability) or other sudden departure, to ensure the stability and accountability of the Company during periods of transition and minimizing potential disruption or loss of continuity to the Company’s business and operations. The Board of Directors reviews and discusses the emergency plan once at least annually.

Anti-Hedging and Anti-Pledging Policies

The Company maintains anti-pledging and anti-hedging policies. See Compensation Discussion and Analysis under subheading “Other Compensation and Governance Matters” for further information about these policies.

 

  

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AUDIT COMMITTEE REPORT

The Audit Committee assists the Board of Directors in its oversight of the Company’s financial reporting process. The Audit Committee operates pursuant to a written charter which is reviewed annually by the Audit Committee and approved by the Board of Directors. A brief description of the primary responsibilities of the Audit Committee is included in this Proxy Statement under the heading “Corporate Governance — Board and Committee Responsibilities.” Under the Audit Committee charter, management is responsible for the preparation, presentation and integrity of the Company’s financial statements, the application of accounting and financial reporting principles and our internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent registered public accounting firm is responsible for auditing our financial statements and expressing an opinion as to their conformity with accounting principles generally accepted in the United States of America.

To perform its oversight function, the Audit Committee has:

 

   

Reviewed and discussed the Company’s audited financial statements and related footnotes with management.

 

   

Discussed with the Company’s independent auditors the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board and the SEC.

 

   

Received the written disclosures and the letter from the Company’s independent auditors required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditors’ communications with the Audit Committee concerning independence and has discussed with the independent auditors their independence.

 

   

Discussed with the Company’s independent auditors its independence from management and the Company and reviewed and pre-approved the services provided by the Company’s independent auditors other than their audit services and considered whether the provision of such other services by the Company’s independent auditors is compatible with maintaining their independence.

 

   

At least annually, discussed with the Company’s internal auditors and independent auditors the overall scope and plans for their respective audits for the fiscal year 2020, and then met with the internal auditors and the Company’s independent auditors, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls and the overall quality of the Company’s financial reporting.

Based on the foregoing reviews and discussions, the Audit Committee recommended to the Board of Directors, and the Board has approved, that the audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended December 26, 2020 filed with the SEC.

Submitted by the Audit Committee of the Board of Directors:

Cynthia T. Jamison (Chair)

Quincy L. Allen

Wendy L. Schoppert

David M. Szymanski

 

  

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PROPOSAL No. 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

The Audit Committee has appointed Deloitte & Touche LLP (“D&T”) to serve as the Company’s independent registered public accounting firm to audit the Company’s consolidated financial statements and internal control over financial reporting for the fiscal year ending December 25, 2021. D&T has served as the Company’s independent auditors each year since 1990. Although ratification is not required by our Bylaws or otherwise, the Board of Directors is submitting the appointment of D&T to our shareholders for ratification because we value our shareholders’ views on the Company’s independent auditors. In the event the shareholders do not ratify the appointment of D&T as the independent auditors to audit our financial statements for fiscal year 2021, the Audit Committee, in its discretion, will consider the voting results and evaluate whether to select a different independent auditor. Representatives of D&T will attend the Annual Meeting and will be available to respond to appropriate questions. Although D&T has indicated that no statement will be made, an opportunity for a statement will be provided.

Audit and Non-Audit Fees

In connection with the audit of fiscal year 2020 consolidated financial statements and internal control over financial reporting, the Company entered into an agreement with D&T which sets forth the terms by which D&T will perform audit services for the Company.

The following table sets forth the aggregate fees for professional services rendered by D&T for the audit of the Company’s consolidated financial statements for fiscal years 2020 and 2019 and fees billed for other services rendered by D&T for those periods.

 

Fiscal Year

   Annual Audit
Fees(1)
     Audit-Related
Fees(2)
     Tax
  Fees(3)  
     All Other
Fees(4)
 

2020

   $ 4,428,152      $ 30,000      $ 42,180      $ 0  

2019

   $ 4,552,736      $ 58,000      $ 98,363      $ 0  

 

 

(1)        Audit Fees — These amounts represent fees of D&T for professional services rendered in connection with: (i) the audits of our annual consolidated financial statements and the effectiveness of our internal controls over financial reporting for the fiscal years ended December 26, 2020 and December 28, 2019; (ii) the review of the consolidated financial statements included in each of our Quarterly Reports on Form 10-Q during those fiscal years; (iii) consultations on accounting matters; and (iv) SEC registration statements.

(2)        Audit Related Fees — Audit-Related Fees relate to assurance and related services that are reasonable related to the performance of the audit or review of our financial statements or other filings.

(3)        Tax Fees — Tax Fees consist of fees billed for professional services performed by D&T with respect to tax compliance and advisory services.

(4)        All Other Fees — All Other Fees consist of permitted services other than those that meet the criteria above and are primarily fees for advisory services.

 

  

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Audit Committee Pre-Approval Policies and Procedures

The Audit Committee has established policies and procedures under which all audit and non-audit services performed by the Company’s independent registered public accounting firm must be separately approved in advance by the Audit Committee. The policy also provides that the Audit Committee has delegated pre-approval authority to the Chair of the Audit Committee for non-audit services provided that the pre-approval of each service permitted by the Chair is limited to a pre-established threshold of up to $250,000 and reported to the full Audit Committee at its next meeting. All audit and non-audit services provided in fiscal years 2020 and 2019 were pre-approved by the Audit Committee in accordance with these policies and procedures.

THE AUDIT COMMITTEE AND THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR 2021.

 

  

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PROPOSAL No. 3: TO APPROVE THE ODP CORPORATION 2021 LONG-TERM INCENTIVE PLAN

 

 

Overview

The Board of Directors unanimously recommends that shareholders approve The ODP Corporation 2021 Long-Term Incentive Plan (the “2021 Plan”) which will replace The ODP Corporation 2019 Long-Term Incentive Plan (the “2019 Plan”). The Board of Directors unanimously approved the 2021 Plan on March 10, 2021. The 2021 Plan will become effective on April 21, 2021 (the “Plan Effective Date”) if the Company’s shareholders approve the 2021 Plan on that date. No awards have been made under the 2021 Plan.

Awards are currently outstanding under the 2019 Plan as well as the prior The ODP Corporation 2017 and 2015 Long-Term Incentive Plans and the 2003 OfficeMax Incentive and Performance Plan (referred to in this Proxy Statement, respectively, as the “2017 Plan,” “2015 Plan” and “2003 OMIPP” and, together with the 2019 Plan, as the “Prior Plans”). Outstanding awards under the Prior Plans will continue to be governed by the Prior Plans and the agreements under which they were granted. No additional awards will be granted under the 2019 Plan after the Plan Effective Date and all remaining shares available for grant under the 2019 Plan will be cancelled on the Plan Effective Date, unless the 2021 Plan is not approved by the Company’s shareholders, in which case the 2019 Plan will continue in effect. No additional awards have been granted under the 2017 Plan since the Company’s shareholders approved the 2019 Plan on May 7, 2019; all remaining shares available for grant under the 2017 Plan were cancelled at that time. No additional awards have been granted under the 2015 Plan since the Company’s shareholders approved the 2017 Plan on July 20, 2017; all remaining shares available for grant under the 2015 Plan were cancelled at that time. No additional awards have been granted under the 2003 OMIPP since the Company’s shareholders approved the 2015 Plan on April 25, 2015; all remaining shares available for grant under the 2003 OMIPP were cancelled at that time.

No awards may be granted under the 2021 Plan after the tenth anniversary of the Plan Effective Date. However, awards outstanding under the 2021 Plan at that time will continue to be governed by the 2021 Plan and the agreements under which they were granted.

The 2021 Plan is substantially similar to the 2019 Plan and, like the 2019 Plan, reflects the following equity compensation plan best practices:

 

   

No grants of below-market stock options or stock appreciation rights (SARs);

 

   

No repricing of stock options or SARs and no cash buyout of underwater stock options or SARs;

 

   

No liberal share recycling of stock options or SARs;

 

   

No payment of dividends or dividend equivalents on stock options or SARs;

 

   

No payments of dividends or dividend equivalents on any award prior to the date on which the award vests;

 

   

Individual limits on annual cash and equity non-employee director compensation;

 

   

Minimum vesting requirement of one year for all equity-based awards except under certain limited circumstances, and with permitted exceptions up to 5% of the authorized shares;

 

   

No liberal change in control definition;

 

   

Double trigger treatment upon change in control except to the extent awards are not assumed or replaced in change in control;

 

   

No excise tax gross-ups on “parachute payments”; and

 

   

Awards are subject to The ODP Corporation recoupment/clawback policy.

 

  

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The full text of the 2021 Plan is attached as Annex 1 to this Proxy Statement, and the following summary of the 2021 Plan is qualified in its entirety by reference to Annex 1.

Why ODP Believes You Should Vote to Approve the 2021 Plan

The 2021 Plan authorizes the grant of equity-based compensation as described above for the purpose of providing the Company’s officers and other employees, and those of its subsidiaries, non-employee directors, and non-employees who perform consulting services, incentives and rewards for performance. The details of the key design elements of the 2021 Plan are set forth in the section entitled “Plan Summary” beginning on page 44 of this Proxy Statement. As further described in the section entitled “Compensation Discussion and Analysis” beginning on page 53 of this Proxy Statement, The ODP Corporation believes its future success depends in part on its ability to attract, motivate and retain high quality employees and non-employee directors.

The use of our common stock as part of the Company’s compensation program is also important to its continued success because the Company believes it fosters a pay-for-performance culture that is an important element of its overall compensation philosophy. The Company believes that equity-based compensation motivates employees to create shareholder value because the value employees realize from equity-based compensation is based on The ODP Corporation’s stock price performance. Equity-based compensation aligns the compensation interests of Company employees with the investment interests of its shareholders and promotes a focus on long-term value creation because the Company’s equity-based compensation awards can be subject to vesting and/or performance criteria.

If the 2021 Plan is not approved, the Company will continue to grant awards under the 2019 Plan until there are no longer any shares available for grant, following which the Company may be compelled to increase significantly the cash component of its employee compensation, which may not necessarily align employee compensation interests with the investment interests of its shareholders as well as the alignment achieved by equity-based awards. Replacing equity-based awards with cash payments would also increase cash compensation expense and use up cash that might be better utilized if reinvested in our business or returned to our shareholders. If the 2021 Plan is not approved, The ODP Corporation could also be at a severe competitive disadvantage as it would not be able to use stock-based awards to recruit and compensate its officers and other key employees.

Determination of Shares Available under 2021 Plan

We are requesting approval of 3,400,000 shares of common stock for awards under the 2021 Plan (the “share pool”), subject to adjustment as described in the 2021 Plan. In particular, under the terms of the 2021 Plan, the share pool will be reduced by one share for every one share subject to an award granted after December 26, 2020 under the 2019 Plan. The shares of common stock issued by the Company under the 2021 Plan will be currently authorized but unissued shares or shares currently held (or subsequently acquired) as treasury shares, including shares purchased on the open market or in private transactions. In determining the number of shares to request pursuant to the 2021 Plan, the Company evaluated its share availability under the 2019 Plan, recent share usage, historical burn rate, projected burn rate under the 2021 Plan, and the potential cost and dilution to shareholders associated with the new reserve and outstanding equity-based awards that the Company previously granted.

 

  

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Burn Rate for Fiscal 2018, 2019 and 2020

 

Fiscal
Year

   Options      Full Value
Time
Based
Awards
Granted
     Performance
Awards
Earned
     Weighted
Average
Number of
Common
Shares
Outstanding
     Unadjusted
Burn Rate
 

2020

            835,828        151,905        53,000,000        1.86

2019

        740,236        284,366        54,000,000        1.90

2018

            1,063,915        121,176        55,300,000        2.14

The Company anticipates that the total number of shares available for grant under the 2021 Plan will last approximately three years, based solely on the average rate at which it has granted equity awards over the past three fiscal years and assuming that it makes future awards under the 2021 Plan at this average rate. However, the amount of future awards is not currently known and will depend on various factors that cannot be predicted, including, but not limited to, the price of our common stock on the future grant dates, the volatility of the stock and the types of awards that will be granted.

Potential Dilution

The Company’s potential dilution, or “overhang,” from outstanding awards and its request for shares to be available for awards under the 2021 Plan is approximately 12.32%. The Board of Directors believes that the number of shares of common stock available under the 2021 Plan represents a reasonable amount of potential dilution that will allow The ODP Corporation to continue to award equity incentive compensation. This percentage was calculated as follows:

 

Select Data as of December 26, 2020

  

New Shares Requested under 2021 Plan*

     3,400,000  

Appreciation Awards Outstanding

     137,762  

Weighted Average Exercise Price

   $ 44.18  

Weighted Average Remaining Term

     6.39 years  

Full Value Awards Outstanding

     3,985,631  

Shares Available under 2019 Plan after Effective Date**

     0  

Total Share Allocation (TSA)

     7,523,393  

Common Shares Outstanding as of December 26, 2020

     53,524,445  

Dilution (TSA / Common Shares Outstanding as of December 26, 2020 + TSA)

     12.32%  

 

*

The proposed share reserve is subject to reduction for any awards granted under the 2019 Plan after December 26, 2020. As of December 26, 2020, there were 2,669,187 shares available for future grants under the 2019 Plan.

 

**

No additional awards will be granted under the 2019 Plan after the Plan Effective Date and all remaining shares available for grant under the 2019 Plan will be cancelled on the Plan Effective Date, unless the 2019 Plan is not approved by shareholders, in which case the 2019 Plan will continue in effect.

Application of Share Pool

Each share subject to an award under the 2021 Plan will be deducted from the share pool on a one-for-one basis.

Each performance share under the 2021 Plan that may be settled in shares will be counted as a number of shares subject to an award based on the number of shares that would be paid for achievement of target performance and deducted from the share pool. Each performance unit under the 2021 Plan that may be settled in shares will be counted as a number of shares subject to an award (based on the number of shares that would be paid for achievement of target performance), with the number determined by dividing the value of the performance unit at the time of grant by the fair market value of a share at the time of grant and deducting the resulting number of shares from the share pool. If a performance share or performance unit under the 2021 Plan is later settled based on above-target performance, the number of shares corresponding to the above-target performance will be deducted from the share pool at the time of

 

  

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settlement; in the event that the award is later settled upon below-target performance, the number of shares corresponding to the below-target performance will be added back to the share pool.

