DEF 14A 1 proxydef14a2017.htm DEF 14A Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant
Filed by a Party other than the Registrant
     

CHECK THE APPROPRIATE BOX:
 
Preliminary Proxy Statement
 
Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
 
Definitive Proxy Statement
 
Definitive Additional Materials
 
Soliciting Material Under Rule 14a-12
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Service Corporation International
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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Service Corporation International
Proxy Statement and
2017 Annual Meeting Notice
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2016: Delivering Shareholder Value

 
Total Shareholder Return

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As of December 31, 2016 and includes reinvestment of dividends.
Source: S&P Capital IQ
GAAP Performance Measures
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GAAP - Generally Accepted Accounting Principles
Adjusted Performance Measures*
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*Please see Annex A for disclosures and reconciliations to the appropriate GAAP measure.






TABLE OF CONTENTS
2017 Annual Meeting of Shareholders
 
Voting Matters
 
How To Vote
 
Q&A WITH OUR CHAIRMAN AND CEO
 
MESSAGE FROM OUR BOARD OF DIRECTORS
 
PROXY STATEMENT SUMMARY
 
Corporate Governance Highlights and Changes
 
Shareholder and Proxy Advisor Outreach
 
Board Snapshot
 
Board Evolution
 

Director Nominees
 
Continuing Directors
 
Overview of Director Skills and Experience
 
CORPORATE GOVERNANCE AT SERVICE CORPORATION INTERNATIONAL
 
Proposal 1: Election of Directors
 
Director Ownership of SCI Stock
 
Consideration of Director Nominees
 
Director Independence
 
Change in Leadership Structure
 
Risk Oversight
 
No Shareholders Rights Plan
 
Special Meeting of Shareholders
 
Board Composition and Meetings
 
Annual Board and Committee Evaluations
 
Board Orientation and Education Program
 
Executive Sessions
 
Board Committees
 
Director Compensation
 
AUDIT COMMITTEE MATTERS
 
Proposal 2: Proposal to Approve the Selection of Independent Registered Public Accounting Firm
 
Report of the Audit Committee
 
Audit Fees and All Other Fees
 
COMPENSATION DISCUSSION AND ANALYSIS
 
Proposal 3: Advisory Vote to Approve Named Executive Officer Compensation
 
Introduction
 
Executive Summary
 
 
Key Features of Our Compensation Programs
     
Consideration of 2016 "Say-on-Pay" Vote
     
Compensation Philosophy and Process
 
Annual Base Salaries
 
Annual Performance-Based Incentives Paid in Cash
 

Long-Term Incentive Compensation
 
Other Compensation
 
Further Executive Compensation Practices and Policies
 
How We Make Compensation Decisions
 
Compensation Committee Report
 
EXECUTIVE COMPENSATION TABLES
 
Summary Compensation Table
 
Grants of Plan-Based Awards
 
Outstanding Equity Awards at Fiscal Year End
 
Option Exercises and Stock Vested
 
Pension Plans
 
Executive Deferred Compensation Plan
 
Executive Employment Agreements
 
Potential Payments Upon Termination
 
CERTAIN TRANSACTIONS
 
VOTING SECURITIES AND PRINCIPAL HOLDERS
 
Proposal 4: Frequency on "Say-on-Pay" Vote
 
Proposal 5: Approval of the Amended and Restated 2016 Equity Incentive Plan
 
Proposal 6: Shareholder Proposal to Require an Independent Board Chairman
 
Proposal 7: Shareholder Proposal to Adopt Simple Majority Voting
 
OTHER INFORMATION
 
Information About the Meeting and Voting
 
Proxy Solicitation
 
Submission of Shareholder Proposals
 
Other Business
 
Section 16(a) Beneficial Ownership Reporting Compliance
 
ANNEXES
 
Annex A: Non-GAAP Financial Measures
 
Annex B: 2016 Peer Group
 
Annex C: Amended and Restated 2016 Equity Incentive Plan
 










2017 Annual Meeting of Shareholders
Date and Time:
Wednesday, May 10, 2017 at 9:00 a.m. Central Time
Place:
Conference Center, Heritage l and ll
 
Service Corporation International
 
1929 Allen Parkway
 
 
Houston, Texas 77019
 
Record Date:
March 13, 2017
 

Voting Matters
Proposal
 
Board Recommendation
 
Page Number
1.
Election of three Directors
 
ü
FOR each Director nominee
 
2.
Approval of appointment of PricewaterhouseCoopers LLP, our independent registered public accounting firm
 
ü
FOR
 
3.
"Say-on-Pay" advisory vote to approve executive compensation
 
ü
FOR
 
4.
Frequency on "Say-on-Pay" vote
 
ü
FOR ANNUAL VOTE
 
5.
Approval of the Amended and Restated 2016 Equity Incentive Plan
 
ü

FOR
 
6.
Shareholder proposal to require an Independent Board Chairman
 
û
AGAINST
 
7.
Shareholder proposal to adopt simple majority voting
 
û

AGAINST
 

How to Vote
By Internet
  
By Telephone
  
By Mail
  
In Person
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Vote your shares at www.proxyvote.com.
                                                                                                                                                                                                              Have your Notice of Internet Availability or proxy card in hand for the 16-digit control number.
 
Call toll-free number
1-800-690-6903.
 
Sign, date, and return
the enclosed proxy card
or voting instruction form.
 
To attend the
meeting in person,
you will need proof of
your share ownership
and valid picture I.D.
 
 
 
 
 
 
 
For 2017, we created an annual meeting website to make it even easier to access our annual meeting materials. At the annual meeting website, you can find an overview of the items for voting, our proxy statement and annual report to read online or to download, and a link to vote your shares.
 
www.sciannualmeeting.com




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Q&A WITH OUR CHAIRMAN AND CEO

Q&A WITH OUR CHAIRMAN AND CEO
Tom Ryan answers questions received from shareholders over the course of 2016.

 
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What are Service Corporation International’s strategies for growth?

We have a three-pronged strategy for long-term growth that is centered on the consumer and our competitive advantages: Grow Revenue, Leverage Scale, and Capital Deployment.
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1.
Grow Revenue. I believe the biggest challenge we face today in growing revenue is remaining relevant in the eyes of our consumers. The industry is continuing to change, as it's influenced by the Baby Boomer generation. It’s shifting to an experience and a focus on service rather than product offerings. Cremation continues to grow, so we are developing products and services that align with those preferences and continue to expand our footprint that serves the direct cremation consumer through our non-funeral home channel, SCI Direct. In our cemeteries, we continue to have a tiered inventory strategy that meets the
needs of all our consumers, including ethnic and religious preferences. Additionally, time management--people are in a hurry. We've got to find a way to help our consumers make decisions that they're comfortable with in a timely manner.
 
Lastly, driving preneed sales fuels our future growth. This is where I think we have a game changing opportunity to get a differential share of the market because of our size and scale. In 2016, we sold more than $1.6 billion in preneed funeral and cemetery sales bolstering this position.
2.
Leverage Scale. Our second strategy is leveraging scale, or as I like to say “why be big?” We continue to leverage our unparalleled scale by optimizing our network and driving down costs through supply chain management. We are investing in our preneed sales program, including accessing the premier financial partners in our industry to manage our $10 billion backlog of future funeral and cemetery revenue. We are also investing in best-in-class technology for our sales organization to enhance productivity.
3.
Capital Deployment. Our third core strategy for long-term growth is maximization of capital deployment opportunities. Due to the stability of our cash flow generated from operations and our substantial amount of liquidity, we were able to deploy a significant amount of capital to grow the business and to return value to our shareholders in 2016. For the year, we invested $73 million in acquisitions (including Section 1031 exchange funds), $228 million in share repurchases, and $98 million in dividends. We will continue this disciplined capital deployment approach to target the best total return for our shareholders and deploy capital towards the highest relative return opportunity.




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Q&A WITH OUR CHAIRMAN AND CEO

What differentiates Service Corporation International from other companies?
As the predominant player in a highly fragmented industry, our estimated 16% revenue market share in North America is about ten times greater than any other consolidator in our industry. Approximately 80% of the industry consists of independently-owned operators.

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Our funeral service and cemetery operations consist of funeral service locations, cemeteries, funeral/cemetery combination locations, crematoria, and other related businesses. Within our operating segments, we have a diverse set of revenue streams including retail merchandise sales, consumer services, and real estate operations. We have differentiated our operations by diversifying across a wide range of consumer preferences. We place a high emphasis on the consumer who is focused on ethnic traditions and cultural preferences, which are represented through our various Dignity Memorial® providers. We also continue to invest and expand in SCI Direct, which is predominately focused on the cremation consumer.
 
Unlike many retailers and service providers, who provide merchandise and services in a short time frame, we have $1.6 billion annually in preneed sales that are substantially deferred to our growing backlog, which ended the year at $10 billion. Preneed sales allow consumers to express their wishes about their funeral and cemetery arrangements at a convenient time, relieving their loved ones of these emotional and financial decisions at the time of need. These preneed sales help to increase our future market share by creating a relationship with the customer, who will use our services at the time of need, which is also when the revenue will be recognized.

We have sometimes been compared to retailers and service providers that are asset light. However, we are asset rich due to:

The trust assets, which are not available for use in our business until we provide services or merchandise to our customers. Accounting rules require us to put these assets on our balance sheet, supporting our backlog of preneed contracts and perpetual care obligations.
Our cemetery operations, which by their nature require us to maintain significant land available for future sales.
Our funeral operations (83% of the real estate is owned by us) reflect significant investments in buildings and land.

Annually, the Compensation Committee selects our peer group by employing compensation experts to help with the process, looking at not only revenue size but also enterprise value and business characteristics. Due to the unique nature of our industry, and our differentially large size in comparison to other publicly-traded companies in the industry, our peer group encompasses diverse industries.
How has the business performed over the last 12 months?
In 2016, adjusted earnings per share grew 9%, in line with our earnings growth framework.
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Our performance in 2016 reflected continued momentum in preneed cemetery sales, which grew by almost 5% for the year. We continued to execute on our preneed sales strategy by
 
investing in our sales teams and the tools we utilize to improve our productivity and enhance the customer-facing experience. We also invested in developing our cemetery properties with a broad array of tiered product options.

As anticipated, our core funeral revenue was challenging to grow, with tough year-over-year comparisons to 2015 in the first three quarters of 2016. However, a bright spot to temper this challenge has been impressive growth in our recognized preneed revenue. Additionally, throughout the year, our operating teams have done a great job of improving efficiency and managing costs. We also continued to grow our funeral preneed backlog, posting a 4% growth in preneed funeral sales for the year, as we utilize technology to remain more relevant to our employees as well as our consumer audience.

Excluding cash tax payments, our adjusted operating cash flow increased 2%, primarily as a result of higher earnings particularly associated with increased cemetery profits, lower

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Q&A WITH OUR CHAIRMAN AND CEO

cash interest, and higher installment cash receipts from prior preneed cemetery sales.

 


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Adjusted Earnings Per Share and Adjusted Operating Cash Flow are non-GAAP financial measures. Please see Annex A for disclosures and reconciliations to the appropriate GAAP measure.
Can you talk about the Company’s emphasis on return on equity?
Return on capital deployed is an important concept for us. While we have evaluated both return on assets and return on invested capital, we ultimately concluded that return on equity is a more appropriate measure for us due to the unique nature of our balance sheet.
Specifically, we include $4.3 billion of preneed trust assets and related trust receivables on our balance sheet where the associated revenue is deferred and does not benefit earnings for an average of 10-12 years. These assets are not available for use in our business until we provide services or merchandise to our customers. Our balance sheet also contains $1.4 billion of perpetual care trust assets, which are created with the purpose
 
of generating income to mitigate the costs of maintaining cemetery grounds and property into perpetuity. SCI has very restricted access to the corpus of these funds. We use a normalized return on equity target as a component of senior management’s annual incentive compensation, along with targets for normalized earnings per share, normalized free cash flow per share, and preneed sales production growth.
We believe it is important to align annual performance with a focus on driving superior shareholder return. For further information about our incentive compensation programs, please go to page 32.
   

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Q&A WITH OUR CHAIRMAN AND CEO

How is the Company utilizing technology to grow revenue or improve efficiencies?
We have a number of initiatives designed to help our Company grow revenue and help our associates perform more efficiently.

HMIS+. HMIS+ is an in-house designed application that modernizes the atneed arrangement process. The platform utilizes high resolution images and embedded video, allowing the customer to better envision the offerings we provide. It also enables our arrangers to follow an efficient process flow in a streamlined and simplified manner. When HMIS+ is utilized, the results indicate a higher sales average and, even more importantly, higher customer satisfaction ratings. The rollout of HMIS+ was largely completed in 2016.

Salesforce.com. Since our adoption and implementation of Salesforce as our customer relationship management system, we have experienced meaningful improvement in counselor effectiveness and efficiency. Using Salesforce
data and analytics, we are able to drive key activities and selling behaviors, which lead to more successful outcomes.