If shares awarded or subject to issuance under the 2021 Plan or the Prior Plans are not issued or are returned to the Company, that number of shares will be added to the share pool. If the tax withholding obligation under an award granted under the 2021 Plan or a Prior Plan other than an option, SAR or other award in the nature of an appreciation right is satisfied after December 26, 2020 by the Company retaining shares or by the participant tendering shares, the number of shares so retained or tendered will be added to the share pool. If awards are issued under the 2021 Plan in respect of awards of an entity acquired (by merger or otherwise) by the Company or any of its subsidiaries, the shares subject to those awards will not increase or decrease the share pool.

Notwithstanding anything to the contrary, if the exercise price or tax withholding obligation under an option, SAR or other award in the nature of an appreciation right granted under the 2021 Plan or a Prior Plan, is satisfied by the Company retaining shares or by the participant tendering shares, the number of shares so retained or tendered will not be available for awards under the 2021 Plan and will not be added to the share pool. To the extent a SAR granted under the 2021 Plan or a Prior Plan that may be settled in shares of common stock is, in fact, settled in shares of common stock, the gross number of shares subject to such SAR will not be available for further awards under the 2021 Plan and will not be added to the share pool. Shares reacquired by the Company on the open market or otherwise using cash proceeds from the exercise of options granted under the 2021 Plan or a Prior Plan will not be added back to the share pool.

Incentive Stock Options

One of the requirements for the favorable tax treatment available to ISOs under the Internal Revenue Code is that the 2021 Plan must specify, and our shareholders must approve, the number of shares available for issuance pursuant to ISOs. As a result, in order to provide flexibility to the Compensation & Talent Committee, the 2021 Plan provides that all or any portion of the share pool may be issued pursuant to ISOs.

Current Stock Price

The closing price of our common stock on The Nasdaq Global Select Market on February 25, 2021 was $ 39.63 per share.

In evaluating this proposal, shareholders should specifically consider the information set forth under the following section entitled “Plan Summary”.

Plan Summary

The following summary of the material terms of the 2021 Plan is qualified in its entirety by reference to the full text of the 2021 Plan, which is attached as Annex 1 to this Proxy Statement. The 2021 Plan is not a qualified deferred compensation plan under Section 401(a) of the Internal Revenue Code and is not intended to be an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, as amended.

Purpose of the 2021 Plan

The purpose of the 2021 Plan is to promote the long-term growth and profitability of The ODP Corporation and its subsidiaries by (i) providing certain employees, officers, non-employee directors, and consultants who perform services for The ODP Corporation and its subsidiaries with incentives to maximize shareholder value and otherwise contribute to the success of The ODP Corporation, and (ii) enabling The ODP Corporation to attract, motivate, retain and reward qualified employees, officers, non-employee directors and consultants.

Administration of the 2021 Plan

The 2021 Plan will be administered by the Compensation & Talent Committee or such other committee consisting of two or more independent members of the Board of Directors as may be appointed by the Board to administer the 2021 Plan (the “Committee”). If any member of the Committee does not qualify as a “non-employee director” within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Board of Directors will appoint a subcommittee of the Committee, consisting of at least two members of the Board of Directors, to grant awards to officers

 

  

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and members of the Board of Directors who are subject to Section 16 of the Exchange Act, and each member of such subcommittee must satisfy the above requirements. References to the Committee in this summary include and, as appropriate, apply to any such subcommittee. To the extent permitted by law, the Committee may also delegate its authority to one or more persons who are not members of the Board of Directors, except that no such delegation will be permitted with respect to officers who are subject to Section 16 of the Exchange Act.

Certain Restrictions

 

   

No dividend equivalents will be granted with respect to any stock option or SAR. Additionally, no dividends or dividend equivalents will be paid currently with respect to any other award while the award is unvested. Instead, any dividends or dividend equivalents with respect to an unvested award will be accumulated or deemed reinvested until such time as the underlying award becomes vested (including, where applicable, the achievement of performance goals).

 

   

The minimum vesting period for each award granted under the 2021 Plan must be at least one year, except that this requirement does not apply to awards for up to 5% of the shares authorized for issuance under the 2021 Plan, assumed converted or substituted awards, and awards granted to Independent Directors that vest on the earlier of the one-year anniversary of the grant date and the next annual shareholders meeting that is at least 50 weeks after the immediately preceding year’s annual meeting. However, an award may provide for accelerated vesting for any reason, including but not limited to retirement, death, disability, or Change in Control.

Eligible Participants

Employees of the Company and its subsidiaries, non-employee members of the Board of Directors, and any other natural person who provides bona fide services to the Company or one of its subsidiaries not in connection with the offer or sale of securities in a capital raising transaction (subject to certain limitations) will be eligible for selection by the Committee for the grant of awards under the 2021 Plan. As of March 10, 2021, approximately 350 employees of the Company and its subsidiaries and 8 non-employee members of the Board of Directors were eligible for awards under the 2021 Plan. No other service providers are currently eligible to participate in the 2021 Plan.

Types of Awards

The 2021 Plan provides for the grant of performance shares, performance units, restricted stock, RSUs, NQSOs, ISOs, SARs and Other Awards. ISOs may be granted only to employees of The ODP Corporation or its subsidiaries.

The Committee will determine the individuals to whom awards will be granted, the number of shares subject to an award, and the other terms and conditions of an award. For any one independent director, the maximum aggregate amount of cash paid in any one fiscal year of The ODP Corporation to such independent director for service as a member of the Board of Directors during such fiscal year, including service performed in such fiscal year but for which payment is not made until the following fiscal year, and grant date fair value (computed as of the date of grant in accordance with applicable financial accounting rules) of all equity awards granted in such fiscal year to such independent director shall not exceed six hundred fifty thousand dollars ($650,000). This limitation will not apply for a fiscal year to a director who serves as Chairman of the Board of Directors at any time during such fiscal year provided that the affected director does not participate in the decision to award compensation in excess of the limitation for such fiscal year.

Adjustments

The Committee shall make equitable adjustments in the number and class of securities available for issuance under the 2021 Plan (including under any awards then outstanding), and the terms of any outstanding award, as it determines are necessary and appropriate, to reflect any merger, reorganization, consolidation, recapitalization, reclassification, stock split, reverse stock split, spin-off combination, exchange of shares, distribution to shareholders (other than an ordinary cash dividend), or similar corporate transaction or event.

 

  

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Performance Shares and Units

The Committee will specify the terms of a performance share or performance unit award in the award agreement. A performance share will have an initial value equal to the fair market value of a share on the date of grant. A performance unit will have an initial value that is established by the Committee at the time of grant. In addition to any non-performance terms applicable to the performance share or performance unit, the Committee will set one or more performance goals which, depending on the extent to which they are met, will determine the number or value of the performance share or unit that will be paid out to the participant. The Committee may provide for payment of earned performance shares/units in cash, shares of our common stock, other The ODP Corporation securities or any combination thereof. The Committee will also specify any restrictions applicable to the performance share or performance unit award such as continued service, the length of the restriction period (subject to the one-year minimum described above) and whether any circumstances, such as death, disability, or a change in control, shorten or terminate the restriction period.

Performance shares/units will not possess voting rights and will accrue dividend equivalents only to the extent provided in the award agreement evidencing the award; provided, however, that rights to dividend equivalents are permitted only to the extent they comply with, or are exempt from, Section 409A of the Internal Revenue Code (“Section 409A”). Any rights to dividends or dividend equivalents on performance shares/units or any other award subject to performance conditions will be subject to the same restrictions on vesting and payment as the underlying award.

Performance Measures

A performance objective may be described in terms of company-wide objectives or objectives that are related to a specific division, subsidiary, employer, department, region, or function in which the participant is employed or as some combination of these (as alternatives or otherwise). A performance objective may be measured on an absolute basis or relative to a pre-established target, results for a previous year, the performance of other corporations, or a stock market or other index. The Committee will specify the period over which the performance goals for a particular award will be measured and will determine whether the applicable performance goals have been met with respect to a particular award following the end of the applicable performance period.

In determining whether any performance goal has been satisfied, the Committee may include or exclude any or all items that are unusual or infrequent, including but not limited to (i) charges, costs, benefits, gains or income associated with reorganizations or restructurings of the Company and its subsidiaries, discontinued operations, goodwill, other intangible assets, long-lived assets (non-cash), real estate strategy (e.g., costs related to lease terminations or facility closure obligations), litigation or the resolution of litigation (e.g., attorneys’ fees, settlements or judgments), or currency or commodity fluctuations; and (ii) the effects of changes in applicable laws, regulations or accounting principles. In addition, the Committee may adjust any performance goal for a performance period as it deems equitable to recognize unusual or infrequent events affecting the Company and its subsidiaries, changes in laws or regulations or accounting principles, mergers, acquisitions and divestitures, or any other factors as the Committee may determine.

Restricted Stock and Restricted Stock Units

The Committee will specify the terms of a restricted stock or RSU award in the award agreement, including the number of shares of restricted stock or number of RSUs; the purchase price, if any, to be paid for such restricted stock or RSU (which may be equal to or less than the fair market value of a share and may be zero, subject to such minimum consideration as may be required by applicable law); any restrictions applicable to the restricted stock or RSUs such as continued service or achievement of performance goals; the length of the restriction period (subject to the one-year minimum described above) and whether any circumstances, such as death, disability, or a change in control, shorten or terminate the restriction period; the rights of the participant during the restriction period to vote and receive dividends in the case of restricted stock or to receive dividend equivalents in the case of RSUs that accrue dividend equivalents (subject to the limitations described below); and whether RSUs will be settled in cash, shares of our common stock, other The ODP Corporation securities or any combination thereof.

Generally, a participant who receives a restricted stock award will have (during and after the restriction period), all of the rights of a shareholder of the Company with respect to that award, including the right to vote the shares and the right to receive dividends and other distributions to the extent, if any, such shares possess such rights and are subject to the

 

  

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limitations described in this paragraph. However, any dividends and other distributions payable on shares of restricted stock during the restriction period shall be either automatically reinvested in additional shares of restricted stock or paid to the Company for the account of the participant, in either case subject to the same vesting restrictions as the underlying award. All terms and conditions for the payment of dividends and other distributions will be included in the award agreement and, to the extent required, comply with the requirements of Section 409A.

A participant receiving an RSU award will not possess voting rights and will accrue dividend equivalents on such units only to the extent provided in the award agreement evidencing the award; provided, however, that any dividend equivalents will be subject to the same vesting restrictions as the underlying award. All terms and conditions for payment of dividends equivalents will be included in the award agreement and, to the extent required, comply with the requirements of Section 409A.

Stock Options

An option provides the participant with the right to buy a specified number of shares at a specified price (the “exercise price”) after certain conditions have been met. The Committee may grant both NQSOs and ISOs under the 2021 Plan. The tax treatment of NQSOs is different from the tax treatment of ISOs as explained below. The Committee will determine and specify in the award agreement evidencing an option whether the option is an NQSO or ISO, the number of shares subject to the option, the exercise price of the option and the period of time during which the option may be exercised, any restrictions applicable to the option such as continued service, the length of the restriction period (subject to the one-year minimum described above) and whether any circumstances, such as death, disability, or a change in control, shorten or terminate the restriction period. Generally (except as otherwise described in the 2021 Plan), no option can be exercisable more than 10 years after the date of grant and the exercise price of a stock option must be at least equal to the fair market value of a share on the date of grant of the option. However, with respect to an ISO granted to a participant who is a shareholder holding more than 10% of The ODP Corporation’s total voting stock, the ISO cannot be exercisable more than five years after the date of grant and the exercise price must be at least equal to 110% of the fair market value of a share on the date of grant. ISOs cannot be granted under the 2021 Plan after March 10, 2031. Dividend equivalents will not be paid with respect to options. A participant may pay the exercise price under an option in cash; in a cash equivalent approved by the Committee; if approved by the Committee, by tendering previously acquired shares (or delivering a certification or attestation of ownership of such shares) having an aggregate fair market value at the time of exercise equal to the total option exercise price (provided that the tendered shares must have been held by the participant for any period required by the Committee); or by a combination of these payment methods. The Committee may also allow cashless exercises as permitted under the Federal Reserve Board’s Regulation T, subject to applicable securities law restrictions, or by any other means which the Committee determines to be consistent with the 2021 Plan’s purpose and applicable law. No certificate representing a share (to the extent shares are so evidenced) will be delivered until the full option price has been paid.

Stock Appreciation Rights

A SAR entitles the participant to receive cash, shares of The ODP Corporation’s common stock, other company securities or any combination thereof, as the Committee may determine, in an amount equal to the excess of the fair market value of a share on the exercise date over the exercise price for the SAR, after certain conditions have been met. The Committee will determine and specify in the SAR award agreement the number of shares subject to the SAR, the SAR price (which generally must be at least equal to the fair market value of a share on the date of grant of the SAR) and the period of time during which the SAR may be exercised, any restrictions applicable to the SAR such as continued service, the length of the restriction period (subject to the one-year minimum described above) and whether any circumstances, such as death, disability, or a change in control, shorten or terminate the restriction period. Generally, no SAR can be exercisable more than 10 years after the date of grant. SARs may be granted in tandem with a stock option or independently. If a SAR is granted in tandem with a stock option, the participant may exercise the stock option or the SAR, but not both. Dividend equivalents will not be paid with respect to SARs.

Other Awards

The Committee may grant other forms of equity-based or equity-related awards that the Committee determines to be consistent with the purpose of the 2021 Plan and the interests of The ODP Corporation. These Other Awards may provide for cash payments based in whole or in part on the value or future value of shares, for the issuance or future issuance of shares of The ODP Corporation common stock, or any combination thereof. Where the value of such an award is based on

 

  

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the difference in the value of a share at different points in time, the grant or exercise price must generally not be less than 100% of the fair market value of a share on the date of grant.

Termination of Employment

Subject to certain exceptions, generally, if a participant ceases to perform services for The ODP Corporation and its subsidiaries for any reason (i) all of the participant’s restricted stock, RSUs, performance shares, performance units and Other Awards that were not vested on the date of such cessation shall be forfeited immediately upon such cessation, (ii) all of the participant’s stock options and SARs that were exercisable on the date of such cessation shall remain exercisable for, and shall otherwise terminate at the end of, a period of 90 days after the date of such cessation, but in no event after the expiration date of the stock options or SARs, and (iii) all of the participant’s stock options and SARs that were not exercisable on the date of such cessation shall be forfeited immediately upon such cessation. The Committee may provide that a participant shall be eligible for a full or prorated award upon a cessation of the participant’s service. For an award subject to one or more performance objectives, the Committee may provide for payment of any such full or prorated award prior to certification of such performance objectives or without regard to whether they are certified.

Change in Control

The Committee may, in its sole discretion, provide that any time-based vesting requirement applicable to an Award shall be deemed satisfied in full in the event that both a change in control and a cessation of the participant’s service relationship with The ODP Corporation and its subsidiaries occurs or if the surviving entity in such change in control does not assume or replace the award in the change in control. With respect to an Award that is subject to one or more performance objectives, the Committee may, in its sole discretion, provide that in the event of a change in control, achievement of such performance objective shall be determined as of the effective date of the Change in Control or such performance objective shall be deemed achieved at the target level of performance.

Transferability

No ISO may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than upon the participant’s death to a beneficiary or by will or the laws of descent and distribution. However, a participant who is an officer, including, but not limited to, a participant with the title: Vice President, Senior Vice President, Executive Vice President, President or Chief Executive Officer of The ODP Corporation (collectively referred to herein as “Officers”) or a non-employee director may transfer NQSOs to a Permitted Transferee (as defined in the 2021 Plan document) in accordance with procedures approved by the Committee. Except for a transfer of NQSOs by an Officer or non-employee director to a Permitted Transferee, unless the Committee determines otherwise consistent with securities and other applicable laws, rules and regulations, (i) no award shall be sold, transferred, pledged, assigned or otherwise alienated or hypothecated by a participant other than upon the participant’s death, to a beneficiary or by will or the laws of descent and distribution, and (ii) each option and SAR outstanding to a participant may be exercised during the participant’s lifetime only by the participant or his or her guardian or legal representative (provided that an ISO may be exercised by such guardian or legal representative only if permitted by the Internal Revenue Code and any regulations promulgated thereunder). In the event of a transfer to a Permitted Transferee or a transfer otherwise permitted by the Committee, appropriate evidence of any transfer to the Permitted Transferee shall be delivered to The ODP Corporation at its principal executive office. If all or part of an Award is transferred to a Permitted Transferee, the Permitted Transferee’s rights thereunder shall be subject to the same restrictions and limitations with respect to the award as the participant. Any permitted transfer of an award will be without payment of consideration by the Permitted Transferee.

Amendment and Termination

The Board of Directors or the Committee may at any time terminate and from time to time amend the 2021 Plan in whole or in part, but no such action shall materially adversely affect any rights or obligations with respect to any awards previously granted under the 2021 Plan unless such action is required by applicable law or any listing standards applicable to our common stock or the affected participants consent in writing. To the extent required by Section 422 of the Internal Revenue Code, other applicable law, or any such listing standards that the shareholders are required to approve a specific type of amendment to the 2021 Plan, no such amendment shall be effective unless approved by the Company’s shareholders.

 

  

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The Committee may amend an outstanding award agreement in a manner not inconsistent with the terms of the 2021 Plan, but the amendment will not be effective without the participant’s written consent if the amendment is materially adverse to the participant. However, the Committee cannot reprice a stock option or SAR except in accordance with the adjustment provisions of the 2021 Plan (as described above) or in connection with a change in control. For this purpose, a repricing generally is an amendment to the terms of an outstanding stock option or SAR that would reduce the exercise price of that stock option or SAR or a cancellation of an outstanding stock option or SAR with a per share exercise price that is more than fair market value at the time of such cancellation in exchange for cash, another award or a stock option or SAR with an exercise price or SAR price that is less than the option exercise price or SAR price of the original stock option or SAR.

The Committee may provide in award agreements or in a separate policy that if a participant engages in detrimental activity, as defined in such award agreement or separate policy, the Committee may cancel, rescind, suspend, withhold or otherwise restrict or limit any unexpired, unexercised, unpaid or deferred award as of the first date the participant engages in the detrimental activity. The award agreement or separate policy may also provide that if the participant exercises an option or SAR, receives an RSU, performance share, performance unit, Other Award payout, or receives or vests in shares of our common stock under an award at any time during a time specified in such award agreement or separate policy, the participant shall be required to pay to The ODP Corporation the excess of the then fair market value of the shares that were received with respect to the award (or if the participant previously disposed of such shares, the fair market value of such shares at the time of the disposition) over the total price paid by the participant for such shares.

Certain Federal Income Tax Consequences

The following is intended only as a brief summary of the federal income tax rules relevant to the primary types of awards available for issuance under the 2021 Plan and is based on the terms of the Internal Revenue Code as currently in effect. The applicable statutory provisions are subject to change in the future (possibly with retroactive effect), as are their interpretations and applications. Because federal income tax consequences may vary as a result of individual circumstances, participants are encouraged to consult their personal tax advisors with respect to their tax consequences. The following summary is limited only to United States federal income tax treatment. It does not address state, local, gift, estate, social security or foreign tax consequences, which may be substantially different. Certain intended 2021 Plan participants are residents of foreign countries.

Performance Share/Unit Awards

A participant generally is not taxed upon the grant of a performance share/unit. The participant will recognize taxable income at the time of settlement of the performance share/unit in an amount equal to the amount of cash and the fair market value of the shares received upon settlement (subject to the short swing profits rule). The income recognized will be taxable at ordinary income tax rates. The ODP Corporation generally will be entitled to a deduction in an amount equal to the amount of ordinary income recognized by the participant, subject to the requirements of Section 162(m), as applicable. Any gain or loss recognized upon the disposition of the shares acquired pursuant to settlement of a performance share/unit will qualify as long-term capital gain or loss if the shares have been held for more than one year after settlement.

Awards of Shares; Restricted Stock Awards

A participant generally will recognize taxable ordinary income upon the receipt of shares as a stock award or restricted stock award if the shares are not subject to a substantial risk of forfeiture. The income recognized will be equal to the fair market value of the shares at the time of receipt less any purchase price paid for the shares. If the shares are subject to a substantial risk of forfeiture, the participant generally will recognize taxable ordinary income when the substantial risk of forfeiture lapses. If the substantial risk of forfeiture lapses in increments over several years, the participant will recognize income in each year in which the substantial risk of forfeiture lapses as to an increment. If the participant cannot sell the shares without being subject to suit under Section 16(b) of the Exchange Act (the short swing profits rule), the shares will be treated as subject to a substantial risk of forfeiture. The income recognized upon lapse of a substantial risk of forfeiture will be equal to the fair market value of the shares determined as of the time that the substantial risk of forfeiture lapses less any purchase price paid for the shares. The ODP Corporation generally will be entitled to a deduction in an amount equal to the amount of ordinary income recognized by the participant, subject to the requirements of Section 162(m), as applicable.

 

  

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Alternatively, if the shares are subject to a substantial risk of forfeiture, the participant may make a timely election under Section 83(b) of the Internal Revenue Code (“Section 83(b)”) to recognize ordinary income for the taxable year in which the participant received the shares in an amount equal to the fair market value of the shares at that time. That income will be taxable at ordinary income tax rates. If a participant makes a timely Section 83(b) election, the participant will not recognize income at the time the substantial risk of forfeiture lapses with respect to the shares. At the time of disposition of the shares, a participant who has made a timely Section 83(b) election will recognize capital gain or loss in an amount equal to the difference between the amount realized upon sale and the ordinary income recognized upon receipt of the share (increased by the amount paid for the shares, if any). If the participant forfeits the shares after making a Section 83(b) election, the participant is not entitled to a deduction with respect to the income recognized as a result of the election but will be entitled to a capital loss equal to the excess (if any) of the amount paid for the shares (if any) over the amount realized upon forfeiture (if any). To be timely, the Section 83(b) election must be made within thirty (30) days after the participant receives the shares. The ODP Corporation will generally be entitled to a deduction in an amount equal to the amount of ordinary income recognized by the participant at the time of the election, subject to the requirements of Section 162(m), as applicable.

Restricted Stock Units

A participant generally is not taxed upon the grant of an RSU. Generally, if an RSU is designed to be paid on or shortly after the RSU is no longer subject to a substantial risk of forfeiture, then at the time of payment the participant will recognize ordinary income equal to the amount of cash and the fair market value of the shares received by the participant (subject to the short swing profits rule) and The ODP Corporation will be entitled to an income tax deduction for the same amount, subject to the requirements of Section 162(m), as applicable. However, if an RSU is not designed to be paid on or shortly after the RSU is no longer subject to a substantial risk of forfeiture, the RSU may be deemed a nonqualified deferred compensation plan under Section 409A. In that case, if the RSU is designed to meet the requirements of Section 409A, then at the time of payment the participant will recognize ordinary income equal to the amount of cash and the fair market value of the shares received by the participant, and The ODP Corporation will be entitled to an income tax deduction for the same amount. However, if the RSU is not designed to meet the requirements of Section 409A, the participant will be subject to ordinary income when the substantial risk of forfeiture lapses as well as an additional twenty percent (20%) excise tax, and additional tax could be imposed each following year.

Nonqualified Stock Options; Stock Appreciation Rights

A participant generally is not taxed upon the grant of an NQSO or SAR, unless the NQSO or SAR has a readily ascertainable fair market value. However, the participant must recognize ordinary income upon exercise of the NQSO or SAR in an amount equal to the difference between the NQSO or SAR exercise price and the fair market value of the shares acquired on the date of exercise (subject to the short swing profits rule). The ODP Corporation generally will have a deduction in an amount equal to the amount of ordinary income recognized by the participant in The ODP Corporation’s tax year during which the participant recognizes ordinary income, subject to the requirements of Section 162(m), as applicable.

Upon the sale of shares acquired pursuant to the exercise of an NQSO or SAR, the participant will recognize capital gain or loss to the extent that the amount realized from the sale is different than the fair market value of the shares on the date of exercise (or, if the participant was subject to Section 16(b) of the Exchange Act and did not make a timely election under Section 83(b), the fair market value on the delayed determination date, if applicable). This gain or loss will be long-term capital gain or loss if the shares have been held for more than one year after exercise.

Incentive Stock Options

A participant is not taxed on the grant or exercise of an ISO. The difference between the exercise price and the fair market value of the shares covered by the ISO on the exercise date will, however, be a preference item for purposes of the alternative minimum tax. If a participant holds the shares acquired upon exercise of an ISO for at least two years following the ISO grant date and at least one year following exercise, the participant’s gain or loss, if any, upon a subsequent disposition of the shares is long-term capital gain or loss. The amount of the gain or loss is the difference between the proceeds received on disposition and the participant’s basis in the shares (which generally equals the ISO exercise price). If a participant disposes of shares acquired pursuant to exercise of an ISO before satisfying these holding periods and realizes an amount in excess of the exercise price, the amount realized will be taxed to the participant as ordinary income up to the fair market value of the shares on the exercise date and any additional amount realized will be taxable to the

 

  

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participant as capital gain in the year of disposition; however, if the exercise price exceeds the amount realized on sale, the difference will be taxed to the participant as a capital loss. The ODP Corporation is not entitled to a federal income tax deduction on the grant or exercise of an ISO or on the participant’s disposition of the shares after satisfying the holding period requirement described above. If the holding periods are not satisfied, The ODP Corporation will be entitled to a deduction in the year the participant disposes of the shares in an amount equal to any ordinary income recognized by the participant, subject to the requirements of Section 162(m), as applicable.

In order for an option to qualify as an ISO for federal income tax purposes, the grant of the option must satisfy various other conditions specified in the Internal Revenue Code. In the event an option intended to be an ISO fails to qualify as an ISO, it will be taxed as an NQSO as described above.

Golden Parachute Payments

The terms of the award agreement evidencing an award under the 2021 Plan may provide for accelerated vesting or accelerated payout of the award in connection with a change in ownership or control of The ODP Corporation. In such event, certain amounts with respect to the award may be characterized as “parachute payments” under the golden parachute provisions of the Internal Revenue Code. Under Section 280G of the Internal Revenue Code, no federal income tax deduction is allowed to The ODP Corporation for “excess parachute payments” made to “disqualified individuals,” and receipt of such payments subjects the recipient to a 20% excise tax under Section 4999 of the Internal Revenue Code. For this purpose, “disqualified individuals” are generally officers, shareholders or highly compensated individuals performing services for The ODP Corporation, and the term “excess parachute payments” includes payments in the nature of compensation which are contingent on a change in ownership or effective control of The ODP Corporation, to the extent that such payments (in present value) equal or exceed three times the recipient’s average annual taxable compensation from The ODP Corporation for the previous five years. Certain payments for reasonable compensation for services rendered after a change of control and payments from tax-qualified plans are generally not included in determining “excess parachute payments.” If payments or accelerations may occur with respect to awards granted under the 2021 Plan, certain amounts in connection with such awards may possibly constitute “parachute payments” and be subject to these “golden parachute” tax provisions.

Section 162(m)

Section 162(m) of the Internal Revenue Code (“Section 162(m)”) as in effect prior to the enactment of the Tax Cuts and Jobs Act of 2017 enacted on December 22, 2017 (the “Act”), limited to $1 million the deduction that the Company was permitted to take for annual compensation paid to each “covered employee” (at that time defined as the CEO and the three other highest paid executive officers employed at the end of the year other than the Chief Financial Officer (“CFO”)), except to the extent the compensation qualified as “performance-based” for purposes of Section 162(m). The Act retained the $1 million deduction limit, but it repealed the performance-based compensation exemption and expanded the definition of “covered employees” effective for taxable years beginning after December 31, 2017. “Covered employees” for a fiscal year now include any person who served as CEO or CFO of the Company at any time during that fiscal year, the three other most highly compensated executive officers for that fiscal year (whether or not employed on the last day of that fiscal year) and any other person who was a covered employee in a previous taxable year (but not earlier than 2017) as determined pursuant to the pre-Act version of Section 162(m). Any awards that the Company grants pursuant to the 2021 Plan to covered employees, whether performance-based or otherwise, will be subject to the $1 million annual deduction limitation. While the Compensation & Talent Committee considers the deductibility of compensation when making equity awards, it is only one factor it considers. Because of the elimination of the performance-based compensation exemption, the Compensation & Talent Committee expects that all or a portion of the compensation paid to covered employees in the form of equity grants under the 2021 Plan may not be deductible by the Company.

New 2021 Plan Benefits

Any future awards to executive officers, non-employee directors, employees and consultants of The ODP Corporation under the 2021 Plan are discretionary and cannot be determined at this time because the amount and form of grants to be made to any eligible participant in any year is determined at the discretion of the Committee. As a result, the benefits and amounts that will be received or allocated under the 2021 Plan are not determinable at this time, and The ODP Corporation has not included a table that reflects such future awards.