Preneed Sales Enablement Platform. We piloted during 2016 and anticipate the launch of our new sales
 
enablement platform for preneed sales by mid to late 2017. Utilizing contemporary tablet technology, this tool will provide our counselors the ability to present, select, and finalize preneed arrangements and deliver an electronic contract in the comfort and privacy of the consumer’s home.

Cemetery Flower Placement Program. In 2017, we are launching our cemetery flower placement service utilizing a direct-to-customer portal. This will be a customer-focused service that sets us apart from other cemetery operators.

Websites. In 2017, we will launch newly redesigned, contemporary websites for our approximately 1,800 Dignity Memorial locations. The newly designed websites will provide a mobile-enabled interface, a modern underlying architecture, a more engaging obituary experience, and will be designed to improve ranking in web search results.


What accomplishment are you most proud of in 2016?

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What I am most proud of in 2016 is the recognition by J.D. Power of our commitment to service excellence. We know our success is dependent on building a culture of consistent, high quality, customer satisfaction and enduring customer relationships. In 2016, we were honored to receive the J.D. Power President’s Award in recognition of our dedication to service excellence. SCI and its family of brands including Dignity Memorial® join an exclusive group of only twelve other companies to receive this esteemed award in J.D. Power’s 47-year history. I am immensely proud of the great service our associates provide every day, and I am honored to be part of such a warm and caring organization.


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MESSAGE FROM OUR BOARD OF DIRECTORS

MESSAGE FROM OUR BOARD OF DIRECTORS
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Dear Shareholders,
We take seriously the trust you place in us by your purchase of Service Corporation International shares, and we are honored to be stewards of your company. Below we share with you a few key highlights for 2016.

2016 Company Performance
We are fully committed to helping SCI deliver excellent operating results and create attractive shareholder returns. The Company’s performance in 2016 resulted in increased adjusted earnings per share and long-term growth in return on equity. We delivered total shareholder return of 11%, which is in line with
 
the S&P 500 return of 12%. Over the medium to long term (3 to 10 years), we continue to significantly outperform the major indices. As we look ahead to 2017, our focus continues to be on enhancing shareholder value.
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MESSAGE FROM OUR BOARD OF DIRECTORS


2016 Company Performance and Compensation Alignment
The Compensation Committee understands the focus on aligning executive pay with performance and strongly believes the Company currently aligns pay and performance. At last year’s annual meeting, our advisory “say-on-pay” proposal received the support of over 80% of the votes cast, an increase from 75% in the prior year. In this 2017 Proxy, we have provided further disclosure and graphics to support and clarify the alignment of pay and performance (beginning on page 29 in our Compensation Discussion and Analysis). We believe that over 70% of our executive officer compensation is performance based when including long-term incentive compensation and the annual performance-based incentive compensation.

During 2016, the Company and Meridian, our compensation consultant, proactively engaged with proxy advisors who
 
represent the interests of our shareholders. Meridian held a telephonic meeting with Institutional Shareholder Services, Inc. (ISS) and SCI senior management met with Glass Lewis in person. Topics discussed in those meetings included incentive compensation plans, peer group selection, and the calculation of return on assets for our Company. The Compensation Committee is confident that the metrics chosen and the peer group selected are the most appropriate for the Company.

We believe these changes are responsive to your feedback and reinforce the link between our executive team and our shareholders.
Board Leadership Structure
In 2016, Tom Ryan was appointed Chairman of the Board following in the footsteps of founder, Robert L. “Bob” Waltrip. With this structural change, we appointed a Lead Independent Director to strengthen and optimize the independence of the Board. Effective January 1, 2016, Tony Coelho assumed the position of this newly created role. Mr. Coelho is very well respected by his fellow Directors and has all the necessary skills, expertise, and experience to be an effective independent leader. We believe this arrangement of having a strong Lead Independent Director combined with the leadership of our Chairman and CEO is in the best interests of SCI and its shareholders at this time. This structure is further enhanced by the fact that our Audit, Compensation, and Nominating and Corporate Governance Committees are comprised entirely of independent Directors.

We believe that this structure allows the Chief Executive Officer to effectively and efficiently guide the Board utilizing the insight and perspective he has gained by running the Company. In addition, our Chief Executive Officer has the
 
necessary experience, commitment, and support of the other Board members to carry out the role of Chairman effectively. His in-depth knowledge of our Company, our growth and historical development, coupled with his extensive industry expertise and significant leadership experience, make him particularly qualified to lead discussions at the Board level on important matters affecting us. We believe shareholders have benefited from Mr. Ryan’s strategic and operational insights and strong leadership skills. Mr. Ryan's skills range from day-to-day operational execution to long-term strategic direction.

Our performance under the current leadership structure has been strong, strengthening the position of our Company as the leader in the death care industry. We believe that Tom Ryan, as an experienced leader with extensive knowledge of the Company, serves as a highly effective bridge between the Board and management and provides the vision and leadership to execute on the Company’s strategies and to create shareholder value.
Board Recruitment
Board recruitment and diversity are priorities for us. In 2015, we added a new member, Dr. Ellen Ochoa. We continue to focus on creating a balanced Board with diverse viewpoints,
 
backgrounds, and expertise. Our Board will continue to positively evolve as we maintain a long-term approach to board refreshment.

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MESSAGE FROM OUR BOARD OF DIRECTORS

Lead Independent Director - Tony Coelho
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Key Duties and Responsibilities of Lead Independent Director:

Preside over independent executive sessions held on a regular basis

Serve as liaison to the Chairperson

Engage in performance evaluation of Directors and CEO

Interview Director candidates

Communicate with stockholders

Consult with committee chairpersons


Communicating Your Viewpoints with the Board
We welcome your feedback. Shareholders and other interested parties may communicate with our Lead Independent Director by using the following address:
Service Corporation International
Lead Independent Director c/o Office of Corporate Secretary
1929 Allen Parkway
Houston, TX 77019
Email: leaddirector@sci-us.com

Thank you for the trust you place in us and for your continued investment in Service Corporation International.

Sincerely,
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Anthony L. Coelho
Lead Independent Director
    
Thomas L. Ryan
Chairman and CEO
    
Alan R. Buckwalter, III
    
Victor L. Lund
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John W. Mecom, Jr.
 
Clifton H. Morris, Jr.
 
Ellen Ochoa
 
Robert L. Waltrip
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W. Blair Waltrip
 
Marcus A. Watts
 
Edward E. Williams
 
 

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PROXY STATEMENT SUMMARY


PROXY STATEMENT SUMMARY
This summary highlights information contained in this Proxy Statement. This summary does not contain all of the information you should consider. Please read the entire Proxy Statement carefully before voting.
Corporate Governance Highlights and Changes


The Board appointed Tom Ryan as Chairman of the Board.
The Board appointed Tony Coelho to the newly created role of Lead Independent Director to strengthen and optimize the independence of the Board.
Marcus Watts succeeded Tony Coelho as Chair of the Nominating and Corporate Governance Committee.
We reduced the number of companies in our peer group used for benchmark studies and the long-term performance units plan based on total shareholder return (TSR Performance Units) for 2016.
During 2016, SCI and Meridian engaged with Institutional Shareholder Services (ISS) to discuss the metrics used in their report. We also had a face-to-face meeting with Glass Lewis to discuss concerns with their peer group selection (previously a majority of restaurants) as well as suggested adjustments to their

 

calculation of Return on Assets to remove our trust assets. Those assets are not available for use in our business until we provide services or merchandise and are unique to our industry (we have $5.7 billion of trust assets and related trust receivables on the balance sheet as discussed on page 4).
The Board approved an adjustment to the Board of Director's compensation program to address the changing regulatory environment, the enhanced role for Board committee leadership, and respond to feedback from our compensation consultant. The compensation changes will be effective August 1, 2017, with the change in total stock grants effective May 2018. See page 26 for details for the Director compensation changes.
We continue to make enhancements to the format and content of our proxy statement to provide a clear and detailed overview of topics important to our shareholders.
Feature
    
Detail
    
Further Information
(page)

Board independence
 
 11 directors, 8 independent directors
 

 Strong Lead Independent Director, newly created role in 2016
6, 19

 Independent Audit, Compensation, and Nominating and Corporate Governance Committees

 Regular meetings of Independent Directors

Board effectiveness
 
 Board evolution
 

 Annual Board and Committee evaluation process

 Board orientation and education program

Shareholder rights
 
 Shareholder questions and concerns are communicated to and considered by the Board
 

 Annual “Say-on-Pay” vote

 No shareholder rights plan or “poison pill”

 Shareholder ability to call special meetings

Corporate governance practices
 
 Majority voting standard in Director elections
 

 Anti-hedging and anti-pledging policies applicable to all officers and Directors

 Claw-back policy applicable to all officers

 Stock ownership and retention guidelines for Directors and officers

 Active Board participation in management succession planning
23


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PROXY STATEMENT SUMMARY


Shareholder & Proxy Advisor Outreach
We regularly communicate with a large portion of shareholders throughout the year to solicit feedback on key business and corporate governance topics. Additionally, beginning in 2015, we began a process of conducting formal interviews prior to our annual meeting with our top shareholders to assess our corporate governance practices, including executive compensation programs. In 2016, we engaged with shareholders representing approximately 44% of the Company’s common stock. We specifically discussed executive compensation, key corporate governance topics, and other issues important to our shareholders. The feedback received was reviewed by the Board and used to enhance our compensation programs. Furthermore, we received positive feedback for the enhancements made to our proxy statement last year. We continue to make improvements to the format and content in this year’s proxy statement to provide a clear and detailed overview of topics that we believe are important to our shareholders.
During 2016, we also proactively engaged with proxy advisors who represent the interests of certain of our shareholders. SCI and our compensation consultant contacted Institutional Shareholder Services, Inc. (ISS) regarding various elements of their initial report, which resulted in a revised report and a favorable recommendation of our Equity Incentive Plan. Additionally, we had a face-to-face meeting with Glass Lewis to discuss concerns with their peer group selection as well as their calculation of Return on Assets (ROA) for our Company. We recognize
 
identifying a peer group for SCI is difficult due to the unique nature of our business and no “true” industry peers. We do not believe the peer group used last year by Glass Lewis consisting of 67% restaurants was an appropriate comparison. These companies generally do not have a sales-centric focus like our preneed programs and several of the business models are asset light, while we are asset rich. We requested that consideration be given to a larger peer group of diversified companies of similar size in revenue, market capitalization, and enterprise value. In terms of a ROA metric, we have consistently argued that adjustments should be made for the unique nature of trust assets on our balance sheet. We have $5.7 billion of trust assets that are not available to use in our business until we provide services or merchandise as discussed on page 4. Therefore, when calculating ROA for our Company, we believe it is appropriate to adjust for these very unique assets that are easily identifiable on our balance sheet for ease of calculation.
 
We believe it is important to proactively ENGAGE our shareholders, using a COLLABORATIVE approach, and then COMMUNICATE the feedback to our Board to enhance our corporate governance practices.


Key Highlights
 
 
 
Reference
Executive Compensation
 
l
We have reduced the number of companies and provided more insight into the peer group we use for our long-term performance unit plan that is linked to a total shareholder return.
 
 
l
We have clarified our disclosures around performance metrics.
 
2, 29
 
l
We have further illustrated our alignment of pay and performance.
 
Board-Related
 
l
Board composition and refreshment remains a priority for us. In 2015, we added a new member, Dr. Ellen Ochoa, to our board.
 
 
l
We have made changes to the Director's compensation.
 
 
l
We have highlighted the evolution of our Board.

 

Accounting White Paper
 
l
In response to shareholders' questions regarding the complexities of the Company's accounting for preneed sales, management published a white paper on its website in the fall of 2015.
 
You can view the
white paper at
under Featured Documents

Communication with Directors

We value dialogue with our shareholders and believe our ongoing outreach efforts, which are in addition to other communication channels available to our stockholders and interested parties, help us to continue to evolve our corporate governance practices in a way that reflects the insights and perspectives of our many stakeholders. Shareholders and other interested parties may communicate
 
with any of the independent Directors, including Committee Chairs and the Lead Independent Director, by using the following address: Service Corporation International, Lead Independent Director c/o Office of Corporate Secretary, 1929 Allen Parkway, Houston, TX 77019 or by email to leaddirector@sci-us.com.

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PROXY STATEMENT SUMMARY



Board Snapshot

Experience
 
Skills
 
Commitment
With extensive experience in leadership positions and a proven record of success, our Board is qualified to oversee the Company’s strategy and management. The
Nominating and Corporate Governance Committee reviews and makes recommendations to the Board’s leadership structure as
evidenced by the nomination of Dr. Ellen Ochoa for election to the
Board in 2015.
     
Each Director brings a particular range of skills and expertise to the deliberations of the SCI Board, which facilitates constructive and challenging debate around the boardroom table (see page 13 for overview).
     
The calendar of Board and Committee meetings is established to support the Board’s focus on strategic and long-term matters, while ensuring the discharge of its monitoring and oversight role effectively through high quality discussions and briefings.
Director Age
 
96% Meeting Attendance in 2016
 
Personal Qualities
The average age of our Board is 69. We believe this gives our Board a unique perspective and understanding of SCI’s consumer base. SCI’s average age of preneed cemetery consumers is the early sixties. The average age of preneed funeral consumers is the early seventies.
 
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Importantly, our Directors bring innate personal qualities to the SCI boardroom that enable our Board to function effectively. Personal qualities exhibited in the boardroom include self-awareness, respect, integrity, independence, and the capacity to function effectively in challenging situations.
 
 
 
 

Board Evolution since 2012
ü

Appointed new Chairman
ü

Reallocation of committee composition
 
 
 
 
ü


Appointed Lead Independent Director
ü

Enhanced qualifications and diversity represented on the Board
 
 
ü


Added two new Directors
 
 
 
 


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PROXY STATEMENT SUMMARY


Director Nominees
 
 
Independent
 
Age
 
Director
Since
 
Other
Public
Boards*
 
Board Committee
Composition
Name
Occupation
 
A
 
C
 
E
 
N&
CG
 
I
Thomas L. Ryan
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Chairman and CEO, Service Corporation International
 
NO
 
51
 
2004
 
2
 
 
 
 
 
C
 
 
 
 
Clifton H. Morris, Jr.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Chairman and CEO of JBC Funding, a corporate lending
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and investment firm
 
YES
 
81
 
1990
 
None
 
 
 
 
 
 
 
 
W. Blair Waltrip
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Independent consultant, family and trust investments,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and former senior executive of the Company
 
NO
 
62
 
1986
 
None
 
 
 
 
 
 
 
 
 

Continuing Directors
 
 
Independent
 
Age
 
Director
Since
 
Other
Public
Boards*
 
Board Committee
Composition
Name
Occupation
 
A
 
C
 
E
 
N&
CG
 
I
Alan R. Buckwalter
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Former Chairman and CEO, Chase Bank of Texas
 
YES
 
70
 
2003
 
None
 
 
C
 
 
 
 
 
Anthony L. Coelho
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Former Majority Whip of the U. S. House of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Representatives
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Independent business and political consultant
 
YES
 
74
 
1991
 
2
 
 
 
 
 
 
 
Victor L. Lund
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
President and CEO, Teradata
 
YES
 
69
 
2000
 
1
 
C
 
 
 
 
 
 
John W. Mecom
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Independent businessman who bought, developed, managed,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and sold a variety of real estate and other business interests
 
YES
 
77
 
1983
 
None
 
 
 
 
 
 
 
 
Ellen Ochoa
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Director, NASA Johnson Space Center
 
YES
 
58
 
2015
 
None
 
 
 
 
 
 
 
 
R. L. Waltrip
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Founder and Chairman Emeritus, Service Corporation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
International
 
NO
 
86
 
1962
 
None
 
 
 
 
 
 
 
 
 
Marcus A. Watts
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
President, The Friedkin Group, an umbrella company
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
overseeing various business interests that are principally
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
automotive related
 
YES
 
58
 
2012
 
None
 
 
 
 
 
C
 
 
Edward E. Williams
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Professor Emeritus of Entrepreneurship, Rice University,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Doctorate in Finance and Accounting
 
YES
 
71
 
1991
 
None
 
 
 
 
 
 
 
 
C
A: Audit Committee
     
: Member
C: Compensation Committee
 
C: Chair
E: Executive Committee
 
 
N&CG: Nominating & Corporate Governance Committee
 
 
I: Investment Committee
 
 
* See Director Bios on pages 14 to 17, which details other public Boards for each Director.

12 www.sciannualmeeting.com




PROXY STATEMENT SUMMARY


Overview of Director Skill and Experience
We value the following skills and experiences within our Board of Directors to create a balance of diverse viewpoints and expertise:
ceoexper.jpg
CEO Experience/Senior Leadership. Directors who have served as CEO or in a senior leadership position are important to us, as they have the experience and perspective to analyze, shape, and oversee the execution of key operational and strategic initiatives.
industry.jpg
Industry. The funeral and cemetery industry is unique and Directors with prior experience can help to shape and develop all aspects of the company’s strategy.
financial.jpg
Financial. We use a broad set of financial metrics to measure our operating and strategic performance. Directors who have financial experience can assist us in evaluating our performance, and can provide guidance on financial reporting and internal controls, as well as capital structure and financing activities.
marketing.jpg
Marketing/Brand Management. We employ a multi-brand strategy and also rely heavily on marketing our products and services on a preneed basis. Directors with marketing experience and/or brand management experience can provide expertise and guidance as we seek to expand brand awareness, enhance our reputation, and increase preneed sales.
investments.jpg
Investments/Financial Services. Knowledge of financial markets, investment activities, and trust and insurance operations assists our Directors in understanding, advising on, and overseeing our investment strategies.
 realestatea01.jpg
Real Estate. We own a significant amount of real estate. Directors with experience in real estate can provide insight into our tiered product/pricing strategy for our cemeteries as well as advice on best uses of our real estate.
 technology.jpg
Technology or e-Commerce. Directors with education or experience in relevant technology are useful for understanding our efforts to enhance the customer experience as well as improve our internal processes and operations.
businessdev.jpg
Business Development/Mergers and Acquisitions (M&A). We seek to grow through acquisitions and development of new business operations. Directors with a background in business development and in M&A provide insight into developing and implementing strategies for growing our business.
 govlegal.jpg
Government/Legal. We operate in a heavily regulated industry. Directors who have a background in law or have served in government positions provide experience and insights that assist us in legal and regulatory compliance and help us work constructively with governmental and regulatory organizations in the areas we operate.
Although the members of our Board embody a broad range of backgrounds, experience and expertise, the table below is intended to highlight only the top three areas of expertise for each member:
Overview of Director Skills and Experience
   
 
  
Buckwalter
  
Coelho
  
Lund
  
Mecom
  
Morris
  
Ochoa
  
Ryan
  
R.L. Waltrip
  
W.B. Waltrip
  
Watts
  
Williams
ceoexpera01.jpg
CEO Experience/Senior
Leadership
 
 
 
 
 
ü
 
 
 
ü
 
ü
 
ü
 
ü
 
 
 
 
 
 
industrya01.jpg
Industry
 
 
 
 
 
 
 
 
 
ü
 
 
 
 
 
ü
 
ü
 
 
 
ü
 financiala01.jpg
Financial
 
ü
 
ü
 
ü
 
 
 
ü
 
 
 
 
 
 
 
 
 
 
 
ü
 marketinga01.jpg
Marketing/Brand
Management
 
 
 
 
 
 
 
ü
 
 
 
 
 
 
 
 
 
 
 
ü
 
 
 investmentsa01.jpg
Investments/Financial
Services
 
ü
 
ü
 
 
 
 
 
 
 
 
 
 
 
 
 
ü
 
 
 
ü
realestatea02.jpg
Real Estate
 
 
 
 
 
 
 
ü
 
 
 
 
 
ü
 
 
 
 
 
 
 
 
 technologya01.jpg
Technology or e-Commerce
 
 
 
 
 
ü
 
 
 
 
 
ü
 
 
 
 
 
 
 
 
 
 
businessdeva01.jpg
Business Development/M&A
 
ü
 
 
 
 
 
ü
 
 
 
 
 
ü
 
ü
 
ü
 
ü
 
 
govlegala01.jpg
Government/Legal
 
 
 
ü
 
 
 
 
 
 
 
ü
 
 
 
 
 
 
 
ü
 
 

13 www.sciannualmeeting.com




CORPORATE GOVERNANCE AT SERVICE CORPORATION INTERNATIONAL

CORPORATE GOVERNANCE AT SERVICE CORPORATION INTERNATIONAL
Proposal 1 : Election of Directors
The Board of Directors will consist of eleven members and will be divided into three classes, each with a staggered term of three years. At this year’s Annual Meeting, shareholders will be asked to elect three Directors to the Board with three-year terms expiring in 2020.
Set forth below are profiles for each of the three candidates nominated by the Nominating and Corporate Governance Committee of the Board of Directors for election by shareholders at this year’s Annual Meeting. Directors are elected by a majority of votes cast.

The Board of Directors recommends that Shareholders vote “FOR” the following three nominees.



  Thomas L.  
Ryan
 
Non-Independent
Director Since: 2004
Age: 51
If Elected
Term Expires: 2020
Primary Qualifications:
thomaslryanpage15iconsjpg.jpg
a12thomasryanpage15.jpg
 
Occupation
●   Chairman (since 2016) and CEO (since 2005) of SCI
 
Prior Business Experience
●   President, SCI (2002-2015)
●   CEO European Operations, SCI (2000-2002)
●   Variety of financial management roles, SCI (1996-2000)
 Current Public Company Boards
●  Weingarten Realty Investors 
●  Chesapeake Energy
 
Other Positions
●  Board of Trustees, United Way of Greater Houston
●  Board of Directors, Genesys Works
●  Board member, University of Texas McCombs Business School Advisory Council
Past Public Company Boards
●    Texas Industries
 
Education
●    University of Texas at Austin
Clifton H.
   Morris, Jr.  
 
Independent
 Director Since: 1990 
Age: 81 
If Elected
Term Expires: 2020
Primary
Qualifications: 
cliftonhmorrisjrpage15iconsj.jpg
a13cliftonhmorrispage15.jpg
 
Occupation
●  Chairman and CEO of JBC Funding, a corporate lending and investment firm
 
Prior Business Experience
●   Founder and Chairman, AmeriCredit Corp., financing of automotive vehicles (1988-2010); sold in 2010 and now GM Financial
●   CFO, Cash America International (1984-1988)
●   VP of Treasury and other financial positions at SCI (1966-1971)
 
Other Positions
●   CPA, 55 years
●   Lifetime member of the Texas Society of Certified Public Accountants
●   Honorary member of the American Institute of Certified Public Accountants

Past Public Company Boards
●    AmeriCredit Corp.
●    Cash America International
 
Education
●    University of Texas at Austin

14 www.sciannualmeeting.com




CORPORATE GOVERNANCE AT SERVICE CORPORATION INTERNATIONAL

 W. Blair    
Waltrip
 
Non-Independent
Director Since: 1986
Age: 62  
If Elected
Term Expires: 2020
Primary
Qualifications: 
wblairwaltrippage16icons.jpg
a15wblairwaltrippage16.jpg
 
Occupation
●   Independent Consultant, Family and Trust Investments, and Former Senior Executive of SCI
 
Prior Business Experience
●   Various positions at SCI including VP of Corporate Development, SVP of Funeral Operations, EVP of SCI’s real estate division, Chairman and CEO of SCI Canada, and EVP of SCI (1977-2000)
Other Positions
●   Treasurer, National Museum of Funeral History
●   Active real estate broker
 
Past Public Company Boards
●   Sanders Morris Harris Group, Inc (Edelman Financial)
Education
●   Sam Houston State University
Continuing Directors
 
 
 
 
 
Alan R. Buckwalter  
 
 Independent
Director Since: 2003
Age: 70
Term Expires: 2019
Primary Qualifications:
alanrbuckwalterpage13icon1.jpg
alanrbuckwalterpage13.jpg
   
Occupation
●   Former Chairman and CEO, Chase Bank of Texas
 
Prior Business Experience
●   Chairman, J.P. Morgan Chase Bank, South Region (1995-2003)
●   President of Texas Commerce Bank (1990-1995)
●   Held various positions in Chemical Bank in corporate division (1970-1990)
Other Positions
●   Board member, Texas Medical Center
●   Chairman Emeritus and Board member, Central Houston, Inc.
Past Public Company Boards
●   Freeport-McMoRan, Inc. (2013-2015)
●   Plains Exploration and Production (2003-2013); subsequently acquired by Freeport-McMoRan, Inc.
 
Other Prior Positions
●   Board of Directors, Federal Reserve Bank of Dallas (Houston Branch)
 
Education
●   Fairleigh Dickinson University
   Anthony L.  
Coelho
 
Independent
Director Since: 1991
Age: 74
Term Expires: 2018
Primary Qualifications:
anthonylcoelhopage15icons.jpg
anthonylcoelho.jpg

 
Occupation
●   Former Majority Whip of the U.S. House of Representatives 
●   Independent business and political consultant
 
Prior Political Experience
●    Chairman of the President’s Committee on Employment of People with Disabilities (1994-2001)
●    General Chairman of Al Gore’s Presidential campaign (1999-2000)

●   Majority Whip (1987-1989) 
●   Member of U.S. House of Representatives (1978-1989); original sponsor/author of the Americans With Disabilities Act
 
Prior Business Experience
●   President/CEO of Wertheim Schroder Financial Services, grew $800 million firm to $4.5 billion in 6 years (1990-1995)
 
Current Public Company Boards
●    Warren Resources, Inc.
●    AudioEye, Inc.

Select Past Public Company Boards
●   Chairman, Cyberonics
●   Chairman, Circus Circus Enterprises (now MGM Mirage)
●   Chairman, ICF Kaiser International, Inc.
 