 

  

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The affirmative vote of holders of a majority of the shares of our common stock present in person or represented by proxy (as counted for purposes of determining the existence of a quorum) and entitled to vote at the Annual Meeting is required to approve the 2021 Plan.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPROVAL OF THE ODP CORPORATION 2021 LONG-TERM INCENTIVE PLAN.

EQUITY COMPENSATION PLAN INFORMATION

 

Equity Compensation Plan Information
The table below summarizes the status of our equity compensation plans at December 26, 2020
     

(1)
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants

and rights
(a)

  

(2)
Weighted-
average exercise
price of
outstanding
options, warrants

and rights
(b)

  

Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding

Securities
reflected in
column
(a)) (c)

Equity compensation plans approved by security holders          4,123,393          $1.48          2,669,187
Equity compensation plans not approved by security holders          -          -          -

(1)   The number of shares reported includes 2,458,978 performance stock units (“PSUs”) reserved at target where performance attainment has yet to be determined. Shares reserved for issuance under the Company’s equity compensation plan will be adjusted accordingly for a payout other than target.

(2)   The outstanding awards include RSUs, which have no exercise price. Excluding the impact of RSUs, the outstanding options had a weighted average exercise price of $44.18 per share.

 

  

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COMPENSATION DISCUSSION AND ANALYSIS

This compensation discussion and analysis (the “CD&A”) describes our executive compensation programs and explains how the Compensation & Talent Committee (the “C&T Committee”) made its compensation decisions for our named executive officers (also referred to in this CD&A as “NEOs”) for fiscal year 2020. The NEOs for fiscal year 2020 are:

 

   
Name    Position

Gerry P. Smith

   Chief Executive Officer

D. Anthony Scaglione

   Executive Vice President and Chief Financial Officer

N. David Bleisch

   Executive Vice President, Chief Legal & Administrative Officer

Terry Leeper

   Executive Vice President and Chief Technology Officer

John W. Gannfors

   Executive Vice President, Chief Merchandising and Supply Chain Officer

As required by the SEC rules, our NEOs for fiscal year 2020 also include our former Executive Vice President and Chief Financial Officer, Mr. Joseph T. Lower, who left the Company on January 10, 2020. Mr. Smith served as our Principal Financial Officer from January 10, 2020 until Mr. Scaglione commenced employment on July 20, 2020.

While the discussion in the CD&A is focused on our NEOs, many of our executive compensation programs apply broadly across our management ranks, including our cash Annual Bonus Plan that covers approximately 2,200 employees.

EXECUTIVE SUMMARY

Impact of COVID-19 on our Business

The ODP Corporation is a leading provider of business services and supplies, products and digital workplace technology solutions to small, medium and enterprise businesses, through an integrated business-to-business (B2B) distribution platform, which includes world-class supply chain and distribution operations, dedicated sales professionals and technicians, online presence, and approximately 1,100 stores. Through its banner brands Office Depot®, OfficeMax®, CompuCom® and Grand&Toy®, as well as others, we offer our customers the tools and resources they need to focus on their passion of starting, growing and running their business.

On March 11, 2020, the World Health Organization declared the novel coronavirus disease (“COVID-19”) a global pandemic. In response to the rapid spread of COVID-19 globally and throughout the United States, federal, state and local authorities declared states of emergency and imposed varying degrees of restrictions on social and commercial activities, including travel restrictions and curfews, in order to prevent and slow the spread of the disease. These restrictive measures had significant adverse impacts on our business in 2020.

Overall demand for our products and services declined significantly as a result of the disruptions experienced by our business customers from restrictions on commercial activities and social distancing measures. The delayed start of the school year and the cancellation or delayed start of in-person school instruction across the U.S. (K-12 and higher education) resulted in lower sales in both retail (back-to-school supplies) and B2B sales. We experienced higher than forecasted demand, however, in our e-Commerce platform, as well as in our retail locations associated with certain product categories, such as furniture, technology products, cleaning and breakroom supplies and personal protective equipment that meet our customers’ needs arising from the risks related to potential exposure to COVID-19.

Highlights of Our COVID-19 Response

From the beginning of the COVID-19 pandemic, we made supporting the health and wellness of our employees and customers a priority. Due to the nature of products sold in our retail locations and integrated business-to-business distribution platform, our business was considered to be essential retail commerce by most local jurisdictions and remained open and operational. Based upon the guidance of the U.S. Centers for Disease Control (“CDC”) and local health authorities, we quickly implemented appropriate measures to help reduce the spread of infection to our employees and customers, including the institution of social distancing protocols and increased frequency of cleaning and sanitizing in

 

  

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those facilities. We enabled employees to work from home where possible and limited employee travel to only essential business needs.

We successfully leveraged our balanced ecosystem and integrated B2B distribution platform, including our supply chain, to address evolving customer needs as the pandemic shifted product demand. We quickly implemented creative and resilient approaches to meeting customer needs through a combination of buy online-pick up in-store, curbside pickup, and several home or office delivery options. We launched a new Personal Protective Equipment business with gross revenues of approximately $200 million in the first nine months of fiscal year 2020, illustrating the agility of our underlying sourcing and supply chain capabilities and our ability to create new business adjacencies. Additionally, in response to the volatility resulting from the pandemic, we took critical measures to protect our financial position during this challenging time period. These measures included creating contingency plans for merchandise in potential high demand categories, adjusting our inventory levels, reducing certain occupancy costs, reducing nonessential expenses, and reducing our capital spend, among others.

We are proud of our response to the unprecedented challenges of fiscal year 2020, but we are even prouder that we lived up to our 5C (Customer, Commitment, Change, Caring and Creativity) culture.

2020 Business Highlights

Despite the pandemic-driven headwinds during the 2020 fiscal year, we continued to move forward with our plans to transform the Company and position it as a leading B2B provider of business products and services. For the year, we streamlined our operations and built a more efficient business model, improved our B2B platform for future profitable growth, generated strong cash flow results, maintained a strong balance sheet and returned capital to shareholders. Some of the specific highlights from fiscal year 2020 are as follows:

 

   

Continued to see benefits related to our Business Acceleration Program, driving sustainable improvements in our business model and contributing to a decrease in our selling, general and administrative expenses by $274 million or 13% in 2020 compared to 2019;

 

   

Generated operating cash flow from continuing operations of $485 million; maintained a strong balance sheet, ending the year with approximately $1.7 billion in total liquidity;

 

   

Returned $43 million through stock repurchases and dividends; and streamlined our capital structure by refinancing credit facility and repaying term loan; and

 

   

Invested in our future, including expanding our distribution network capabilities, enhancing our eCommerce platform, and embracing new technology to increase automation in our operations.

The fiscal year 2020 results reflect the focus, contribution and dedication of our leadership team and our employees, in successfully navigating a challenging year and progressing our transformation to becoming a leading integrated B2B distribution platform.

 

  

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Key 2020 Compensation Actions

The primary elements of our total direct compensation program for the NEOs and a summary of the actions taken by the C&T Committee during fiscal year 2020 are set forth below.

 

 Compensation

 Component

 

  

Link to Business
and Talent Objectives

 

  

 

2020 Compensation Actions

 

 Base Salary

 (Page 58)

  

•  Competitive base salaries help attract and retain executive talent

•  Reflects the level and scope of responsibility within the company

  

•  Increased base salary for Messrs. Bleisch and Gannfors, to recognize increased responsibilities and to remain market competitive

•  No changes were made in the base salary of the other NEOs

 Annual Cash Bonus

 (Page 58)

  

•  We operate a single annual bonus plan for our executives and approximately 2,200 employees

•  Focus executives and employees on achieving annual financial results that are key indicators of annual financial and operational performance

•  Goals were based on Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) (50%) and Net Sales (50%)

•  These metrics are critical for continued stability, with an emphasis on growing top line sales

  

•  Retained the same metrics as in 2019

•  Increased target bonus for Messrs. Bleisch and Gannfors by 15% to 90% of base salary to recognize increased responsibilities

•  The 2020 Annual Bonus Plan goals were established in February 2020, before the onset of COVID-19 and the impact of the pandemic would have resulted in funding of the Annual Bonus Plan at significantly below the target payout level

•  As more fully discussed under “2020 Annual Bonus Plan,” after considering the impact of the pandemic on the pre-established goals, the achievements of the Company during the pandemic and the contribution of the executives and employees, the C&T Committee determined to pay bonuses at 74.4% of target for all participants

 

 Long-Term
 Incentive (LTI)
 Compensation
 (Page 60)
  

•  2020 long-term awards consist of performance shares and restricted stock units (RSUs)

•  Performance shares are based on 3-year relative Total Shareholder Return (TSR) performance and achievement of pre-established 3-year cumulative free cash flow (FCF) levels

•  FCF is integral to the investment in the ongoing transformation of the business and will also provide financial flexibility for future debt repayments and capital return

•  Relative TSR measures the creation of value for our shareholders relative to peers during the performance period

•  RSUs provide focus on stock price growth and serve our talent retention objectives

  

•  Retained the same weighting as in 2019, with performance shares representing 60% of the LTI opportunity and RSUs representing 40% of the LTI opportunity

•  Of the performance shares, 50% will be earned based on relative TSR and 50% will be earned based on achievement of FCF goals

•  The C&T Committee did not make any discretionary adjustments to outstanding equity awards to address the impact of the pandemic

•  Our 2018 performance share awards were earned at 181.25% of target

 

  

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Shareholder Feedback on Executive Compensation Programs

In fiscal year 2020, we received 76.9% shareholder support on our Say-on-Pay advisory vote. This outcome was disappointing to us and represented a decline versus results from prior years, which averaged 84.9% over the period 2017 to 2019. In response to this, we increased our efforts in fiscal year 2020, indirectly engaging with shareholders to discuss governance items, including executive compensation. Our program includes outreach to the investment community, particularly our top 20 investors who collectively represent approximately 70% of our outstanding common stock, to obtain feedback on our progress and strategy as well as executive compensation design, board composition, risk management and other ESG issues. Management also holds conference calls and participates in in-person meetings with investors following our quarterly earnings release as another way to seek feedback and respond to questions about specific matters of importance such as executive compensation design. Regarding executive compensation, in general, shareholders provided positive feedback about our overall program. The following table explains what we heard and how we responded:

 

WHAT WE HEARD    HOW WE RESPONDED

•  More transparency on Diversity & Inclusion

  

•  Added Workforce Diversity & Inclusion statistics for Management/ All Other Employees based on gender and ethnic/ racial status

•  Increased focus of the Board of Directors on ESG concerns

  

•  Board of Director oversight for all ESG matters; governance framework to provide direction on Sustainability matters

•  ESG considerations tied to Compensation

  

•  Added ESG as a 4th principle to our Compensation Philosophy

•  Better engagement by the Board of Directors on matters of Human Capital

  

•  Broadened the scope of Compensation & Talent Committee to include Human Capital/Talent Management oversight, renamed Compensation & Talent Committee

•  Commitment to fight climate change

  

•  Added transparency for operational improvements including energy consumption, waste diverted from landfills and Greenhouse Gas emission reductions

We believe our executive compensation program is tailored to our business strategies, aligned with our pay-for-performance philosophy and market views on best practices, and designed to create long-term value for our stakeholders and shareholders.

Compensation Philosophy

 

OBJECTIVE       COMPENSATION DESIGN CRITERIA
Accountability for Business Performance    

•   Tie compensation in large part to our financial and operating performance, so that executives are held accountable for the performance of the business for which they are responsible and for achieving the Company’s Annual Operating Plan.

Accountability for Long-Term Performance    

•   Include meaningful incentives to create long-term shareholder value while not promoting excessive risk taking.

Competition    

•   Reflect the competitive marketplace so we can attract, retain, and motivate talented executives throughout the volatility of business cycles.

Environmental, Social and Governance (ESG)    

•   Include incentives tied to specified ESG initiatives to help ensure executives are focused on corporate social responsibility matters that are of substantial importance to the Company, our shareholders, and other stakeholders.

 

  

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Key Compensation Elements

The various elements of compensation we pay to our NEOs is intended to reflect our compensation philosophy and: (i) provide an appropriate level of financial certainty through fixed compensation, (ii) ensure that at least 60% of equity compensation is performance-based, and (iii) create a balance of short-term and long-term incentives. The key elements of the Company’s fiscal year 2020 executive compensation program can be summarized as follows:

 

   

 

2020 Total Direct Compensation Element

 

   

 

Base Salary

 

 

 

Annual Cash
Bonus

 

 

 

Performance Shares

 

 

 

Restricted Stock Units

 

 

Who Receives

 

 

 

All Named Executive Officers      LOGO

 

 

When Granted

 

 

 

Annually     LOGO

 

 

Form of Delivery

 

 

 

Cash     LOGO

 

 

 

Equity       LOGO

 

 

Type of
Performance

 

 

 

Short-term
emphasis
(fixed)

 

 

 

Short-term
emphasis (variable)

 

 

 

Long-term emphasis (variable)

 

 

Performance

Period

 

 

 

1 year

 

 

 

1 year

 

 

 

3 years

 

 

 

3 years

 

 

How Payout Determined

 

 

 

Compensation
& Talent
Committee determination

 

 

 

Pre-established formula

 

 

 

Pre-established formula

 

 

 

Stock price at each

vesting date

 

 

Performance Measures

 

 

 

Individual

 

 

 

Adjusted EBITDA; Net Sales

 

 

 

Free Cash Flow;
Relative TSR

 

 

 

Stock price

 

Compensation Best Practices

The C&T Committee is guided by the following best practices in determining the compensation structure for our executives:

 

WHAT WE DO        WHAT WE DON’T DO

    Pay for performance by structuring a significant percentage of   target annual compensation in the form of variable, at-risk   compensation

 

    Use of pre-established performance goals that are aligned   with creation of long-term shareholder value

 

    Market comparison of executive compensation against a   relevant peer group

 

    Use of long-standing and robust clawback policy

 

    Use of rigorous stock ownership guidelines

 

    Use of an independent compensation consultant

 

    Annual say-on-pay vote

    

X     No excise tax gross-ups

 

X     No dividends or dividend equivalents on unearned equity awards

 

X     No repricing of underwater stock options without shareholder approval

 

X     No hedging of our stock by our directors, executive officers and all other employees

 

X     No pledging of our stock by our directors or executive officers

 

X     No unapproved trading plans

 

X     We do not maintain compensation programs that we believe create risks reasonably likely to have a material adverse effect on the Company

 

  

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Performance Based Compensation

The C&T Committee annually reviews the total mix of compensation for our NEOs, which includes a significant portion of variable performance-based incentives that are linked to the attainment of critical performance targets and changes in shareholder value. The C&T Committee believes that each of these elements provides a meaningful reward opportunity to the NEOs, focuses our leadership team on the key drivers of success for the near- and long-term, and therefore supports our short-term and long-term strategic objectives and links realized pay directly to performance.

With respect to our CEO’s compensation, 89% of Mr. Smith’s target compensation was “at risk” in 2020 based on operating performance, relative TSR, and/or changes in stock price. Target compensation for our other NEOs in 2020 was 77% “at risk.” The illustration below excludes sign-on bonuses and any one-time equity grants.

 

 

LOGO

PRIMARY ELEMENTS OF TOTAL DIRECT COMPENSATION

Base Salary

The C&T Committee (members listed on page 27) performed its annual review of executive compensation considering external market data, as well as scope of role, individual performance, and internal equity and approved the following salaries:

 

   

Mr. Smith’s salary was unchanged;

 

   

Mr. Bleisch’s salary increased by $100,000 to $700,000 effective January 26, 2020;

 

   

Mr. Gannfors’ salary increased by $50,000 to $600,000 effective March 1, 2020;

 

   

Mr. Scaglione was hired with an annual salary of $650,000 effective July 20, 2020; and

 

   

Mr. Leeper was hired with an annual salary of $475,000 effective July 6, 2020.

Messrs. Bleisch and Gannfors’ salary increases were due to the increased scope, scale, and complexity of their respective roles and the need to retain these individuals. As Executive Vice President, Chief Legal & Administrative Officer and Corporate Secretary, Mr. Bleisch leads the strategic direction of the Legal organization and operations, as well as manages the regulatory and compliance matters for the Company. Additionally, he is responsible for Human Resources, Loss Prevention, Real Estate, and Construction. As Executive Vice President, Chief Merchandising and Supply Chain Officer, Mr. Gannfors leads the strategic direction of the Merchandising, Supply Chain, Procurement and Global Sourcing Organizations.

2020 Annual Bonus Plan

The Annual Bonus Plan is a cash annual incentive plan designed to compensate our executives and employees based on achievement of annual corporate performance goals. The Annual Bonus Plan includes threshold, target and maximum payouts tied to adjusted EBITDA and Net Sales goals. Failure to meet threshold results in zero funding based on the originally approved goals, whereas attainment of target performance goals results in target payout and maximum payout

 

  

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is capped at 200% of target to align with market-competitive practice among the Company’s peer group and to enable upside opportunity for performance above target and the challenging nature of the goals. When designing the Annual Bonus Plan in February of 2020, the C&T Committee established categories of significant, unplanned and unusual items that would be excluded from adjusted EBITDA and Net Sales. The pre-determined adjustments were intended to ensure that measured performance reflected the degree of management excellence in results and was not distorted upward or downward by factors outside management’s control. The adjustment categories set forth in the Annual Bonus Plan thereby foster “line of sight” between controllable performance and payouts, protect against artificial inflation or deflation in payouts, and assure fairness to both shareholders and management, and continued alignment of their interests. For 2020, the categories of excludable items included: merger-related expenses; impacts of unplanned acquisitions and divestitures; impacts of change in classification from discontinued operations to continuing operations (and vice versa); restructuring charges; impairment charges related to goodwill, other intangible assets, and long-lived assets (non-cash); unplanned legal expenses related to attorney fees, judgments and settlements; and unplanned costs and benefits related to real estate strategy, including, but not limited to lease terminations or facility closure obligations; and other unplanned and unusual adjustments approved by the C&T Committee.

Because the goals were established in February 2020, neither our Annual Bonus Plan goals nor the pre-determined adjustment categories specifically identified the onset of a global pandemic.

Given the significant disruption to our business, it was apparent by the second half of 2020 that the original, pre-pandemic Adjusted EBITDA and Net Sales target goals were unlikely to be achieved and that funding, if any, under the Annual Bonus Plan may not reflect the full scope of the Company’s accomplishments during 2020. After a comprehensive evaluation, we estimated that COVID-19 resulted in lost sales of approximately $526 million and an Adjusted EBITDA shortfall of $17 million, resulting in a 35% formulaic funding level under the Annual Bonus Plan for all eligible employees, which included the NEOs. As described in the Annual Bonus Plan, the C&T Committee has the authority to make adjustments to ensure that compensation appropriately reflects operating performance that is reasonably within management’s control.

 

2020 Company Metrics*

  Weight   Threshold
Parameter
(50% Payout)
  Target Parameter
(100% Payout)
  Maximum
Parameter
(200% Payout)
  2020
Performance
  Earned
Percentage
(Weighted)

Adjusted EBITDA

  50%   $            479 million     $ 563 million     $ 647 million     $ 514 million       35 %

Net Sales

  50%   $          9.975 billion     $     10.5 billion     $     11.025 billion     $     9.734 billion       0 %

 

*

Adjusted EBITDA and Net Sales are non-GAAP financial measures. For purposes of our 2020 Annual Bonus Plan, we used Adjusted EBITDA and Sales as reported in our fourth quarter fiscal 2020 earnings press release included as an exhibit to our Current Report on Form 8-K furnished on February 24, 2021 and adjusted them in accordance with the categories of excluded items previously noted.

To address the impact of the pandemic on the Annual Bonus Plan, the C&T Committee considered a number of factors, including the extent to which COVID-19 impacted ODP’s financial results and management’s efforts to navigate the Company through the disruption caused by the pandemic and contribute to the global response. Because of the economic instability brought on by the pandemic, and the inability to predict its impact for the full year, the C&T Committee believed resetting the Annual Bonus Plan’s performance targets during the year was impractical, and decided instead to assess plan funding after the end of the performance period. The C&T Committee believed any assessment of performance should be objective and focused on management’s execution in a number of key areas that were critical to enhancing the Company’s resilience to the disruption and uncertainty caused by the pandemic, aiding the community’s pandemic response, and positioning ODP for long-term success in this new environment.

In contemplating these potential adjustments, the C&T Committee also carefully assessed the Company’s 2020 financial performance and strategic achievements, all of which were accomplished as the Company worked to minimize the impact of COVID-19 on its 2020 operations. These included:

 

   

Our fiscal year 2020 total shareholder return of 13.6% versus the prior fiscal year return of negative 11.8% and achievement of significant improvements to its balance sheet and cash flow;

 

   

The completion of our holding company reorganization and the creation of a new publicly traded company, named The ODP Corporation. This action simplifies the Company’s corporate structure to better align its assets with respective operating channels, creating more flexibility for the future;

 

  

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The initiation of the Maximize B2B restructuring plan, a multiyear plan designed to provide fuel for growth on its integrated B2B distribution platform, reduce retail exposure, provide operational flexibility, and drive a variable low-cost model;

 

   

Our success in streamlining our capital structure by refinancing the existing credit facility and repaying the term loan; its successful unwind of the Timber Note structure, retiring non-recourse debt and generating $87M in net proceeds;

 

   

The quick implementation of creative and resilient approaches to meeting customer needs through a combination of buy online-pick up in-store, curbside pickup, and several home or office delivery options during the onset of the pandemic;

 

   

Our launch of a new Personal Protective Equipment business in Q2 with gross revenues of approximately $200 million in the first 9 months, illustrating the agility of our underlying sourcing and supply chain capabilities and our ability to create new business adjacencies; and

 

   

Our continued commitment to safety, health and wellness to our employees and customers throughout the pandemic including actions the Company took in the early stages of the pandemic to enhance safety protocols for employees and create a safe environment for customers.

In light of these considerations, the C&T Committee determined to fund the Annual Bonus Plan at 74.4% of target for all eligible participants, which includes approximately 2,200 employees and the named executive officers, and recommended to the independent directors of the Board the same payout for the Chief Executive Officer, which was approved. While the overall payout remains significantly below target, the C&T Committee believes this funding level appropriately reflects the unique impact of the pandemic and the critical efforts made by all participants in responding to unprecedented disruption.

The threshold, target and maximum payout for each NEO are disclosed in the “Estimated Future Payouts Under Non-Equity Incentive Plan Awards” column of the Grants of Plan-Based Awards table below. The actual dollar amounts earned by our NEOs in fiscal year 2020, pursuant to the Annual Bonus Plan, are disclosed in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table below.

2020 Long-Term Incentive Program

The purpose of our long-term incentive program is to further align the long-term interests of management with those of our shareholders and help retain our key talent. These objectives must be balanced such that successful, high-achieving employees remain motivated and committed even in periods of temporary market downturns or volatility in our performance as well as the periods where we have strategic transactions that create uncertainty. In support of these objectives, the 2020 LTIP award includes both time and performance-based components to promote long-term retention and achievement of key operating objectives:

 

     
 LTIP Award    Weighting   Rationale and Key Features
     
 Performance  Shares    60%  

•  Incentivize NEOs to achieve specific measurable goals over a three-year performance cycle

 

•  Shares are earned based on performance achievement and can range from 0% for below threshold performance to 200% of the target number of shares for maximum performance

 

•  Vesting occurs on March 10, 2023, subject to continued employment

     
 Restricted  Stock Units    40%  

•  Align pay and company performance as reflected in our stock price

 

•  Encourage retention of our executive officers’ services and promote ownership by our executives in company stock

 

•  RSUs vest in one-third installments at the end of each of the first three years following grant

 

  

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Our 2020 Long-Term Incentive Program (“2020 LTIP”) is similar to our 2019 LTIP and provides that 60% of the long-term incentive awards to our NEOs are performance-based. The performance is measured on absolute FCF and TSR relative to our executive compensation peer group over a 3-year performance period through the end of fiscal year 2022.

 

     
 Performance Share Metrics    Weighting   Rationale for Selection
     
 3-year Cumulative Free Cash  Flow (FCF)    50%  

•  Calculated for the three cumulative fiscal years beginning on December 28, 2019 and ending on December 31, 2022

 

•  FCF is calculated by subtracting capital expenditures from net cash provided by (used in) operating activities

 

•  FCF is integral to our investment in the ongoing transformation of the business and our commitment to continue to strengthen our core business

 

•  FCF generation also provides financial flexibility for future debt repayments and capital returns to shareholders

     
 3-year Relative TSR    50%  

•  Calculated based on TSR for the Company relative to the peer group (defined below) for the performance period beginning on March 10, 2020 and ending on March 10, 2023

 

•  Relative TSR aligns earned compensation with shareholder experience

 

•  No more than 100% of the target award may be earned, however, if our absolute TSR over the performance period is negative

The C&T Committee set the following thresholds, targets, and maximum parameters for each of the applicable metrics selected under the 2020 LTIP:

 

Total Shareholder Return

(as compared to peer group) *

  

Threshold
Parameter
(50% Payout)

  

Target

Parameter
(100% Payout)

  

Maximum

Parameter

(200% Payout) **

Company TSR is Positive

   30th percentile    50th percentile    90th percentile

Company TSR is Negative

   30th percentile    50th percentile    N/A — maximum is 100% payout (50th percentile or more)

 

Total Company FCF *

 

Threshold
Parameter
(50% Payout)

 

Target Parameter
(100% Payout)

 

Maximum
Parameter
(200% Payout)

2020-2022 FCF

  $720 million   $900 million   $1.080 billion

 

*

Payouts earned for intermediate performance levels are determined using straight line interpolation.

**

Payouts for achievement of negative company TSR are capped at 100% payout regardless of percentile achievement relative to the comparative peer group. Payouts for achievement of positive Company TSR are capped at 200% payout. A six (6) times grant date fair value cap will also be applied if applicable.

When considering the attainment level reached for payout of the FCF awards under the 2020 LTIP, the C&T Committee, when designing the 2020 LTIP, determined the categories of significant, unplanned and unusual items that would be excluded from FCF, whether the resulting impact was positive or negative, because they distort our operating performance. This practice ensures that our executives will not be unduly influenced in their day-to-day decision-making

 

  

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because they would neither benefit, nor be penalized, as a result of certain unexpected and uncontrollable events or strategic initiatives that may positively or negatively affect the performance metric in the long-term. For fiscal year 2020, the categories of excludable items are the same categories used for adjusting EBITDA under the 2020 Annual Bonus Plan, as described above.

The C&T Committee approved the following awards to be granted to the NEOs under the 2020 LTIP:

 

  Name   RSU Value ($)   FCF Performance Share Target Value ($)   RTSR Performance Share Target Value ($)   Total  

Gerry P. Smith

  $3,000,000   $2,250,000   $2,250,000   $7,500,000  

D. Anthony Scaglione

  $2,141,007   $438,169   $507,804   $3,086,980  

N. David Bleisch

  $560,000   $420,000   $420,000   $1,400,000  

Terry Leeper

  $1,099,396   $174,128   $192,583   $1,466,107  

John W. Gannfors

  $400,000   $300,000   $300,000   $1,000,000  

Mr. Lower was not granted any awards under the 2020 LTIP as he was not employed when grants were made. The grants shown above to Messrs. Scaglione and Leeper represent prorated awards based on their hire dates during July 2020. Each of Messrs. Scaglione and Leeper also received special new hire equity grants, which are not included in the table above and which are discussed further below.

The annual equity grants for 2020 were approved by the C&T Committee in March 2020 after our earnings were released for the 2019 fiscal year end. The C&T Committee granted equity under the shareholder approved 2019 Long-Term Equity Incentive Plan in accordance with its practice of making grants at least 5 days, but not more than 30 days, following the release of fiscal year-end earnings. New hire grants made to officers during the year are granted on the later of the first business day of employment or on the business day following the grant approval by the C&T Committee.

2019 LTIP

The 2019 LTIP awards include awards based on the total FCF for the three cumulative fiscal years beginning on December 30, 2018 and ending on December 25, 2021, and awards based on TSR for the Company relative to the peer group for the performance period beginning on March 15, 2019 and ending on March 15, 2022. These performance periods are not yet complete, so no results are available with respect to these 2019 LTIP awards. Further information on the 2019 LTIP design and awards is included in our Proxy Statement filed with the SEC on March 26, 2020.

2018 LTIP Results

The 2018 LTIP awards include awards (50% weighting) based on the total FCF for the three cumulative fiscal years beginning on December 31, 2017 and ending on December 26, 2020, and awards (50% weighting) based on TSR for the Company relative to the peer group for the performance period beginning on March 5, 2018 and ending on March 5, 2021.

For 2018 LTIP awards tied to FCF, the C&T Committee determined that the maximum achievement of $1.2 billion was exceeded resulting in a 200% achievement under the 2018 LTIP.