Other Positions
●   Board member, Esquire Bank
●   Former Chairman and current Board member of the Epilepsy Foundation
 
Education
●    Loyola University Los Angeles

Lead Independent
Director

 

15 www.sciannualmeeting.com




CORPORATE GOVERNANCE AT SERVICE CORPORATION INTERNATIONAL

Victor L.     
Lund  
 
Independent
Director Since: 2000
Age: 69
Term Expires: 2019
Primary Qualifications:
victorllundpage13icons.jpg
victorllundpage13.jpg
 
Occupation
●   President and CEO (May 2016), Teradata Corporation
 
Prior Business Experience
●   Chairman, DemandTec, a software company (2006-2012)
●   Chairman, Mariner Healthcare, Inc. (1999-2002)
●   Vice Chairman, Albertsons, Inc. (1999-2002)
●   22-year career with American Stores Company in various positions including Chairman, CEO, CFO and Corporate Controller 1977-1999
●   Audit CPA, Ernst & Ernst 1972-1977

Current Public Company Boards
●   Teradata Corporation, an information technology company

 

Past Public Company Boards
●    DemandTec
●    Delta Airlines
●    Del Monte Foods, Inc.
●    Mariner Healthcare, Inc.
●    Albertsons, Inc.
●    American Stores Company
●    NCR Corporation
 
Education
●    The University of Utah
●    MBA The University of Utah
John W.
 Mecom, Jr.   
   
Independent
Director Since: 1983
Age: 77
Term Expires: 2019
Primary Qualifications:
johnwmecomjrpage14iconsa01.jpg
johnwmecompage14.jpg
     
Occupation
●   Independent businessman who bought, developed, managed and sold a variety of real estate and other business interests
 
Prior Business Experience
●   Principal owner, John Gardiner’s Tennis Ranch (2000-2011)
●   Owner, Rhino Pak, a contract blender and packer for the petroleum industry (2003-2007)
●   Chairman, John W. Mecom Company, primarily an oil and gas company (1976-2003)
●   Owner of New Orleans Saints NFL team (1967-1985)
●   Owner of Mecom Racing Team, which managed several Formula One racing teams - Indianapolis and Cam Am Series (1960-1967)
●   Hotel management, Houston International Hotels and Preferred Hotels Organization (1964-1985)
Education
●    University of Oklahoma
Ellen
Ochoa      
   
Independent
Director Since: 2015
Age: 58
Term Expires: 2019
Primary Qualifications:
eopage14icons.jpg
ellenochoabiopicture.jpg
     
 Occupation
●   Director of NASA Johnson Space Center (since 2013)
 
Prior Business Experience
●   Government Executive, Astronaut at NASA Johnson Space Center (1990-2012); first Hispanic female astronaut with nearly 1,000 hours in space
●   Branch Chief and research engineer, NASA Ames Research Center (1988-1990), led a group working primarily on optical systems for automated space exploration
   Researcher, Sandia National Laboratories (1985-1988), investigated optical systems for performing information processing
 
Other Positions
●   Member, Board of Directors, Federal Reserve Bank of Dallas
●   Member, National Science Board
●   Chair, Nomination Committee, National Medal of Technology & Innovation
●   Fellow, American Institute of Aeronautics and Astronautics

●  Fellow, American Association for the Advancement of Science
●   Director Emerita, former Vice Chair, Manned Space Flight Education Foundation
●   Former Board of Trustees, Stanford University
 
Education
●   San Diego State University
●   MS, PhD (Electrical Engineering), Stanford University
 


16 www.sciannualmeeting.com




CORPORATE GOVERNANCE AT SERVICE CORPORATION INTERNATIONAL

R.L.
   Waltrip     
 
Non-Independent
Director Since: 1962
Age: 86  
Term Expires: 2018
Primary
Qualifications: 
robertlwaltrippage16icons.jpg
a14rlwaltrippage16.jpg
 
Occupation
●   Founder and Chairman Emeritus, SCI (since 2016)
 
Prior Business Experience
●   Chairman of SCI (1962-2015)
●   CEO of SCI (1969-2005)
●   Founded SCI in 1962, took the company public in 1969
●   Started with family funeral business in the 1950’s; acquired additional funeral homes in the 1960’s; pioneered the clustering concept/efficiencies of scale in the funeral industry
●   Introduced M&A to the industry which changed the industry forever. As a result, he is the best known and highest regarded leader in the industry.
●   The network he began has now grown to more than 2,000 funeral service locations and cemeteries
 
Select Past Public Company Boards
●   Cash America International
●   Tankology Environmental, Inc.
 
Other Positions
●   Chairman, Board of Trustees, National Museum of Funeral History
 
Education
●   University of Houston

  Marcus A.  
Watts
 
 Independent 
Director Since: 2012
Age: 58  
Term Expires: 2018
Primary
Qualifications: 
marcawattspage17iconsa01.jpg
a16marcusawattspage17.jpg
 
Occupation
●   President, The Friedkin Group (since 2011), an umbrella company overseeing various business interests that are principally automotive related
 
Prior Business Experience
●   Vice Chairman and Managing Partner-Houston, Locke Lord LLP (1984-2010) with a focus on corporate and securities law, governance and related matters
Current Board Positions
●   Board Chair, Federal Reserve Bank of Dallas (Houston Branch)
●   Board member, Highland Resources, Inc. (private real estate company)
 
Past Public Company Boards
●   Complete Production Services, Inc. (2007-2012) acquired by Superior Energy Services
●   Cornell Companies (2001-2005)
 Other Positions
●   Chairman, Board of Trustees, United Way of Greater Houston
●   Vice Chairman, Greater Houston Partnership
●   Board member, Houston Ballet

 
Education
●    Texas A&M University
●    Harvard Law School
  Edward E.  
Williams
 
Independent
Director Since: 1991
Age: 71
Term Expires: 2018
Primary
Qualifications: 
edwardsewilliams.jpg
a17edwardewilliamspage17.jpg
 
Occupation
●   Professor Emeritus of Entrepreneurship (since 2014), Rice University, Houston, TX
 
Prior Academic Experience
●   Henry Gardiner Symonds Professor, Professor of Statistics and Administrative Science (1978-2014)
●   Founded Rice University’s Entrepreneurship program in 1978, now one of the top such programs in the world
●   Associate Professor of Finance, McGill University (1970-1973)
Assistant Professor of
     Economics, Rutgers University
     (1968-1970)
Prior Business Experience
●   Founder and CEO, First Texas Venture Capital Corporation (1983-1992)
●   Texas Capital Investment Advisors, Inc. (1980-1995)
●   Trust Corporation International (1979-1986)
 
Other Academic Experience
●   2016 Entrepreneurship Educator of the Year Award, lifetime award presented by the U.S. Association for Small Business and Entrepreneurship
●   Author or co-author of 12 books and over 50 scholarly articles in Entrepreneurship, Finance, Economics, and Accounting including seminal critical analyses of the Efficient Market Hypothesis (initiated 45 years ago)

Education
●   Wharton School, University of Pennsylvania
●   PhD, (Finance and Accounting) University of Texas at Austin

17 www.sciannualmeeting.com




CORPORATE GOVERNANCE AT SERVICE CORPORATION INTERNATIONAL

Director Ownership of SCI Stock
Stock ownership has a critical role in aligning the interests of Directors with those of our shareholders. The Company's Corporate Governance Guidelines contain a policy to encourage the Directors to own SCI stock. Under the guidelines presently in effect, each Director’s SCI stock ownership should be at least 30,000 shares of SCI common stock within five years of the Director’s initial election to the Board. Dr. Ellen Ochoa recently became a member of
 
the Board in 2015. All other members of the Board are well above the minimum guideline.The following graphic presents the current holdings, excluding stock options, for our Directors as of March 13, 2017. (Further details are provided in the footnotes to the tables of Director and officer shareholdings listed under “Voting Securities and Principal Holders”).
scicommonsharesbargraphsa02.jpg
Consideration of Director Nominees
The Nominating and Corporate Governance Committee considers candidates for Board membership suggested by its members and other Board members, as well as management and shareholders. In the past, the Committee has retained a third-party executive search firm to identify candidates. A shareholder who wishes to recommend a prospective nominee for the Board should notify the Company’s Secretary in writing with whatever supporting material the shareholder considers appropriate. To be considered, the written recommendation from a shareholder must be received by the Company’s Secretary at least 120 calendar days prior to the anniversary of the date of the Company’s Proxy Statement for the prior year’s Annual Meeting of Shareholders.
The Committee also considers such other relevant factors as it deems appropriate, including the current composition of the Board, the balance of management and independent Directors, the need for particular areas of expertise, and the evaluations of other prospective nominees. After completing this process, the Committee makes a recommendation to the full Board as to the persons who should be nominated by the Board, and the Board determines the nominees after considering the recommendation and report of the Committee.
Once the Nominating and Corporate Governance Committee has identified a prospective nominee, the
 
Committee will consider the available information concerning the nominee, including the Committee’s own knowledge of the prospective nominee, and may seek additional information or an interview. If the Committee determines that further consideration is warranted, the Committee will then evaluate the prospective nominee against the standards and qualifications set out in the Company’s Corporate Governance Guidelines. The Committee considers diversity of experience, education, skills, background, and other factors in the evaluation of prospective nominees. The Guidelines sought in prospective candidates include the following:
Integrity, character, and accountability
Ability to provide wise and thoughtful counsel on a broad range of issues
Financial literacy and ability to read and understand financial statements and other indices of financial performance
Ability to work effectively with mature confidence as part of a team
Ability to provide counsel to management in developing creative solutions and in identifying innovative opportunities
Commitment to prepare for and attend meetings and to be accessible to management and other Directors

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CORPORATE GOVERNANCE AT SERVICE CORPORATION INTERNATIONAL

Director Independence
The Board conducted an annual review and affirmatively determined that 8 of the current 11 Directors are “independent” as defined by the standards of the NYSE and SCI’s Corporate Governance Guidelines. Two of the Directors, Tom Ryan and R.L. Waltrip, are considered non-
 
independent because of their employment as senior executives of the Company. Blair Waltrip is considered a non-independent Director because he is the son of an executive officer, R.L. Waltrip.
Change in Leadership Structure
Effective January 1, 2016, we implemented a new leadership structure. After 53 years, R.L. Waltrip stepped aside as Chairman and the Board appointed current CEO,
Tom Ryan, as Chairman. Simultaneously, the Board appointed Tony Coelho as Lead Independent Director in a newly created role.

The Board believes this structure, along with the fact that all committees are chaired by independent Directors, is effective by allowing one person to speak for and lead both the Company and the Board. Independent board oversight is accomplished through a Lead Independent Director.

This structure allows the Chief Executive Officer to effectively and efficiently guide the Board utilizing the insight and perspective he has gained by running the Company. In addition, our Chief Executive Officer has the
 
necessary experience, commitment, and support of the other Board members to carry out the role of Chairman effectively. His in-depth knowledge of our Company, our growth and historical development, coupled with his extensive industry expertise and significant leadership experience, make him particularly qualified to lead discussions at the Board level on important matters affecting us.

Our Board believes shareholders have benefited from Mr. Ryan’s strategic and operational insights and strong leadership skills. Mr. Ryan's skills range from day-to-day operational execution to long-term strategic direction.
Our performance under the current leadership structure has been strong, strengthening the position of our Company as the leader in the death care industry.
Risk Oversight
The Board of Directors has assigned the Nominating and Corporate Governance Committee the quarterly oversight responsibility for the Company’s enterprise risk management function. Management has the primary responsibility to identify risks and risk mitigation strategies and provides periodic reports to the Nominating and Corporate Governance Committee. The Audit Committee is responsible for oversight of major financial risks relating to the Company’s accounting matters and financial
 
reporting compliance. The Compensation Committee has oversight of the risk assessment of the Company’s compensation programs. The Investment Committee has oversight of risks relating to the investment of trust funds. The Nominating and Corporate Governance Committee compiles risk assessments of the other committees and of management and annually provides enterprise risk management reports to the Board.
No Shareholder Rights Plan

Prior to 2008, SCI maintained in place a shareholder rights plan, sometimes called a “Poison Pill”, which could provide an opportunity for negotiation during a hostile
 
takeover attempt. Our Board let the shareholder rights plan expire in July 2008 and has not implemented another shareholder rights plan.


19 www.sciannualmeeting.com




CORPORATE GOVERNANCE AT SERVICE CORPORATION INTERNATIONAL

Special Meeting of Shareholders
A special meeting of shareholders may be called at any time by the holders of at least 10% of the outstanding stock entitled to be voted at such meeting, by the Board of
 
Directors, by the Chairman of the Board, by the Chief Executive Officer, or by the President.
Board Composition and Meetings
Independent Directors comprise a majority of the Board of SCI. The Audit, Compensation and Nominating and Corporate Governance Committees of the Board are all composed entirely of Directors who are “independent” as
 
defined by the standards of the NYSE and SCI’s Corporate Governance Guidelines. The full Board meetings had 95% attendance and each individual committee meeting in 2016 had 94% and higher attendance by the relevant Directors.
numberofmeetingsbarcharta01.jpg
% = percentage of meetings attended by SCI Directors
* = There were no material issues or circumstances in 2016 that required an Executive Committee meeting.
Annual Board and Committee Evaluations
The Nominating and Corporate Governance Committee oversees and facilitates a comprehensive self-evaluation of Board members and each of the Board committees on an annual basis to determine whether the Board and its committees are functioning effectively and to identify any areas to further enhance Board and committee operations.
 
The Nominating and Corporate Governance Committee also oversees a Director peer review process as part of the annual renomination review process and for the ongoing professional development of Board members.
Board Orientation and Education Program
SCI has an orientation program for new Board members that includes formal and informal sessions with other Directors and senior SCI executives and attendance at meetings of committees of which the newly elected Director is not a member, so as to gain familiarity with the work of the Board committees and the issues they are addressing.
The focus of continuing education for SCI Directors is on developing educational sessions that Directors find
 
meaningful and useful. These may range from educational sessions specific to issues confronting SCI and its industry to sessions covering corporate governance trends and issues. In addition, the Nominating and Corporate Governance Committee encourages Directors to attend continuing education programs that are offered by various universities, institutes, etc. Additionally, Board members generally perform a site visit to an SCI facility on an annual basis either individually or as a group.


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CORPORATE GOVERNANCE AT SERVICE CORPORATION INTERNATIONAL

Executive Sessions

At the end of every regularly scheduled Board meeting, the Board meets in an executive session attended only by the non-management Directors without management present. The Lead Independent Director chairs these executive sessions. Shareholders and other interested parties may communicate to the Lead Independent Director any
 
concerns that they wish to make known to the non-management Directors, by using the following address: Service Corporation International, Lead Independent Director c/o Office of Corporate Secretary, 1929 Allen Parkway, Houston, TX 77019, or by email to leaddirector@sci-us.com.
Board Committees
As part of its annual Board and committee evaluation process, the Board reviews its committee structure and committee responsibilities to ensure that matters important to SCI have the appropriate focus, and to ensure the effectiveness of each committee’s role. Currently, the Board has four standing committees. The Board has adopted a written charter for each of these committees. These charters are available on SCI’s website at www.sci-corp.com in the “Corporate Governance” section. Information about each committee is provided below.
AUDIT COMMITTEE
     
 
audit.jpg
 
Chair: Victor L. Lund
Other members: Alan R. Buckwalter, Clifton H. Morris, Jr., Edward E. Williams
Meetings in 2016: Seven
 
“The engagement of our Audit Committee is critical to managing the evolving risk profile and regulatory environment in which we operate.”
 
Victor L. Lund

Each member of the Audit Committee meets the independence requirements of the NYSE guidelines.
Key Oversight Responsibilities
 
●   
Integrity of the financial statements
Engagement, qualifications, independence, and performance of the independent registered public accounting firm
Scope and results of the independent registered public accounting firm's report
Performance and effectiveness of our internal audit function
Policies with respect to risk assessment and risk management
Quality and adequacy of our internal controls
Financial reporting activities and disclosure matters
Audit Committee in 2016
The Audit Committee met seven times in 2016, and the Committee attendance record was 96%. Four of the meetings were focused primarily on our quarterly financial reports and our related earnings releases. At each of these meetings, the Committee reviews the documents in depth as well as reviews the independent registered public accounting firm's report. The Committee regularly meets with the independent registered public accounting firm representatives outside the presence of management and also meets regularly with individual members of management to discuss relevant matters. The Committee also meets with the Company’s internal auditors outside the presence of management. The Committee also performs quarterly reviews of any legal matters that could have a significant impact on our financial statements and plays a vital role in assessing the management of financial risk. The report of the Audit Committee can be found on page 27.

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CORPORATE GOVERNANCE AT SERVICE CORPORATION INTERNATIONAL

COMPENSATION COMMITTEE
compensation.jpg
     
Chair: Alan R. Buckwalter
Other members: Anthony L. Coelho, John W. Mecom, Jr., Ellen Ochoa, Marcus A. Watts
Meetings in 2016: Five

“Through our ongoing shareholder engagement, we received feedback that our shareholders favor incentive compensation tied to specific performance measures that are aimed at driving long-term performance and value creation. We believe the long-term incentives for our executive officers align with this philosophy.”
Alan R. Buckwalter

Each member of the Compensation Committee meets the independence requirements of the NYSE guidelines.
   
Key Oversight Responsibilities
Oversees our executive compensation and benefits policies and programs
Sets compensation for the Chairman and CEO
Reviews and approves compensation for all other executive officers
Determines appropriate individual and Company performance measures
Approves all executive employment contracts
Determines and ensures compliance with SCI stock ownership guidelines for officers
Assesses the risk of SCI’s compensation programs
Compensation Committee in 2016
The Compensation Committee met five times in 2016, and each member of the Committee attended all of its meetings. The Committee devoted substantial time in its oversight of SCI’s compensation programs, particularly setting compensation for our newly appointed Chairman and our Founder and Chairman Emeritus, and narrowing the benchmark peer group used for SCI’s long-term performance units plan. As part of this process, the Committee spent considerable time reviewing feedback received from shareholders about SCI’s compensation programs. The Committee’s review of executive compensation matters and its decisions, including changes made in response to input from our shareholders, is discussed in the Compensation Discussion and Analysis beginning on page 29.















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CORPORATE GOVERNANCE AT SERVICE CORPORATION INTERNATIONAL

NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
corpgovernance.jpg
     
Chair: Marcus A. Watts
Other members: Anthony L. Coelho, Victor L. Lund, Clifton H. Morris, Jr.,
Meetings in 2016: Four

"An important role for the Nominating and Corporate Governance Committee in 2016 was the implementation of a new leadership structure that included the appointment of a new chairman and a Lead Independent Director.
Marcus A. Watts
Each member of the Nominating and Corporate Governance Committee meets the independence requirements of the NYSE guidelines.
   
Key Oversight Responsibilities
Composition of the Board and Board committees
Identification and recruitment of new candidates for the Board
Review process for renomination of current Board members and nominees recommended by shareholders
Development of corporate governance principles and practices
SCI’s enterprise risk management function
Succession planning for CEO and other SCI executives
Performance evaluation of the CEO, Board, and committees
Continuing education sessions for SCI Directors

Nominating and Corporate Governance Committee in 2016
The Nominating and Corporate Governance Committee met four times in 2016, and the Committee attendance record was 94%. The Committee spent a considerable amount of time in reviewing and making recommendations on the Board’s leadership structure, which resulted in the appointment of a new Chairman, as well as creating a Lead Independent Director role. With the appointment of Tony Coehlo to the role of Lead Independent Director, Marcus Watts assumed the position of Committee Chair.














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CORPORATE GOVERNANCE AT SERVICE CORPORATION INTERNATIONAL

INVESTMENT COMMITTEE
investment.jpg
     
Chair: Edward E. Williams
Other members: John W. Mecom, Jr., Ellen Ochoa, W. Blair Waltrip
Meetings in 2016: Four

“In addition to providing continued guidance in 2016 helping to monitor and improve the structure of SCI’s $4.5 billion preneed and perpetual care trust portfolio, the Investment Committee oversaw the management of the Company’s corporate cash and retirement plans.  Additionally, we monitored the capital surplus and investments of SCI’s largest preneed insurance provider to ensure proper oversight of the company’s preneed backlog.”

Edward E. Williams


Key Oversight Responsibilities
Coordinates management of SCI’s preneed trust funds and perpetual care trust funds with independent trustees, SCI’s employee Investment Operating Committee, headed by SCI executives, as well as its wholly-owned registered investment advisor and a third party consultant
Reviews the management of the trust funds, performance of the trustees, and investment manager changes made by the trustees
Recommends investment policies and guidelines in conjunction with the Investment Operating Committee and wholly-owned registered investment advisor and third party consultant
Reviews SCI’s primary funeral preneed insurance provider
Monitors short-term cash investments of SCI and funds associated with SCI’s retirement plans

EXECUTIVE COMMITTEE
executive.jpg
     
Chair: Thomas L. Ryan
Other members: Alan R. Buckwalter, Anthony L. Coelho, Victor L. Lund, Robert L.
Waltrip, Marcus A. Watts
Meetings in 2016: None

Key Oversight Responsibilities

Has authority to exercise many of the powers of the full Board between Board meetings
Is available to meet in circumstances when it is impractical to call a meeting of the full Board and there is urgency for Board discussion and decision-making on a specific issue





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CORPORATE GOVERNANCE AT SERVICE CORPORATION INTERNATIONAL

Director Compensation

The following table sets forth Director compensation for 2016. The table and following discussion apply to Directors who are not employees.
 
Employees who are Directors do not receive Director fees or participate in Director compensation.
2016 Director Compensation Table
Name
 
Fees Earned
or Paid
in Cash

 
Stock
Awards(1)

 
Change in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings(2)

 
Total

Alan R. Buckwalter
 
$
111,500

 
$
270,750

 
$

 
$
382,250

Anthony L. Coelho
 
124,042

 
270,750

 
6,358

 
401,150

Victor L. Lund
 
115,500

 
270,750

 

 
386,250

John W. Mecom, Jr.
 
100,000

 
270,750

 
820

 
371,570

Clifton H. Morris, Jr.
 
95,000

 
270,750

 
411

 
366,161

Ellen Ochoa
 
100,000

 
270,750

 

 
370,750

W. Blair Waltrip
 
91,500

 
270,750

 

 
362,250

Marcus A. Watts
 
107,000

 
270,750

 

 
377,750

Edward E. Williams
 
110,500

 
270,750

 
5,869

 
387,119

(1) Amounts in the Stock Awards column represent the fair market value of each award on the date of grant. Specifically, the value was calculated by multiplying (i) the average of the high and low market prices of a share of common stock of SCI on the date of the grant of the stock award, by (ii) 10,000 shares, which was the number of SCI shares per award.
(2) Amounts in this column include any increases in the actuarial present values of benefits as discussed under “Directors’ Retirement Plan” below.
Cash Fees
All outside Directors receive a $75,000 annual cash retainer and the Committee Chairs receive a further annual cash retainer as follows: Audit Committee Chair $15,000, Compensation Committee Chair $10,000, Investment Committee Chair $10,000 and Nominating and Corporate Governance Committee Chair $10,000. The Lead Independent Director receives an additional annual cash retainer of $20,000. In addition to the retainers which are paid quarterly, each outside Director receives a $2,000 attendance fee for each Board or Committee meeting attended. Fees for telephonic attendance of any Board or Committee meeting are 25% of the regular fee. The total cash fees for each Director
 
are set forth in the column “Fees Earned or Paid in Cash” in the table above.
Directors may elect to defer all or any of their cash fees by participating in the Executive Deferred Compensation Plan, which is described hereinafter under “Certain Information with Respect to Officers and Directors - Executive Deferred Compensation Plan.” There are no Company contributions made for a Director’s account in the plan. The Director may have deferred fees invested in the funds available under the plan. Any earnings or losses on such deferred fees are not reported in the table above. Changes for 2017 Director compensation are detailed below.
Stock Award
Under the Amended and Restated Director Fee Plan, all outside Directors receive an annual retainer of 10,000 shares of Common Stock of SCI or, at each Director’s option, Deferred Common Stock Equivalents. The award is made once a year on the date of the Annual Meeting of Shareholders and is 100% vested on the date of grant. Accordingly, each outside Director received 10,000 shares of Common Stock or deferred Common Stock equivalents on May 11, 2016. The fair market value of
 
the award is set forth in the column “Stock Awards” in the table above. For dividends pertaining to a Director’s Deferred Common Stock Equivalents, the dividends are reinvested in additional deferred Common Stock equivalents based on the fair market value of Common Stock on the dividend record date. Changes for 2017 Director compensation are detailed below.



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CORPORATE GOVERNANCE AT SERVICE CORPORATION INTERNATIONAL

Directors’ Retirement Plan
Effective January 1, 2001, the Non-Employee Directors’ Retirement Plan was amended such that only years of service prior to 2001 are considered for vesting purposes. Non-employee Directors who served on the Board prior to that time and were participants in the plan are entitled to receive annual retirement benefits of $42,500 per year for ten years, subject to a vesting schedule, based on their years of Board service. Retirement benefits vested in 25% increments at the end of five, eight, eleven, and
 
fifteen years of credited service, except that the benefits vest completely in the event of death while the participant is still a member of the Board or in the event of a change of control of SCI (as defined in the plan). Any increases in the actuarial present values of benefits under the plan are reflected in the column “Change in Pension Value and Nonqualified Deferred Compensation Earnings” in the table above. Changes for 2017 Director compensation are detailed below.

2017 Director Compensation Changes
We have adjusted the Board of Director compensation levels and program design to address the changing regulatory environment, the enhanced role for Board committee leadership, and feedback from our compensation consultant and shareholders. Director compensation should be reasonably structured to reward the efforts of Directors without compromising the independence necessary to protect shareholders' long-term interests.
With effective and appropriate compensation in mind, the following Board compensation components will be effective August 1, 2017:
The cash retainer, which is paid quarterly, will increase from $75,000 to $90,000.
Meeting attendance fees will be eliminated.
Individual retainers for committee chairs will increase in recognition of their more significant and time-consuming roles. We are changing the fees to more properly align their compensation with the increased responsibility as a committee chair.
Changes in the total stock grants, which are paid at the annual meeting in May, will be effective in May of 2018. Stock grants with a value of $180,000 per Director will replace the previous plan, which granted 10,000 shares per Director. This change allows stabilization of the value annually, eliminating uncertainty both for the Directors and for the shareholders who may be approving the compensation plans in advance.
 