For 2018 awards tied to TSR, the C&T Committee received external certification from AON for TSR results compared to the predetermined peer group which showed a TSR of 102.18%, resulting in a relative ranking at the 75th percentile. In March 2021, the C&T Committee certified the relative payout at 162.5% achievement under the 2018 LTIP.

Further information on the 2018 LTIP plan design is included in our Proxy Statement filed with the SEC on March 19, 2018.

 

  

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The following tables show the results for these three-year performance periods.

 

Performance Metric        Threshold
Parameter
(50% Payout)
     

Target

Parameter
(100% Payout)

     

Maximum

Parameter
(200% Payout) *

      Actual
Performance
      Payout %

3-year FCF

       $800 million        $1 billion        $1.2 billion        $1.23 billion  

 

  200%

3-year rTSR

 

 

  30th percentile  

 

  50th percentile  

 

  90th percentile  

 

  75th percentile  

 

  162.5%

 

*

TSR maximum payout is 100% if TSR is negative

New Hire Equity Award to Mr. Scaglione

In connection with hiring Mr. Scaglione as Executive Vice President, Chief Financial Officer, effective July 20, 2020, the Company entered into a letter agreement, which set forth the terms of Mr. Scaglione’s employment with the Company. In addition to the normal components of pay such as his base salary, annual bonus opportunity, long-term incentive compensation, and severance protection (all of which is discussed in more detail in the section entitled “Summary of Executive Agreements and Potential Payments upon Termination or Change in Control” beginning on page 75), Mr. Scaglione was granted a new hire sign-on equity award with a value of $1,500,000 to help offset compensation forfeited from leaving his previous employer. The award was in the form of time vested restricted stock units, with one-ninth of the units vesting on the first anniversary and the remaining 8/9 vesting split equally on the second and third anniversaries of the grant date as long as Mr. Scaglione is continuously employed by the Company through each anniversary date. This new hire inducement equity award was made by the C&T Committee after consulting with FW Cook regarding market custom and practice for such an award. In making the award, the C&T Committee concluded that the award was reasonable and necessary to hire Mr. Scaglione and that the award was in line with market practice.

New Hire Equity Award to Mr. Leeper

In connection with hiring Mr. Leeper as Executive Vice President, Chief Technology Officer, effective July 6, 2020, the Company entered into a letter agreement, which set forth the terms of Mr. Leeper’s employment with the Company. In addition to the normal components of pay such as his base salary, annual bonus opportunity, long-term incentive compensation, and severance protection (all of which is discussed in more detail in the section entitled “Summary of Executive Agreements and Potential Payments upon Termination or Change in Control” beginning on page 75), Mr. Leeper was granted a new hire sign-on equity award with a value of $1,000,000 to help offset compensation forfeited from leaving his previous employer. The award was in the form of time vested restricted stock units, with one-third of the units vesting on each of the first three anniversaries of the grant date as long as Mr. Leeper is continuously employed by the Company through each anniversary date. This new hire inducement equity award was made by the C&T Committee after consulting with FW Cook regarding market custom and practice for such an award. In making the award, the C&T Committee concluded that the award was reasonable and necessary to hire Mr. Leeper and that the award was in line with market practice.

Retention Payment to Mr. Lower

On November 19, 2019, Joseph T. Lower, Executive Vice President, Chief Financial Officer (“CFO”) of ODP informed the Company that he would be leaving to assume the role of chief financial officer at another company. On November 21, 2019, Mr. Lower and ODP entered into a Retention Agreement in order to retain Mr. Lower to assist with the close out of ODP’s 2019 fiscal year. Under the terms of the Retention Agreement, Mr. Lower was eligible to earn a retention payment of $292,716, which represented 50% of his 2019 Annual Bonus Plan target payout (the “Retention Payment”), if he remained employed with the Company until January 10, 2020 (the “Retention Period”). Mr. Lower left the Company on January 10, 2020 and received the Retention Payment in a single lump sum payment on January 27, 2020. If, prior to the end of the Retention Period, Mr. Lower’s employment had terminated due to his own fault or voluntarily by Mr. Lower, the Retention Payment would have been forfeited. The Retention Payment was conditioned upon Mr. Lower’s execution of a customary release agreement. No severance or termination benefits were provided upon Mr. Lower’s separation.

 

  

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EXECUTIVE COMPENSATION PROCESS AND GOVERNANCE

Executive Compensation Oversight Responsibilities

The table below summarizes the key oversight responsibilities for executive compensation.

 

   

Compensation & Talent Committee

 

•  Establishes executive compensation philosophy

•  Approves incentive compensation programs and target performance expectations for the annual bonus plan and long-term incentive plan

•  Approves all compensation actions for the named executive officers

Independent Consultant — FW Cook

 

•  Provides independent advice, research, and analytical services on a variety of subjects to the C&T Committee, including compensation of named executive officers, nonemployee director compensation and executive compensation trends

•  Participates in C&T Committee meetings as requested and communicates with the Chair of the C&T Committee between meetings

•  FW Cook reports to the C&T Committee, does not perform any other services for the Company, and has no economic or other ties to the Company or the management team that could compromise its independence or objectivity

•  C&T Committee regularly considers FW Cook’s independence; in 2020, the C&T Committee concluded that FW Cook is independent and that its work for the C&T Committee did not raise any conflicts of interest

CEO and Management  

•  Management, including the CEO, develops preliminary recommendations regarding compensation matters with respect to all NEOs, other than the CEO, and provides these recommendations to the C&T Committee, which makes the final decisions, with advice from FW Cook, as appropriate

•  Responsible for the administration of the compensation programs once C&T Committee decisions are finalized

Peer Companies

The C&T Committee believes benchmarking is a useful method to gauge both the compensation level and compensation mix for executives within competitive job markets that are relevant to the Company. The C&T Committee reviews total direct compensation compared to levels at peer companies that we believe are reflective of our business. Data is gathered from the proxy statements of our peer group (as defined below) as well as industry surveys for benchmarking purposes in review and analysis of base salaries, bonuses, long-term incentives, and benefits/perquisites to establish our executive compensation program.

The peer group was developed based on the following criteria:

 

   

Initial selection focused on companies in the following Global Industry Classification Standard (“GICS”) industries:

 

   

Capital Goods;

 

   

Commercial & Professional Services;

 

   

Food & Staples Retailing;

 

   

Retail;

 

   

Technology Hardware & Equipment; and

 

   

Software & Services.

 

  

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Companies within the selected GICS codes were then screened further based on the following additional criteria:

 

   

One-third to three times our revenue;

 

   

One-fifth to five times our market cap;

 

   

Similar operating margin;

 

   

Similar business model, including product lines, multi-channel retailing, business-to-business distributor, and/or business-to-business services presence; and

 

   

Prevalent “peer of peers”.

Companies selected for the peer group were required to have a significant number of the characteristics described above, but not necessarily all of them. Judgment was used to ensure that the median revenue of the group remained reasonable and to create a balanced mix of retailers, distributors, and service companies.

While we strive for year over year continuity for our peer group, the peer group data is generally reviewed annually, based on input from FW Cook, to determine if modifications to the peer group or the criteria used to determine the peer group are necessary to ensure a representative peer group. At its meeting on July 29, 2020, the C&T Committee reviewed FW Cook’s recommendation to remove J.C. Penney from the current peer group due to its bankruptcy. The C&T Committee approved the revised peer group and recommended the peer group to the Board, which also approved it. The revised peer group is comprised of 18 companies with representation from seven retailers, nine B2B distributors and two B2B services company. The B2B/Retail mix is 61% B2B and 39% Retail. As of December 31, 2020, the Company ranked at the 42nd percentile in terms of revenue, the 42nd percentile by operating margin, and the 17th percentile by market capitalization.

The companies listed below represent the revised peer group:

 

Arrow Electronics, Inc.

   Dick’s Sporting Goods, Inc.    Macy’s, Inc.

Avnet, Inc.

   Dollar General Corporation    R.R. Donnelley & Sons Company

Bed Bath & Beyond, Inc.

   Genuine Parts Company    Veritiv Corporation

Best Buy Co., Inc.

   HD Supply, Inc.    W. W. Grainger, Inc.

Big Lots, Inc.

   Insight Enterprises, Inc.    WESCO International, Inc.

CDW Corporation

   Kohl’s Corporation   

Conduent, Inc.

     

Performance awards that use relative TSR as a performance criterion will continue to use the peer group that was approved at the time of the grant of the awards, with adjustments to the peer group only as specified in the applicable award agreement.

In addition to the peer group compensation information, the C&T Committee generally considers the following in making executive compensation decisions:

 

   

Our financial performance and the financial performance of the peer group when setting executive compensation;

 

   

Individual performance, experience, and responsibilities in the executive’s current position;

 

   

Internal parity among executive officers;

 

   

Target total direct compensation structures (i.e., sum of salary, annual bonus, and cash and equity awards);

 

   

Variable compensation program design; and/or

 

   

Benefit and perquisite offerings.

When making compensation decisions, the C&T Committee not only considers each element of compensation individually (i.e. base salary, short-term incentives, and long-term incentives), but also considers the target total direct compensation and mix of compensation paid to the NEOs. The C&T Committee also considers strategic business decisions when developing and approving the compensation program.

 

  

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OTHER COMPENSATION AND GOVERNANCE MATTERS

Employment and Change-in-Control Agreements

The C&T Committee believes that employment letter agreements and change in control arrangements are necessary to attract and retain qualified executives. Our letter agreements with our NEOs generally set forth the terms of the officer’s employment with the Company and also provide for severance benefits if the officer is involuntarily terminated without cause or, in some cases, if the officer voluntarily terminates the officer’s employment for good reason, and such termination is not in connection with a change in control (“CIC”). The retention of key management is essential to and in our and our shareholders’ best interests. The C&T Committee believes reasonable severance benefits help ensure the continued dedication and efforts of management without undue concern for or distraction by their personal, financial and employment security.

Similarly, the C&T Committee believes that CIC agreements effectively motivate executives to remain engaged and strive to create shareholder value in the event the Company becomes an acquisition target or is targeting another company for acquisition, despite the risk of job loss or the loss of equity vesting opportunity. In addition, these severance and CIC arrangements are necessary to attract and retain qualified executives who may have other job alternatives that may appear to them to be less risky absent these arrangements, and these arrangements are particularly important to the Company given the high levels of competition for executive talent in the retail sector.

We have an Executive Change in Control Severance Plan (the “CIC Plan”) pursuant to which we will provide certain severance pay and other benefits to key executives, including the NEOs, who are viewed by us as critical to the continued leadership of the Company in the event of a CIC. The use of a planned approach provides many benefits when compared to entering into individual change in control agreements with each NEO. In most instances, this method ensures consistent terms and provisions and allows us flexibility to amend or change our practices in response to market trends and best practices. The CIC Plan includes features considered to be best practices, including a double-trigger for CIC benefits.

Our letter agreements and the CIC Plan generally require the NEO to sign a release of claims and to abide by certain confidentiality, non-solicitation, non-compete and related restrictive covenants as a condition of receiving severance payments.

For a detailed description of our CIC Plan and our letter agreements with our NEOs, please see the section entitled “Summary of Executive Agreements and Potential Payments upon Termination or Change in Control” beginning on page 75.

Executive Perquisites

We provide the NEOs with core benefits that are generally available to our other full-time employees (e.g., coverage for medical, dental, vision care, prescription drugs, annual physical, and basic life insurance and long-term disability coverage), plus voluntary benefits that a NEO may select (e.g., supplemental life insurance).

In addition, we have a matching contribution to the 401(k) Plan for all participants, including the NEOs, which is equal to 50% of employee deferrals on the first 6% of eligible earnings (up to plan limits). The C&T Committee believes it is important to offer a benefit of this nature to further motivate and retain employees.

Consistent with the peer group and the current trend in executive compensation, we limit the perquisites provided to our NEOs. Car allowances, financial planning services, and executive physicals are available to our NEOs. Other perquisites are offered when needed for the attraction and retention of executive talent and to allow NEOs to efficiently handle the responsibilities of their position.

 

  

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Management’s Stock Ownership Policy

The C&T Committee believes that the NEOs should maintain a meaningful equity interest in the Company through the ownership of stock. This ensures that the executive will pursue the long-term interests of shareholders since they are shareholders themselves. As such, the following stock ownership guidelines are in place for our NEOs still employed by the Company:

 

Position

     Stock Ownership Requirement    

CEO

     6x annual base salary

All other NEOs

     3x annual base salary

Our stock ownership guidelines are reviewed annually and are robust and continue to reflect current corporate governance trends. We require that all NEOs satisfy the ownership requirement by holding Company stock equal to a multiple of base salary rather than as a fixed number of shares. This requires NEOs to hold more shares in the event that our stock price decreases. Our CEO and NEOs are only permitted to sell stock before meeting the ownership requirements if they retain 50% of the net shares (after shares are disposed of to pay for taxes and acquisition), which is aligned with peer group practice.

The type of equity considered for purposes of determining compliance with the stock ownership guidelines is equity that is earned or vested, which is defined as the following:

 

   

Shares held outright (including restricted stock for which the restrictions have lapsed and shares purchased on the open market);

 

   

Vested RSUs that have been deferred for tax purposes; and

 

   

Shares held in 401(k) accounts.

The current guidelines are considered competitive according to the market data provided by FW Cook. The C&T Committee annually reviews each NEO’s progress toward meeting the ownership guidelines.

Clawback and Forfeiture Provisions

In February 2010, the Board adopted a policy for recoupment of incentive compensation (the “clawback policy”). The clawback policy provides that if we restate our reported financial results for any period beginning after January 1, 2010, the Board will review the bonus and other awards made to executive officers based on financial results during the period subject to the restatement. To the extent practicable and in the best interests of shareholders, the Board may seek to recover or cancel any such awards that were based on having met or exceeded performance targets that would not have been met or exceeded under the restated financial results.

Hedging and Pledging Prohibition

In February 2011, the Board adopted an anti-hedging policy that prohibits hedging transactions with respect to Company securities and derivatives by our Directors, executive officers and all other employees. Furthermore, in October 2014, the Board adopted an anti-pledging policy that prohibits our Directors and executive officers from using Company stock as collateral for any borrowing.