Director Compensation Changes
 
Prior to 8/1/2017
 
After 8/1/2017
Cash retainer, paid quarterly
$
75,000

 
$
90,000

Stock grants, payable at annual meeting date
 10,000 shares

 
$180,000 value in shares

 
 
 
 
Individual retainers, payable quarterly:
 
 
 
Lead Director
$
20,000

 
$
30,000

Audit Committee Chair
$
15,000

 
$
25,000

Compensation Committee Chair
$
10,000

 
$
20,000

Investment Committee Chair
$
10,000

 
$
15,000

Nominating and Corporate Governance Chair
$
10,000

 
$
15,000

 
 
 
 
Attendance fee per meeting
$
2,000

 



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AUDIT COMMITTEE MATTERS
Proposal 2: Proposal to Approve the Selection of Independent Registered Public Accounting Firm
The Audit Committee of the Board of Directors of the Company has recommended PricewaterhouseCoopers LLP (“PricewaterhouseCoopers”) to serve as the independent registered public accounting firm for the Company for the fiscal year ending December 31, 2017. PricewaterhouseCoopers and its predecessors have audited the Company’s accounts since 1993. A representative of PricewaterhouseCoopers is expected to be present at the Annual Meeting, and such representative will have the opportunity to make a statement if he or she desires to do so and be available to respond to appropriate questions at such meeting. The Audit Committee wishes to submit the selection of PricewaterhouseCoopers for
 
shareholders’ approval at the Annual Meeting. If the shareholders do not give approval, the Audit Committee will reconsider its selection. The affirmative vote of the holders of a majority of shares represented at the Annual Meeting will be required for approval of this proposal.

 
The Board of Directors recommends that Shareholders vote “FOR” approval of the selection of PricewaterhouseCoopers LLP as the independent registered public accounting firm of the Company.
Report of the Audit Committee

The primary purpose of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities to ensure the integrity of the Company’s financial statements, the Company’s compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications, independence and the performance of the Company’s internal audit function. The Audit Committee’s functions are detailed in the section entitled “Board of Directors - Board Committees - Audit Committee” above. The Audit Committee Charter is available for viewing on SCI’s website, www.sci-corp.com, and is also available in print to any shareholder who requests it.

Each member of the Audit Committee is independent and financially literate, as defined by the New York Stock Exchange rules, and is limited to serving on no more than three audit committees of public companies. The Board of Directors has appointed, and the Audit Committee has acknowledged, Mr. Victor L. Lund, Chairman of the Audit Committee, as the Audit Committee Financial Expert as defined by the rules of the Securities and Exchange Commission.

The Audit Committee has reviewed and discussed the audited financial statements with management of the Company and with the independent registered public accounting firm. Specifically, the Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by the Public Company Accounting Oversight Board’s Auditing Standard 16 (Communication with Audit Committees). The Audit Committee has also received the written disclosures in the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding
 
the independent registered public accounting firm’s independence, and has discussed with the independent registered public accounting firm their independence.
The Audit Committee has also reviewed the independence of the independent registered public accounting firm considering the compatibility of non-audit services with maintaining their independence from the Company. Based on the preceding review and discussions contained in this paragraph, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE
victorllundsignature.jpg
Victor L. Lund, Chair
alanrbuckwalteriiisig01.jpg
Alan R. Buckwalter
cliftonhmorrisjrsignaturepg0.jpg
Clifton H. Morris, Jr.
edwardsewilliamssignaturea01.jpg
Edward E. Williams


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AUDIT COMMITTEE MATTERS

Audit Fees and All Other Fees
The Audit Committee has adopted a policy that requires advance approval of all audit, tax services, and other services performed by the independent registered public accounting firm. The policy permits the Audit Committee to grant pre-approval for specifically defined audit and non-audit services. All of the fees set forth below were pre-approved by the Audit Committee.
 
 
Audit fees1

 
Audit-related fees2

 
Tax3

 
All other fees4

 
Total

2016
 
$
6,156,398

 
$
775,000

 
$
23,250

 
$
3,838

 
$
6,958,486

2015
 
$
5,225,693

 
$

 
$
15,000

 
$
3,600

 
$
5,244,293


1
Fees associated with the annual audit of the Company’s consolidated financial statements and the effectiveness of the Company’s internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act, the reviews of the Company’s quarterly reports on Form 10-Q, and fees related to statutory audits.
2
All other fees in 2016 were primarily related to the review of our new general ledger system, Oracle, implemented in 2016.
3
Fees for tax services for 2016 were related to LLC tax preparation and for 2015 were related to compliance with the Foreign Account Tax Compliance Act.
4
All other fees in both years were for research database licensing.
























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COMPENSATION DISCUSSION AND ANALYSIS
Proposal 3: Advisory Vote to Approve Named Executive Officer Compensation
Pursuant to SEC rules, we are asking shareholders to approve the compensation of our Named Executive Officers as disclosed in the Compensation Discussion and Analysis, the compensation tables, and any related material contained in this Proxy Statement. This proposal, commonly known as a “say-on-pay” proposal, gives shareholders the opportunity to endorse or not endorse our executive pay program and policies through the following resolution:
“Resolved, that the shareholders approve the compensation of our Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, the compensation tables, and any related material contained in our Proxy Statement.”
The compensation of our executive officers is based on a program that ties a substantial percentage of an executive’s compensation to the attainment of financial and other performance measures that, the Board believes, promote the creation of long-term shareholder value and position the Company for long-term success. As described more fully in the Compensation Discussion and Analysis, the mix of fixed and performance-based compensation and the terms of annual and long-term incentive awards are all designed to enable the Company to attract and maintain top talent while, at the same time, creating a close relationship between performance and
 
compensation. The Compensation Committee and the Board of Directors believe that the design of the program, and therefore the compensation awarded to Named Executive Officers under the current program, fulfills this objective.
Shareholders are urged to read this Compensation Discussion and Analysis section of this Proxy Statement, which discusses in detail how our compensation policies and procedures implement our compensation philosophy.
Although the vote is non-binding, the Compensation Committee will review the voting results in connection with their ongoing evaluation of the Company’s compensation program. Approval of this proposal is subject to the approval of a majority of the holders of shares of the Company’s common stock present in person or represented by proxy and entitled to vote at the Annual Meeting. Each holder of our common stock is entitled to one vote for each share held. Abstentions will have the same effect as a vote AGAINST this proposal. Broker non-votes are not counted.
The Board of Directors recommends a vote “FOR” advisory approval of the resolution set forth above.
Introduction
This Compensation Discussion and Analysis has been prepared by our management and reviewed by the Compensation Committee of our Board of Directors. This discussion provides information and context regarding the compensation paid to our Chief Executive Officer, Chief Financial Officer, and the other three most highly-compensated executive officers in 2016, all of whom are collectively referred to as the “Named Executive Officers”. Our Named Executive Officers (NEOs) for 2016 were:
Thomas L. Ryan
     
Chairman of the Board and Chief Executive Officer
Michael R. Webb
 
President and Chief Operating Officer
Eric D. Tanzberger
 
Senior Vice President Chief Financial Officer
Sumner J. Waring, III
 
Senior Vice President Operations
R. L. Waltrip
 
Founder and Chairman Emeritus
 


 
The Company’s executive compensation policies are designed to provide aggregate compensation opportunities for our executives that are competitive in the business marketplace and that are based upon Company and individual performance. Our foremost objectives are to:
Align executive pay and benefits with the performance of the Company and shareholder returns while fostering a culture of highly ethical standards and integrity; and
Attract, motivate, reward, and retain the broad-based management talent required to achieve our corporate objectives.




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COMPENSATION DISCUSSION & ANALYSIS


Executive Summary

Our management has a strong focus on delivering long-term profitable growth for, and returning value to, our shareholders. This long-term focus has contributed significantly to the Company’s total shareholder return as seen below. Also, below is a normalized earnings per share graph and an adjusted operating cash flow graph representing the Company’s 2016 performance.
bodtsra02.jpgSource: S&P Capital IQ
2016 Company Performance
adjustedepsunderceoqagraphic.jpg
Adjusted Earnings Per Share and Adjusted Operating Cash Flow are non-GAAP financial measures. Please see Annex A for disclosures and reconciliations to the appropriate GAAP measure.
As detailed in the Q&A with our Chairman & CEO earlier in this proxy statement, the Company delivered outstanding financial results in 2016, including the following:

Maintained our position as the largest provider in the Company’s industry, with 16% market share and over $3 billion in revenue.
Increased adjusted earnings per share and adjusted operating cash flow before cash tax payments by 9% and 2%, respectively.
Reported adjusted operating cash flow of approximately $621 million and deployed $326 million to our shareholders through share buy-backs and an increased dividend.
Achieved a total shareholder return (TSR) of 191% over the last five fiscal years, approximately doubling the return of the S&P 500.

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COMPENSATION DISCUSSION & ANALYSIS


Key Features of Our Compensation Programs
Over the course of the past several years, acting in the interests of the stockholders, the Compensation Committee in conjunction with management has adjusted compensation programs toward greater performance-based compensation. In addition, we have collectively modified or eliminated certain components of our programs to better align them
 
with prevailing standards. The following are highlights of our compensation programs, including our emphasis on pay commensurate with performance and actions taken to align aspects of our programs with evolving standards.

WHAT WE DO:
      
ü
  
We pay for performance. A significant portion of the compensation of our Named Executive Officers is directly linked to the Company’s performance, as demonstrated in the historical payouts related to our annual and long-term incentive plans.
 
ü

We require stock ownership. We maintain stock ownership guidelines for officers and Directors. Under the guidelines, an officer should retain all SCI stock acquired from grants of restricted stock and stock options (net of acquisition and tax costs and expenses) until that officer has met the stock ownership guidelines.
 
ü

We have a claw-back policy. The Company maintains claw-back provisions that are triggered in certain circumstances. If triggered, the provisions provide for a claw-back of annual performance-based incentives paid in cash, stock options, restricted stock, and TSR performance units.
 
ü

We seek independent advice. We engage independent consultants to review executive compensation and provide advice to the Compensation Committee.
 
ü

We have an ongoing shareholder outreach program. As part of our commitment to effective corporate governance practices, we regularly engage with shareholders. We specifically discussed executive compensation along with other important topics (page 10).
 

 
WHAT WE DON’T DO:
ž
  
We do not allow tax gross-up. We do not provide tax gross-ups in our compensation programs, and we do not have provisions in our executive employment agreements that provide for tax gross-ups in the event of a change of control of the Company.
ž

We do not allow hedging or pledging. We have policies that prohibit officers and Directors from hedging or pledging their SCI stock ownership.
ž

We do not allow the repricing of stock options. We have policies that prohibit subsequent alterations of stock option pricing. 
 
 
 
 
 
 
Consideration of 2016 "Say-on-Pay" Vote
At our annual meeting of shareholders held on May 11, 2016, over 80% of the shares voted were in favor of the proposal for an advisory vote to approve Named Executive Officer compensation (“say-on-pay” vote) versus 75% in favor in 2015. These votes represented a majority of our outstanding shares. The Compensation Committee believes this result is an indication that a majority of our shareholders are satisfied with our executive compensation policies and decisions, and that our executive compensation program effectively aligns the interests of our Named Executive Officers with the interests of our shareholders.







 
During this process, shareholders communicated support for our current philosophy and program and agreed that it is aligned with the Company’s performance. The Compensation Committee considered results of the “say-on-pay” vote, shareholder feedback, input from its independent compensation consultants, and compensation benchmarking tools, in the context of the Committee’s fiduciary duty to act as the Directors determine is in shareholders’ best interests. We will continue to consider the outcome of our “say-on-pay” vote results when determining future compensation policies and pay levels for our Named Executive Officers.

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COMPENSATION DISCUSSION & ANALYSIS


Compensation Philosophy and Process
The Company’s compensation philosophy as implemented through the Compensation Committee is to align executive compensation with the performance of the Company and the individual by using several compensation components for our executives.
Our overall compensation philosophy is to target our direct compensation for executives within a competitive range of benchmark pay levels of general industry companies (the “Peer Group” (see Annex B), with opportunities to exceed the target direct compensation levels through annual performance-based incentives paid in cash and through long-term performance-based incentives paid in cash and stock. However, if performance targets are not met, then the resulting performance-based award payouts will be below target levels. We believe these target levels of direct compensation are appropriate to motivate, reward, and retain our executives, each of whom has leadership talents and expertise that make them attractive to other companies. In making annual compensation decisions, the Compensation Committee reviews each executive’s total compensation, as well as the compensation components, for reasonableness and comparability to market levels and the prior year’s compensation.
 
The compensation components are designed to motivate our senior leadership to operate as a team to achieve Company-wide goals. This approach serves to align the compensation of our most senior leadership team with the performance of the Company.
In the first quarter of each year, our independent consultant presents to the Compensation Committee comparative market information, including benchmarking data discussed below. For the Chairman and the CEO, the Compensation Committee is exclusively responsible for the final determination of all components of compensation, but may request input or recommendations from Company management. For other Named Executive Officers, the Compensation Committee receives additional recommendations from our CEO for all components of compensation. In the first quarter of each year, the Compensation Committee reviews the market data and recommendations and sets the compensation components of annual base salary, annual performance-based incentives, and long-term incentives for that year. Below is a graph aligning CEO pay and performance, using the five year total shareholder return.

paybyperformancebarline.jpg


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COMPENSATION DISCUSSION & ANALYSIS



Below is an overview of SCI’s elements of compensation and a graph showing the percentage of the total for each element.
ceoneodirectcomp01.jpg
Over 70% of our NEOs compensation is performance-based.

 

Element
      
Description
      
Objective
      
Recent Changes
Annual Base Salary
page 34
      
Fixed cash element of compensation established within a competitive range of benchmark pay levels.
      
Serves to attract and retain executive talent and may vary with individual or due to marketplace competition or economic conditions.
      
Reduced peer group for 2016 benchmark studies.
Annual Performance-Based Incentive Compensation
page 34
      
Performance–based element of compensation tied to the attainment of performance measures. Paid in cash.
      
Rewards achievement of shorter term financial and operational objectives that we believe are primary drivers of our common stock price over time.
      
A fourth performance measure (Return on Equity) was added to the Incentive Compensation Plan in 2015.
Long-Term Incentive Compensation
page 36
      
Stock Options – granted at an exercise price equal to 100% of the fair market value of SCI common stock on the grant date.
      
Rewards for the Company’s stock price appreciation.
      
 
 
      
Restricted Stock – awards are made in February each year at the same time as the stock option grants and vest at a rate of one-third per year.
      
Supports retention and furthers stock ownership.
      
 
 
      
TSR Performance Units – The Performance Unit Plan measures the three-year total shareholder return (“TSR”) relative to a comparator group of public companies (see Annex B).
      
Rewards for effective management of Company business over a multi-year period and delivering superior TSR.
      
Reduced peer group for 2016 comparator group.
Other Compensation
page 37
      
Retirement Plans – Executive Deferred Compensation Plan and 401(k) Plan.
      
Provide financial security for retirement.
      
 
 
      
Perquisites and Personal Benefits – reasonable benefits as described on page 38.
      
To enhance executive performance by facilitating effective management of personal matters.
      
 

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COMPENSATION DISCUSSION & ANALYSIS


Annual Base Salaries

We target the base salary levels of our Named Executive Officers within a competitive range of benchmark pay levels defined in the competitive benchmarking study described on page 42. We believe these levels are appropriate to motivate and retain our Named Executive
 
Officers, who each have leadership talents and business expertise that make them attractive to other companies. In addition, when adjusting salaries, we may also consider the individual performance of the executive.
In the first quarter of 2016, the Compensation Committee made the following salary adjustments:
 
 
2016 Salary
 
2015 Salary
 
Change
 
% Change
Thomas L. Ryan
 
$
1,200,000

 
$
1,200,000

 
$

 
%
Michael R. Webb
 
750,000

 
720,000

 
30,000

 
4.2
%
Eric D. Tanzberger
 
550,000

 
540,000

 
10,000

 
1.9
%
Sumner J. Waring, III
 
550,000

 
520,000

 
30,000

 
5.8
%
R.L. Waltrip
 
952,000

 
952,000

 

 
%
The Compensation Committee made these adjustments based on consideration of benchmark pay levels for each executive and in recognition of the officers’ strong performance during 2015.
Annual Performance-Based Incentives Paid in Cash

We use annual performance-based incentives paid in cash to focus our executive officers on financial and operational objectives that the Compensation Committee believes are primary drivers of our common stock price over time. In the first quarter of 2016, the Compensation Committee established the performance measures as the basis for annual performance-based incentive awards for our Named Executive Officers. In addition, the Compensation Committee established an Umbrella Program as a gateway performance metric for the incentives.
The Umbrella Program is designed to generate a performance-based bonus pool to fund award payouts based on the performance measures discussed below and to allow for full tax deductibility of the bonuses paid to our Named Executive Officers. The Compensation Committee set the funding for the bonus pool for 2016 as 4.0% of the Company’s total income from continuing operations before income taxes as reflected in the Company’s financial statements, but only if the Company achieved total income from continuing operations before income taxes in excess of $250 million for 2016. The Compensation Committee

 
also established individual shares of the bonus pool for each executive covered under the Umbrella Program, including each Named Executive Officer.
Award amounts that may be paid under the Umbrella Program are subject to the Compensation Committee’s authority to reduce, but not increase, the amount of the actual cash amount earned and payable to each designated participant. With regard to award amounts calculated under the performance measures discussed above, the Compensation Committee may elect to increase or decrease the award amount in its sole discretion; provided, however, that the amount determined under such performance measures shall not exceed the amount determined under the Umbrella Program. Further, in the event the amount calculated under such performance measures is lower than the amount calculated under the Umbrella Program, the Compensation Committee intends to reduce the amount payable under the Umbrella Program to not exceed the award amount calculated under such performance measures.


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COMPENSATION DISCUSSION & ANALYSIS


The target award opportunities for the Named Executive Officers for 2016 were as follows:
 
  
Target Award Opportunity
(% of Base Salary)

Thomas L. Ryan
 
120
%
Michael R. Webb
 
100
%
Eric D. Tanzberger
 
80
%
Sumner J. Waring, III
 
80
%
R.L. Waltrip
 
100
%
The 2016 performance measures discussed below are similar to the performance measures utilized in 2015:
Normalized Earnings per Share, which we calculate by applying a 36.9% effective tax rate to the Company’s calculation of its reported diluted earnings per share and further adjusting to exclude the items listed below.

Normalized Free Cash Flow per Share, which we calculate by (1) adjusting reported cash flows from operating activities to exclude the cash impact of the items listed below, (2) deducting forecasted capital improvements at existing facilities and capital expenditures to develop cemetery property, (3) utilizing the forecasted amounts of cash taxes paid in 2016 that relate to normal operating activities, and (4) dividing the result by the reported diluted number of shares outstanding in 2016.

Comparable Preneed Production, which we define as the percentage of growth over prior year in combined total preneed funeral sales production and total preneed cemetery sales production at comparable same-store locations in mixed currency dollars.

 
Return on Equity is calculated as net income divided by average equity. Net income is calculated using normalized net income as defined above in the Normalized Earnings Per Share performance measure. Average equity is defined as the sum of Adjusted Prior Year Equity and Adjusted Current Year Equity divided by two. Adjusted equity excludes other comprehensive income and adjusted current year equity is inclusive of the adjustments defined for Normalized Earnings Per Share, net of tax, minus any estimated amount of share repurchases. In certain future years when applicable, we may not use Return on Equity as a performance metric if certain events happen outside routine business activities.

For 2016, we weighted each of the performance measures at 25%. The Compensation Committee established ranges for performance measures and their related payouts as a percentage of the target award for the performance period from January 1 through December 31, 2016. We calculated awards for performance levels between threshold and target or target and maximum using straight-line interpolation. The 2016 performance targets, SCI’s actual performance, and resulting payout percentages are set forth below.
2016 Performance Targets and Actual Performance
Performance Measure
 
Threshold
for 0%
Payout(1)

 
Target for
100%
Payout

 
Maximum
for 200%
Payout

 
2016 Actual
Performance

 
2016
Performance
as % of Target

 
Payout
Percentage

Normalized Earnings per Share
 
$
1.18

 
$
1.26

 
$
1.34

 
$
1.29

 
103.06
%
 
147.99
%
Normalized Free Cash Flow per Share
 
$
1.52

 
$
1.67

 
$
1.82

 
$
1.69

 
100.93
%
 
110.37
%
Comparable Preneed Production(2)
 
104.00
%
 
106.50
%
 
109.00
%
 
104.84
%
 
98.44
%
 
33.46
%
Return on Equity
 
19.20
%
 
20.70
%
 
22.20
%
 
21.88
%
 
105.67
%
 
178.29
%

(1) Any performance above the threshold results in a payout.
(2) Expressed as a percentage of comparable 2015 performance.
The Compensation Committee believes it is appropriate to exclude certain non-routine items from performance metrics to encourage appropriate decision making regarding operational and capital deployment. For 2016, the Compensation Committee approved the exclusion of certain items related to acquisition and disposition-related charges, system conversions and/or implementation costs, a pension termination settlement, currency losses, losses associated with the early extinguishment of debt, and adjustments to certain acquisition related tax reserves.
 
As a result of the foregoing and giving effect to the weightings as described above, our Named Executive Officers received annual performance-based incentives paid in cash at 117% of their individual incentive targets. The actual dollar amounts of the payouts are set forth in footnote (2) to the Summary Compensation table below. The Company also exceeded the Umbrella Program’s threshold metric regarding total income from continuing operations before income taxes and, consistent with the Umbrella Program, the Compensation Committee reduced

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COMPENSATION DISCUSSION & ANALYSIS


the amounts payable under the Umbrella Plan to the amounts payable under the performance measures as discussed above.
The Compensation Committee established each Named Executive Officer’s target opportunity for 2016 to be consistent with our overall compensation philosophy to align compensation with our performance and to motivate and retain the executive level talent. The target award opportunities were generally positioned within the mid-range of the competitive benchmark market data. If SCI achieves the performance targets established by the
 
Compensation Committee, executive officers would receive incentive awards at this targeted level. Actual incentive awards may be higher or lower than the target levels based on SCI’s performance relative to the performance goals. The range of performance goals establishes a lower threshold to achieve a minimal annual performance-based incentive but with a higher bar to achieve a payout at or near the maximum award of 200% of the targeted incentive levels. The award is based on base salary on the last day of the measurement period.
Long-Term Incentive Compensation
In February of each year, the Compensation Committee approves the long-term incentive award grants for that year. Awards granted in 2016 under our long-term incentive compensation program consisted of three types of awards to provide balance and focus for the Named Executive Officers. Specifically, the awards consist of a mix of stock options, restricted stock, and TSR performance units, which are designed to ensure focus on driving an appropriate culture and healthy operating platform for the Company, managing our on-going risk profile, and implementing strategies to generate superior total long-term shareholder returns. The Compensation Committee considered several factors in determining the total target value of long-term incentive compensation for Named Executive Officers, including Peer Group benchmark pay levels, the individual performance of each executive officer, the job responsibilities of each executive officer, and the overall Company performance in light of
 
the then current economic environment. Once the total target value was established for each executive officer, we calculated and granted to the executive officer (i) the number of stock options which had a value equal to one-third of the total target value, (ii) the number of shares of restricted stock which had a value equal to one-third of the total target value, and (iii) the number of TSR performance units which had a value equal to one-third of the total target value. We believe that the grant of significant annual equity awards further links the interests of senior management and the Company’s shareholders. Therefore, the grant of stock options and the award of restricted stock are important components of annual compensation. Although the Compensation Committee does not consider current stock ownership levels in determining equity awards, we do annually review the ownership levels and progress towards established ownership guidelines, as discussed below.
Stock Options
The purpose of using stock options is to provide executive officers a reward whose value is directly attributable to their ability to increase the value of the business and our stock price. Stock options are granted at an exercise price
 
equal to 100% of the fair market value of SCI common stock on the grant date. Stock options vest at a rate of one-third per year and have an eight-year term.
Restricted Stock
The purpose of using restricted stock with service-based vesting provisions is to assist in retaining our executive officers and encouraging stock ownership. The restricted
 
stock awards are made in February each year at the same time as the stock option grants and vest at a rate of one-third per year.
TSR Performance Units
The TSR performance units are intended to reward executive officers for effective management of the business over a multi-year period. In addition, the TSR performance units allow executive officers to retain or build their SCI stock ownership by providing liquidity that can be applied to taxes associated with option exercises and restricted stock vestings. The Performance Unit Plan measures the three-year total shareholder return (“TSR”) relative to
 
public companies that are a subset of the Peer Group (see Annex B). The subset of the Peer Group is selected based on correlation in size, certain business characteristics, and stock price correlation.
TSR is defined as the percentage computed from $100 invested in SCI common stock on the first day of the performance cycle, with dividends reinvested, compared to

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COMPENSATION DISCUSSION & ANALYSIS


$100 invested in each of the public companies in the Peer Group, with dividend reinvestment during the same period.
The Compensation Committee believes TSR is an appropriate metric because it (i) aligns the interests of management with the interests of shareholders, and (ii) provides a useful means of comparing Company performance relative to the performance of public companies in the Peer Group. Each performance unit has a
 
value of $1.00 and the actual payout may vary by a range of 0% to 200% of each executive’s target award opportunity established by the Compensation Committee. Earned performance unit awards are settled in cash at the end of each three-year performance period. The chart below sets forth the range of payouts as a percent of a target award at various levels of relative TSR performance.
TSR Performance Unit Range of Payouts
 
 
 
 
 
Award Payout Level
  
SCI Weighted Average Total Shareholder
Return Ranking Relative to Comparator
Group at End of Performance Cycle
  
% of Target Award
Paid as Incentive*

Maximum
 
75th Percentile or greater
 
200
%
Target
 
50th Percentile
 
100
%
Threshold
 
25th Percentile
 
25
%
Below Threshold
 
Less than 25th Percentile
 
%
*       
Calculation of awards for performance levels between threshold and target or target and maximum are calculated using straight-line interpolation.
We believe superior relative performance in a down year deserves a reward, but should be limited. Therefore payouts are capped at target if SCI experiences negative TSR for a performance cycle but performs well in relation to the Peer Group.