Effect of Tax and Accounting Considerations on Compensation Design

Section 162(m) of the Internal Revenue Code of 1986, as amended (“Section 162(m)”), historically limited the deductibility by the Company of compensation paid to certain executive officers that did not qualify as “performance-based” to more than $1,000,000 paid in any one year. As a result of the U.S federal tax law reforms adopted in December 2017, the exemption from the Section 162(m) deduction limit for performance-based compensation has been repealed, effective for taxable years beginning after December 31, 2017, such that compensation paid to our covered executive officers in excess of $1,000,000 will not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017. Because of ambiguities and uncertainties as to the application and interpretation of Section 162(m)

 

  

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and the regulations issued thereunder, no assurance can be given that compensation intended to satisfy the requirements for exemption from Section 162(m) (or comparable provisions of state and local tax codes) in fact will.

While the C&T Committee considers the deductibility of awards as one factor in determining executive compensation, the C&T Committee also looks at other factors in making its decisions, as noted above, and retains the flexibility to award compensation that it determines to be consistent with the goals of our executive compensation program even if the awards are not deductible by the Company for tax purposes. Further, the Committee reserves the right to modify compensation that was initially intended to be exempt from Section 162(m) and comparable provisions of state and local tax codes if it determines that such modifications are consistent with the Company’s business needs.

FORWARD LOOKING STATEMENTS

This Proxy Statement and other Company communications may contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”), that involve risks and uncertainties. These forward-looking statements include both historical information and other information that can be used to infer future performance. While certain information has specifically been identified as being forward-looking in the context of its presentation, we caution you that, with the exception of information that is historical, all the information contained in this Proxy Statement should be considered to be “forward-looking statements” as referred to in the Reform Act. Without limiting the generality of the preceding sentence, any time we use the words “estimate,” “project,” “intend,” “expect,” “believe,” “anticipate,” “continue” and similar expressions, we intend to clearly express that the information deals with possible future events and is forward-looking in nature.

Significant factors that could impact our future results are described in our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K filed with the U.S. Securities and Exchange Commission. ODP does not assume any obligation to update or revise any forward-looking statements. We assume no obligation (and specifically disclaim any such obligation) to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

COMPENSATION & TALENT COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Ms. Campbell, Ms. Jamison, Mr. Marino, Ms. Ruiz de Luzuriaga, Mr. Szymanski and Mr. Travis served as members of the C&T Committee for all or a portion of fiscal year 2020. None of such committee members (i) was, during fiscal year 2020, an officer or employee of the Company or any of its subsidiaries, (ii) was formerly an officer of the Company or any of its subsidiaries; or (iii) had any relationship requiring disclosure by the Company pursuant to any paragraph of Item 404 of Regulation S-K promulgated by the SEC. No executive officer of the Company served as an executive officer, director or member of a compensation committee of any other entity of which an executive officer or director of such entity is a member of the C&T Committee of the Company or the Company’s Board of Directors.

COMPENSATION & TALENT COMMITTEE REPORT

The C&T Committee has reviewed and discussed this Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with our management and, based on such review and discussion, the C&T Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

Submitted by the C&T Committee of the Board of Directors:

Francesca Ruiz de Luzuriaga (Chair)

Kristin A. Campbell

Cynthia T. Jamison

David M. Szymanski

COMPENSATION PROGRAMS RISK ASSESSMENT

In February 2021, the C&T Committee, in a joint meeting with the Audit Committee, assessed our 2020 compensation programs and practices and concluded that such programs and practices do not create risks that are reasonably likely to have a material adverse effect on us. The C&T Committee’s independent compensation consultant also reviews and assesses the risk in our compensation programs.

 

  

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We conducted a risk assessment that included a detailed qualitative and quantitative analysis of our compensation programs to which employees at all levels of the organization may participate, including the NEOs. The C&T Committee also considers how the design of our compensation programs compares to compensation programs maintained by our peer companies. Based on our risk assessment, and the reviews done by the independent compensation consultant and the C&T and Audit Committees jointly, the C&T Committee believes that our 2020 compensation programs have been appropriately designed to attract and retain talent and properly incentivize employees to act in the best interests of the Company.

We have programs and features that are designed to ensure that our employees, including the NEOs, are not encouraged to take unnecessary risks in managing our business, including:

 

   

Oversight of compensation programs (or components of programs) by the C&T Committee and by a broad-based group of functions within the Company, including the Human Resources, Legal, and Internal Audit Departments;

 

   

Discretion provided to the C&T Committee (including negative discretion) to set targets, monitor performance, and determine final incentive award payouts;

 

   

A variety of programs that provide focus on both short- and long-term goals and that provide a balanced mixture of cash and equity compensation;

 

   

Incentives focused primarily on the use of financial metrics based on our annual operating plan which is approved by the Board;

 

   

Multi-year service-based vesting conditions with respect to equity-based awards;

 

   

Adoption of a total shareholder return metric under the long-term incentive program;

 

   

Rigorous stock ownership guidelines; and

 

   

An incentive pay recoupment policy which provides for recoupment of incentive compensation in the event of a financial restatement.

We periodically monitor our incentive programs throughout the year to ensure that such programs do not encourage undue risk taking and appropriately balance risk and reward consistent with our enterprise risk management efforts.

 

  

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COMPENSATION TABLES

SUMMARY COMPENSATION TABLE

 

 
Summary Compensation Table for Fiscal Years 2018 - 2020
                 
(a)   (b)   (c)1   (d)2   (e)3   (f)   (g)4   (h)5   (i)
                 
Named Officers and Principal Positions             Year             (1)
      Salary ($)      
        Bonus ($)         (2)
Stock
      Awards ($)      
  (2)
Option
      Awards ($)      
 

(3)
Non-Equity
Incentive Plan
      Compensation       

($)

  (4)
All Other
      Compensation ($)      
            Total ($)          
                 

Gerry P. Smith

Chief Executive Officer

  2020   $  1,100,000   $             -   $  7,500,000    

 

  $  1,227,600   $    33,054   $  9,860,654
  2019   $  1,100,000   $             -   $  7,000,000   $  -   $  1,435,500   $    52,619   $  9,588,119
  2018   $  1,100,000   $             -   $  6,499,999   $  -   $  1,237,500   $    85,221   $  8,922,720
                 

D. Anthony Scaglione

Executive Vice President, Chief Financial Officer

  2020   $     275,000   $  500,000   $  3,086,980   $  -   $     191,314   $  138,820   $  4,192,114
                 

N. David Bleisch

Executive Vice President, Chief Legal & Administrative Officer

  2020   $     690,385   $             -   $  1,399,994   $  -   $     458,419   $    23,295   $  2,572,093
  2019   $     590,385   $             -   $  1,000,000   $  -   $     385,853   $    24,985   $  2,001,223
  2018   $     542,308   $             -   $  1,500,000   $  -   $     305,048   $    20,831   $  2,368,187
                 

John W. Gannfors

Executive Vice President, Chief Merchandising and Supply Chain Officer

  2020   $     590,385   $             -   $     999,984   $  -   $     385,342   $    37,150   $  2,012,861
                 

Terry Leeper

Executive Vice President, Chief Technology Officer

  2020   $     219,231   $  500,000   $  1,466,107   $  -   $     135,146   $    13,077   $  2,333,561
                 

Joseph T. Lower

Executive Vice President and Chief Financial Officer (6)

  2020   $       38,942   $             -   $                 -   $  -   $                 -   $  295,141   $     334,083
  2019   $     660,577   $             -   $  1,500,000   $  -   $                 -   $    37,970   $  2,198,547
  2018   $     588,461   $             -   $  3,385,293   $  -   $     353,077   $    32,672   $  4,359,503

 

 

  (1)

Column (c) is used to record salary amounts that include cash compensation earned by each NEO, as well as any amounts earned in those years but contributed into an NEO’s The ODP Corporation 401(k) Plan at the election of the NEO.

 

  (2)

The dollar amount in column (d) for each of Messrs. Scaglione and Leeper represents a sign-on bonus pursuant to the terms of their letter agreements and sign-on bonus agreements described under the section entitled “Summary of ODP Executive Agreements and Potential Payments upon Termination or Change in Control”. This amount must be repaid to The ODP Corporation if the NEO does not remain employed for 12 months following his start date.

 

  (3)

The dollar amounts in columns (e) reflect the aggregate grant date fair value of equity awards granted within the fiscal year computed in accordance with FASB ASC Topic 718 for stock-based compensation. The awards were granted under the 2019 Plan. These amounts reflect the total grant date fair value for these awards, and do not correspond to the actual value that will be recognized as income by each of the NEOs when received. Assumptions used in the calculation of these award amounts are included in Notes 1 and 14 to the consolidated financial statements included in our 2020 Annual Report. For 2020, the aggregate grant date fair value of equity awards reported in column (e) reflects the grant date fair value of performance-based stock units plus the grant date fair value of time-vested restricted stock units granted to the NEOs. The grant date fair value of the performance-based stock units at the maximum level of achievement is $9,000,000 for Mr. Smith, $1,891,945 for Mr. Scaglione, $1,679,988 for Mr. Bleisch, $733,423 for Mr. Leeper, and $1,200,000 for Mr. Gannfors. Mr. Lower did not receive any equity awards during 2020. The amounts for Mr. Scaglione and Mr. Leeper include grants made under the 2020 LTIP as well as their new hire grants.

 

  (4)

The amounts in column (g) for fiscal year 2020 reflect cash awards earned under the 2020 Annual Bonus Plan, which is previously discussed in more detail under the section entitled “The ODP Corporation 2020 Annual Bonus Plan.” The amounts reported for fiscal year 2020 were based on fiscal year 2020 performance and were paid to all of the NEOs, except for Mr. Lower who left the Company in January 2020 and was not eligible for a bonus.

 

  (5)

The dollar amounts in column (h) summarize the amounts included in the “Other Compensation Table for Fiscal Year 2020” that follows, which reflects the types and dollar amounts of perquisites and other personal benefits provided to the NEOs during fiscal year 2020. For purposes of computing the dollar amounts of the items listed in the Other Compensation Table, except as otherwise noted, the actual incremental costs to the Company of providing the perquisites and other personal benefits to the NEOs were used. Each perquisite and other

 

  

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personal benefit included in the Other Compensation Table that follows is described in more detail in the narratives immediately following the table.

 

  (6)

Mr. Lower left the Company on January 10, 2020.

OTHER COMPENSATION TABLE FOR FISCAL YEAR 2020

 

 

Other Compensation Table for Fiscal Year 2020

 

           

(a)

   (b)1   (c)2   (d)3   (e)4   (f)
           
Named Officers    (1)
Car
        Allowance        
  (2)
        401k Match        
 

(3)
Financial

        Planning        

 

(4)

        Other        

          Total        
           

Gerry P. Smith

   $  25,000   $  8,054   $            -   $              -   $    33,054
           

D. Anthony Scaglione

   $    6,600   $          -   $    3,384   $  128,836   $  138,820
           

N. David Belisch

   $  15,600   $  7,695   $            -   $              -   $    23,295
           

John W. Gannfors

   $  15,600   $  8,550   $  13,000   $              -   $    37,150
           

Terry Leeper

   $    7,200   $          -   $    5,877   $              -   $    13,077
           

Joseph T. Lower

   $       900   $  1,168   $       356   $  292,716   $  295,141

 

 

  (1)

Column (b) reflects the car allowance of each NEO during fiscal year 2020 as part of the Executive Car Allowance Program.

 

  (2)

Column (c) reflects the cost of matching contributions under The ODP Corporation’s 401(k) Plan of up to 3% of eligible compensation for the fiscal year 2020 up to the IRS annual compensation limit of $285,000.

 

  (3)

Column (d) reflects amounts earned by the NEOs in fiscal year 2020 for payments made to third parties on behalf of the NEOs for financial planning services incurred during fiscal year 2020. Amounts incurred are taxable to the NEOs.

 

  (4)

Column (e) represents the value of all other perquisites and benefits received by the NEOs during fiscal year 2020. The amount included for Mr. Scaglione represents the amount earned in fiscal year 2020 for payments made to him and third parties on his behalf for non-qualified (taxable) and qualified (non-taxable) expenses associated with ODP’s Executive Relocation Program. This amount includes $118,836 in tax gross-ups. The amount included for Mr. Lower represents the Retention Payment made to him upon completion of the terms of his Retention Agreement. Mr. Lower remained employed through January 10, 2020 and became entitled to and was paid a lump sum retention payment of $292,716.

 

  

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GRANTS OF PLAN-BASED AWARDS IN FISCAL YEAR 2020

 

 
Grants of Plan-Based Awards in Fiscal Year 2020

 

           

(a)

  (b)   (c)-(e)1   (f)-(h)2     (i)3       (j)4  
           
Named Officers   Grant Date      (1)
Estimated Future Payouts Under  Non-Equity
Incentive Plan Awards
  (2)
Estimated Future Payouts Under Equity Incentive
Plan Awards
  (3)
All Other Stock
Awards: Number of
Shares / Units (#)
    (4)
Grant Date
Fair Value
 
                   
            
 Threshold ($)
    Target ($)     Maximum ($)   Threshold (#)   Target (#)   Maximum (#)                
                   

Gerry P. Smith

      $825,000   $1,650,000   $3,300,000   -   -   -     -       -  
  3/10/2020   -   -   -   53,318   106,635   213,270     -       $2,250,000  
  3/10/2020   -   -   -   65,029   130,057   260,114     -       $2,250,000  
  3/10/2020   -   -   -   -   -   -     163,934       $3,000,000  
                   

D. Anthony Scaglione

      $128,572   $257,143   $514,286   -   -   -     -       -  
  7/20/2020   -   -   -   9,513   19,026   38,052     -       $507,804  
  7/20/2020   -   -   -   9,513   19,026   38,052     -       $438,169  
  7/20/2020   -   -   -   -   -   -     25,368       $584,225  
  7/20/2020   -   -   -   -   -   -     67,598       $1,556,782  
                   

N. David Bleisch

      $308,077   $616,154   $1,232,308   -   -   -     -       -  
  3/10/2020   -   -   -   9,953   19,905   39,810     -       $420,000  
  3/10/2020   -   -   -   12,139   24,277   48,554     -       $419,995  
  3/10/2020   -   -   -   -   -   -     30,601       $560,000  
                   

John W. Gannfors

      $258,967   $517,933   $1,035,866   -   -   -     -       -  
  3/10/2020   -   -   -   7,109   14,218   28,436     -       $300,000  
  3/10/2020   -   -   -   8,671   17,341   34,682     -       $300,001  
  3/10/2020   -   -   -   -   -   -     21,857       $399,983  
                   

Terry Leeper

      $90,824   $181,648   $363,296                 -          
  7/6/2020   -   -   -   4,101   8,202   16,404     -       $192,583  
  7/6/2020   -   -   -   4,101   8,202   16,404     -       $174,128  
  7/6/2020   -   -   -   -   -   -     10,935       $232,150  
  7/6/2020   -   -   -   -   -   -     40,850       $867,246  

 

 

(1)         Column (c) reflects the minimum payment each NEO could expect to receive if The ODP Corporation reached at least its threshold performance goal set by the C&T Committee in fiscal year 2020 under the 2020 Annual Bonus Plan. Threshold was set at 50% of target for all NEOs. Mr. Scaglione’s target was prorated based on his July 20, 2020 start date and Mr. Leeper’s target was prorated based on his July 6, 2020 start date. The financial performance goal was targeted to pay out at 100% upon achievement with a maximum payout of 200% of target to be paid if target was exceeded. Column (d) reflects the target payment each NEO could expect to receive if The ODP Corporation reached its target performance goals in fiscal year 2020 under the 2020 Annual Bonus Plan. Each NEO’s target annual bonus is expressed as a percentage of such officer’s annual base salary. For fiscal year 2020, the target bonus percentage was 150% of annual base salary for Mr. Smith, 90% for Mr. Scaglione, and 80% for Mr. Leeper. Messrs. Bleisch and Gannfors had their target bonus percentage increased from 75% to 90%, effective on 1/16/20 and 3/1/20, respectively. Column (e) reflects the maximum payment each NEO could expect to receive if target was exceeded. Performance below threshold would result in no bonus being paid. See the section entitled “2020 Annual Bonus Plan” beginning on page 58 for additional details.