For the 2014 — 2016 performance cycle, the closing stock price determinations as of December 31, 2013 and December 31, 2016 were used to calculate the awards due participants. For this performance cycle, the participants earned an award of 200% of the target award opportunity
 
based on the Company’s TSR greater than 64% (compared to S&P TSR of 29%) and at the 76th percentile or better ranking relative to the Peer Group used in 2014.
For the 2016 - 2018 performance cycle, the Compensation Committee granted TSR performance units with performance awards ranging from 0% to 200% as set forth below in the “Grants of Plan-Based Awards” table. A target award is earned if SCI’s TSR relative ranking is at the 100th percentile of the TSR of the public companies in the 2016 Peer Group.
Other Compensation
Retirement Plans
We believe that financial security during retirement can be as important as financial security before retirement. We previously maintained a Supplemental Executive Retirement Plan for Senior Officers, which ceased accruing benefits in 2000. In 2005, we implemented an Executive Deferred Compensation Plan, which includes a Company contribution for retirement.
Our Supplemental Executive Retirement Plan for Senior Officers is a non-qualified plan under which our Named Executive Officers accrued benefits until December 31, 2000. No additional benefits have been accrued after 2000. Each participant is entitled at age 60 to the annual payment of the full amount of his benefit.
To help retain and recruit executive level talent, the Company maintains the Executive Deferred Compensation Plan. This plan allows for an annual retirement contribution of 7.5% of eligible compensation and a
 
performance-based contribution targeted at 7.5%, with a range of 0% to 15% based on achievement of Company performance measures established in the first quarter of each year. These are the same performance measures described in the Annual Performance-Based Incentives Paid in Cash above. The percentages are applied to the combined eligible compensation of base salary and annual performance-based incentives paid in cash. The plan allows for individual deferral of base salary, annual performance-based incentives paid in cash, restricted stock awards, and performance unit awards. The plan also allows for the restoration of Company matching contributions that are prohibited in the Company’s 401(k) plan due to tax limits on contributions to qualified plans. In February 2017, the Company made the following contributions under the plan with respect to 2016 service and performance:

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COMPENSATION DISCUSSION & ANALYSIS


Name
 
7.5%
Retirement
Contribution

 
Performance
Contribution

 
Total

Thomas L. Ryan
 
$
216,930

 
$
254,820

 
$
471,750

Michael R. Webb
 
122,359

 
143,731

 
266,090

Eric D. Tanzberger
 
80,034

 
94,013

 
174,047

Sumner J. Waring, III
 
80,034

 
94,013

 
174,047

R.L. Waltrip
 

 

 


We also offer a 401(k) plan to our employees, including our executive officers. In 2000, the Company initiated the 401(k) Retirement Savings Plan for elective contributions by participants and matching contributions by the Company up to prescribed limits established by the Board of Directors and specific IRS limitations. Participants may elect to defer up to 50% of salary and bonus into the Plan
subject to the annual IRS contribution limit of $18,000
 
excluding the $6,000 catch-up contributions for eligible for participants age 50 and older. The Company’s match ranges from 75% to 125% of employee deferrals based on their years of Company service. The match is applied to a maximum of 6% of an officer’s salary and annual performance-based incentive, subject to the IRS compensation limits.
Perquisites and Personal Benefits
We provide various perquisites and personal benefits to our executive officers that the Compensation Committee views as an important component of competitive compensation. These benefits are designed to enhance executive performance by facilitating effective management of personal matters and include:
● Financial and legal planning and tax preparation — provided to officers to encourage critical document preparation and financial planning advice for effective tax and retirement planning.

● Supplemental medical reimbursements — provided to officers and managing directors. The insured benefit product covers out of pocket medical expenses, exclusive of required premium contributions by participants in the Company’s medical and dental plans, and is a valued benefit provided at a modest annual cost per participant.
● Enhanced life insurance — executive life insurance program for officers generally covering approximately 3.5 times the executive’s annual salary and bonus.

 

● Funeral and cemetery benefits — provides funeral/cemetery discounts for Directors and officers and their immediate families, on an atneed or prearranged basis. Under the policy which was amended in February 2015, the Company provides funeral and cemetery merchandise, services, and interment rights at discounts ranging from 25% to 75% of retail prices.

● Security and transportation services — security and transportation services are provided to the Founder and Chairman Emeritus, and security services are provided to the Chairman of the Board and Chief Executive Officer.

● Personal use of Company aircraft — certain senior officers (two of whom are also Directors) are allowed limited use of the Company’s leased aircraft for personal reasons in accordance with the Company’s usage policy approved by the Board of Directors.
Personal benefit amounts are not considered annual salary for bonus purposes, deferred compensation purposes, or 401(k) contribution purposes.



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COMPENSATION DISCUSSION & ANALYSIS


Further Executive Compensation Practices and Policies

Provisions Regarding Claw-Backs
We have provisions for seeking the return (claw-back) from executive officers of cash incentive payments and stock sale proceeds in certain circumstances involving fraud. These provisions are for the following elements of compensation: annual performance-based incentives paid in cash, stock options, restricted stock, and TSR performance units. The provisions would be triggered if the Board of Directors determines that an officer has engaged in fraud that caused, in whole or in part, a material adverse restatement of the Company’s financial statements. In such an event, the Company would seek to recover from the offending officer the following:
● The actual annual performance-based incentive paid in cash to the officer, but only if the original payment would have been lower if it had been based on the restated financial results.
 

● The gains from sales of stock acquired under stock options realized at any time after the filing of the incorrect financial statements. (Any remaining vested and unvested stock options would be cancelled.)

● The gains from sales of restricted stock realized at any time after the filing of the incorrect financial statements. (Any remaining unvested restricted stock would be forfeited.)

● The amount of a performance unit award paid after the ending date of the period covered by the incorrect financial statements. (Any unpaid performance unit award would be forfeited.)
Securities Trading and Investment Policy
The Board of Directors maintains a policy governing Directors and officers with regard to transactions involving the Company’s securities, including purchases and sales of
 
common stock. Among other things, the policy provides guidelines on trading during “trading windows,” confidentiality responsibilities, and reporting obligations.
Stock Ownership Guidelines and Retention Requirements - Officers
We have stock ownership guidelines for officers. Share ownership is generally achieved through open market purchases of SCI stock, shares acquired in the Company sponsored 401(k) plan, vesting of restricted stock, and shares retained after exercise of stock options. The policy requires an officer to retain all SCI stock acquired from grants of restricted stock and stock options (net of acquisition and tax costs and expenses) until that officer has met the ownership guidelines.
For each Named Executive Officer, the stock ownership guideline shall be the amount of SCI shares having a fair market value equal to a multiple of base salary as set forth in the following table. Measurement of stock ownership
 
against the guidelines will be calculated once a year based on valuation of the shares held at year end utilizing the closing price of SCI common stock on the last trading day of the previous year ($28.40 per share at December 30, 2016). A new officer has an initial period of five years to achieve the target ownership level.
The table below sets forth our 2017 current ownership guidelines for our Named Executive Officers and their holdings, excluding stock options, as March 13, 2017(further details are provided in the footnotes to the tables of Director and officer shareholdings listed under the “Voting Securities and Principal Holders”).
Title
  
Required Salary Multiple
Minimum Shares Required
Actual Salary Multiple
Actual Shares Owned
Thomas L. Ryan, Chairman of the Board and Chief Executive Officer
 
6
253,521
38
1,595,309
Michael R. Webb, President and Chief Operating Officer
 
4
105,634
27
723,853
Eric D. Tanzberger, Senior Vice President and Chief Financial Officer
 
3
58,099
10
201,354
Sumner J. Waring, III, Senior Vice President, North American Operations

 
3
58,099
17
333,994
R.L. Waltrip, Founder and Chairman Emeritus
 
3
100,563
52
1,745,059
At March 13, 2017, the Named Executive Officers have exceeded their ownership guideline levels for 2017.

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COMPENSATION DISCUSSION & ANALYSIS


Policies on Hedging and Pledging
In 2013, we established policies to prohibit officers and Directors from hedging or pledging their SCI stock ownership.
Employment Agreements and Termination Payment Arrangements
The Company has employment agreements with Messrs. Thomas L. Ryan, Michael R. Webb, Eric D. Tanzberger, Sumner J. Waring, III, and R.L Waltrip. These agreements have current terms expiring December 31, 2017. Annually, the Company may extend each agreement for an additional year unless notice of nonrenewal is given by either party.
The employment agreements articulate the terms and conditions of the officers’ employment with the Company including termination provisions and noncompetition obligations. Each November, we review the list of, and the terms and conditions of employment for, the Named Executive Officers and other officers with employment agreements in effect and determine whether to extend, modify, or allow the agreements to expire.
Consistent with this review, we amended our executive employment agreements in 2010 to eliminate any obligation to pay tax gross-up in the event of a change of control of the Company. In 2016, we replaced our executive employment agreements with updated terms (see pages 50-51 for more information).
For further discussion of these employment agreements, refer to “Executive Compensation Tables - Executive Employment Agreements” below.
 
Our employment agreements and compensation plans have historically incorporated arrangements for certain payments upon change of control of the Company and for other terminations. We believe that these arrangements have been and are necessary to attract, motivate, reward, and retain the broad-based management talent required to achieve our corporate directives. In the context of a possible acquisition or merger of the Company, we believe that change-in-control provisions (i) help focus our executives on strategic alternatives that would maximize shareholder value, and (ii) provide for personal financial
security, thereby reducing a concern which could be a distraction for the executive. Our change-in-control and other termination payment arrangements do not affect decisions regarding other compensation elements. We structured the terms and payout of our arrangements based upon our historical practice and competitive considerations, including advice from an independent consultant that such features were commonly used by publicly traded companies.

For further discussion of termination arrangements, refer to “Executive Compensation Tables - Potential Payments Upon Termination” below.
Compensation Policies and Practices as They Relate to Risk Management
In February 2016, we reviewed the risks arising from the Company’s compensation policies and practices for its employees and made a determination that such risks are not reasonably likely to have a material adverse effect on the Company. At a meeting held February 9, 2016, the Compensation Committee reviewed and discussed compensation of Company employees, including the total potential maximum impact of the Company’s variable compensation and the safeguards embodied in the compensation plans. The Compensation Committee concluded the compensation plans and compensation metrics do not provide incentives for management to take undue risks. The Compensation Committee reached a consensus to recommend to the Nominating and Corporate Governance Committee of our Board of Directors that it make the determination referenced above. At a meeting also held on February 9, 2016, the Nominating and
 
Corporate Governance Committee considered the above referenced compensation information and the above referenced recommendation of the Compensation Committee. As a result, the Nominating and Corporate Governance Committee made a determination that the risks arising from the Company’s compensation policies and practices for its employees are not reasonably likely to have a material adverse effect on the Company.

In February 2017, we followed the risk assessment process described in the preceding paragraph and again reached a determination that the risks arising from the Company’s compensation policies and practices for its employees are not reasonably likely to have a material adverse effect on the Company.




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COMPENSATION DISCUSSION & ANALYSIS


How We Make Compensation Decisions
Role of the Compensation Committee
The Compensation Committee reviews the executive compensation program of the Company for its adequacy to attract, motivate, reward, and retain well-qualified executive officers who will maximize shareholder returns. The Compensation Committee also reviews the program for its direct and material relation to the short-term and long-term objectives of the Company and its shareholders as well as the operating performance of the Company. To carry out its role, among other things, the Compensation Committee:
● Reviews appropriate criteria for establishing annual performance targets for executive compensation which are complementary to the Company’s long-term strategies for growth;
 
● Determines appropriate levels of executive compensation by annually conducting a thorough competitive evaluation, reviewing proprietary and proxy information, and consulting with and receiving advice from an independent executive compensation consulting firm;
● Ensures that the Company’s executive stock plan, long-term incentive plan, annual incentive compensation plan, and other executive compensation plans are administered in accordance with compensation objectives; and
● Approves all new equity-based compensation programs.
Compensation Committee Interlocks and Insider Participation
Board members who served on the Compensation Committee during 2016 were Alan R. Buckwalter, III, Anthony L. Coelho, John W. Mecom, Jr., Ellen Ochoa, and Marcus A. Watts. No member of the Compensation Committee in 2016 or