(2)         Columns (f) through (h) reflect the threshold, target and maximum payouts for PSUs granted pursuant to the 2019 Plan. NEOs will be eligible to earn all or a portion or an amount in excess of their target share award based on The ODP Corporation’s performance relative to the metrics established by the C&T Committee for fiscal year 2020. In addition to The ODP Corporation satisfying at least the threshold performance condition under each of the metrics, NEOs must also satisfy the service condition to become vested in their eligible award by remaining continuously employed by The ODP Corporation from the date of grant until the vesting date. Further description of the NEO’s 2020 long-term incentive award is discussed in the section entitled “2020 Long-Term Incentive Program” beginning on page 60.

(3)         Column (i) represents time-vested RSUs granted pursuant to the 2019 Plan, as adjusted for our reverse stock split. RSUs granted to respective NEOs on March 10, 2020 will vest one-third on each of March 10, 2021, March 10, 2022, and March 10, 2023. Mr. Scaglione’s grant on July 20, 2020 will vest one-ninth on July 20, 2021, and four-ninths on each of July 20, 2022 and July 20, 2023. Mr. Leeper’s grant on July 6, 2020 will vest one-third on each of July 6, 2021, July 6, 2022, and July 6, 2023. Under these plan vesting provisions, awards granted will vest provided that each NEO is continuously employed by The ODP Corporation from the grant date until each such vesting date.

(4)         Column (j) is computed in accordance with FASB ASC Topic 718 for stock-based compensation. See Notes 1 and 14 of the consolidated financial statements in our 2020 Annual Report regarding assumptions underlying the valuation of equity awards. These amounts do not correspond to the actual value that will be recognized as income by each of the NEOs when received.

 

  

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OUTSTANDING EQUITY AWARDS AT 2020 FISCAL YEAR-END

 

Outstanding Equity Awards at 2020 Fiscal Year-End
     

 

   Option Awards    Stock Awards

(a)

   (b)         (c)    (d)    (e)    (f)    (g)    (h)1
Named Officers    Number of   
Securities   
Underlying   
Unexercised   
Options (#)   
Exercisable   
        

Option  

Exercise  
Price ($)  

   Option 
Expiration 
Date 
   Number of   
Shares or   
Units of Stock   
That Have Not   
Vested (#)
  

(12)

Market Value
of Shares or
Units of Stock
That Have Not  
Vested ($)

   Equity Incentive  
Plan Awards:
Number of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested (#)
   Equity Incentive Plan
Awards: Market or
Payout Value of
Unearned Shares,
Units or Other Rights
That Have Not Vested   
($)

Gerry P. Smith

   136,549    (3)      $44.50    2/27/27    -    -    -    -
     -    (4)      -    -    163,934    $4,693,430    236,692    $6,776,492
     -    (5)      -    -    58,886    $1,685,906    127,391    $3,647,204
     -    (6)      -    -    38,179    $1,093,065    164,573    $4,711,725

D. Anthony Scaglione

   -    (4)      -    -    25,368    $726,286    38,052    $1,089,429
     -    (7)      -    -    67,598    $1,935,331    -    -

N. David Bleisch

   -    (4)      -    -    30,601    $876,107    44,182    $1,264,931
     -    (5)      -    -    8,412    $240,836    18,199    $521,037
     -    (6)      -    -    8,810    $252,230    37,978    $1,087,310

John W. Gannfors

   -    (4)      -    -    21,857    $625,766    31,559    $903,534
     -    (5)      -    -    6,309    $180,627    13,649    $390,771
     -    (6)      -    -    5,874    $168,173    25,318    $724,854

Terry Leeper

   -    (4)      -    -    10,935    $313,069    16,404    $469,647
     -    (8)      -    -    40,850    $1,169,536    -    -

Joseph T. Lower(2)

   -         -    -    -    -    -    -

 

 

  (1)

Amounts reported in column (h) are based on the closing price of our common stock on The NASDAQ Global Select Market on December 24, 2020 of $28.63, multiplied by the number of unvested units reported in the table.

 

  (2)

Mr. Lower had no outstanding equity awards of The ODP Corporation at the end of the 2020 fiscal year. He forfeited his unvested RSUs and PSUs upon his voluntary termination of employment in January 2020.

 

  (3)

Represents a grant of non-qualified stock options awarded to Mr. Smith on February 27, 2017 under the 2015 Plan in connection with commencement of employment with The ODP Corporation. These options vest in three equal installments on the first, second, and third anniversaries of the grant date and are now fully vested. The number of shares and exercise price reflect the values after adjustment for the reverse stock split.

 

  (4)

On March 10, 2020, Messrs. Smith, Bleisch, and Gannfors were granted a long-term incentive award as part of the 2020 long-term incentive program. Mr. Scaglione received a long-term incentive award on his hire date, July 20, 2020. Mr. Leeper received a long-term incentive award on his hire date, July 6, 2020. Column (f) reflects the number of time-vested RSUs each NEO received. Mr. Scaglione and Mr. Leeper’s RSUs vest in three equal installments on the next three anniversaries of their respective grant dates. All other RSUs vest in three equal installments on March 10, 2021, March 10, 2022, and March 10, 2023. Column (g) reflects the number of PSUs each NEO received. All PSUs for Messrs. Smith, Bleisch, and Gannfors cliff vest in one lump sum on March 10, 2023. Mr. Scaglione’s PSUs cliff vest in one lump sum on July 20, 2023. Mr. Leeper’s PSUs cliff vest in one lump sum on July 6, 2023. Both awards of RSUs and PSUs require continued service through each vest date. All share numbers for awards granted prior to June 30, 2020 reflect the number of shares after adjustment for our reverse stock split. For additional information related to awards granted in fiscal year 2020, see the section entitled “2020 Long-Term Incentive Program” on page 60.

 

  (5)

On March 15, 2019, Messrs. Smith, Lower, Bleisch and Gannfors were granted a long-term incentive award as part of the 2019 long-term incentive program. Column (f) reflects the number of time-vested RSUs each NEO received, as adjusted for the Company’s reverse stock split. All RSUs vest in three equal installments on March 15, 2020, March 15, 2021, and March 15, 2022. Column (g) reflects the number of PSUs each NEO received. All PSUs cliff vest in one lump sum on March 15, 2022. Both awards of RSUs and PSUs require

 

  

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continued service through each vest date. Mr. Lower forfeited his unvested RSUs and PSUs upon his voluntary termination of employment in January 2020. For additional information related to awards granted in fiscal year 2019, see the section entitled “2019 LTIP” on page 62.

 

  (6)

On March 5, 2018, Messrs Smith, Lower, Bleisch and Gannfors were granted a long-term incentive award as part of the 2018 long-term incentive program. Column (f) reflects the number of time-vested RSUs that have not vested (after adjustment for the Company’s reverse stock split). These RSUs will vest on March 5, 2021. Column (g) reflects the number of PSUs each NEO received. All PSU’s cliff vest in one lump sum on March 5, 2021. Both awards of RSUs and PSUs require continued service through each vest date. For additional information related to awards granted in fiscal year 2018, see the section entitled “2018 LTIP Results” on page 62.

 

  (7)

In connection with his commencement of employment with The ODP Corporation, Mr. Scaglione was awarded RSUs on July 20, 2020 under the 2019 Plan. These RSUs will vest one-ninth on July 20, 2021, and four-ninths on each of July 20, 2022 and July 20, 2023 as long as Mr. Scaglione is continuously employed through each such date.

 

  (8)

In connection with his commencement of employment with The ODP Corporation, Mr. Leeper was awarded RSUs on July 6, 2020 under the 2018 Plan. These RSUs will vest in three annual installments on the first, second and third anniversaries of the grant date as long as Mr. Leeper is continuously employed through each such date.

OPTION EXERCISES AND STOCK VESTED IN FISCAL YEAR 2020

 

 
Option Exercises and Stock Vested in Fiscal Year 2020  
     
    

Option Awards

 

 

Stock Awards

 

 
         

(a)

 

 

(b)

 

 

(c)

 

 

(d)

 

 

(e)

 

 
         

Named Officers

 

 

Number of Shares     
Acquired on     
Exercise (#)     

 

 

Value Realized
on Exercise ($)     

 

 

Number of     
Shares     
Acquired on     
Vesting  (#)     

 

 

Value Realized on
Vesting ($)1

 

 
         

  Gerry P. Smith

 

  -   -   164,071

 

  $

 

            3,612,594

 

 

 

         

  D. Anthony Scaglione

 

  -   -   -

 

  $

 

-              

 

 

 

         

  N. David Belisch

 

  -   -   14,955

 

  $

 

320,634

 

 

 

         

  John W. Gannfors

 

  -   -   16,283

 

  $

 

320,659

 

 

 

         

  Terry Leeper

 

  -   -   -

 

  $

 

-              

 

 

 

         

  Joseph T. Lower

 

  -   -   19,608

 

  $

 

480,391

 

 

 

 

 

 

  (1)

Value of restricted stock, RSUs and performance shares calculated by multiplying the number of shares/units by the per share closing price of The ODP Corporation’s common stock on The NASDAQ Global Select Market on the vesting date.

 

  

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SUMMARY OF EXECUTIVE AGREEMENTS AND

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

Overview

This section summarizes the agreements governing the employment of the NEOs, and certain potential payments and benefits that the NEOs may receive upon termination of employment or a change in control of ODP. Providing these severance benefits allows ODP to attract top talent in a competitive sector, allows executives to focus on their responsibilities without distraction, and ensures that key executives will remain committed to ODP’s mission in the event of a change in control.

Under the CIC Plan, the following terms have the definitions below unless otherwise noted:

Key Definitions

Cause. Generally, “Cause” is defined in this section as any of the following:

 

   

Continued failure to substantially perform (other than such failure resulting from incapacity due to physical or mental illness or after the issuance of a Notice of Termination for Good Reason);

 

   

Willful engagement in conduct that is demonstrably and materially injurious to ODP, monetarily or otherwise; or

 

   

Conviction of, or entering into a plea of either guilty or nolo contendere to, any felony, including, but not limited to, a felony involving moral turpitude, embezzlement, theft or similar act that occurred during or in the course of employment.

For purposes of Mr. Smith’s employment agreement, “Cause” is defined as any of the following:

 

   

Willful failure to perform material duties (other than any such failure resulting from incapacity due to physical or mental illness);

 

   

Willful failure to comply with any valid and legal directive of (as to Mr. Smith) the Board or (as to the other NEOs) the CEO;

 

   

Engagement in dishonesty, illegal conduct or misconduct, which is, in each case, materially injurious to ODP or its affiliates;

 

   

Embezzlement, misappropriation or fraud, whether or not related to employment with ODP;

 

   

Conviction of or plea of guilty or nolo contendere to a crime that constitutes a felony (or state law equivalent) or a crime that constitutes a misdemeanor involving moral turpitude;

 

   

Willful violation of a material policy of ODP; or

 

   

Material breach of any material obligation in any written agreement with ODP, including without limitation, the willful unauthorized disclosure of confidential information or (as to Mr. Smith) the failure to timely meet his relocation obligations.

Change in Control. Generally, “Change in Control” is defined in this section as the following events:

 

   

Any person or group, other than an exempt person, is or becomes the “beneficial owner” of 30% or more of the combined voting power of the outstanding securities of ODP without the approval of the Board;

 

   

Any person, other than an exempt person, is or becomes the “beneficial owner” of greater than 50% of the combined voting power of the outstanding securities of ODP;

 

  

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During any two consecutive year periods, individuals whose election by the Board were approved by at least one-half of the directors then still in office cease for any reason to constitute a majority of the Board;

 

   

Consummation of a merger or consolidation of ODP with any other corporation (subject to certain exceptions);

 

   

Sale or disposition by ODP of all or substantially all of ODP’s assets, other than a sale to an exempt person; or

 

   

Approval by shareholders of a plan of complete liquidation or dissolution of ODP.

Disability. Generally, “Disability” is defined in this section as:

 

   

Inability, due to physical or mental incapacity, to substantially perform duties and responsibilities for one hundred eighty (180) days out of any three hundred sixty-five (365) day period or one hundred twenty (120) consecutive days; or

 

   

Eligibility to receive long-term disability benefits under ODP’s long-term disability plan.

Good Reason. Generally, “Good Reason” is defined in this section as the occurrence of any of the following during the executive’s employment:

 

   

Material reduction in base salary;

 

   

Material reduction in target bonus opportunity (this is not a “Good Reason” event for Mr. Smith);

 

   

Relocation of executive’s principal place of employment by more than 50 miles; or

 

   

Failure of ODP to obtain a satisfactory agreement from any successor to assume and agree to perform the employment or compensation agreement.

As to the employment agreement for Mr. Smith, “Good Reason” also includes any material breach by ODP of any material provision of his employment agreement and notice by ODP that it will not extend the term of the employment agreement. Under the CIC Plan and the award agreements evidencing outstanding equity compensation awards, “Good Reason” also includes: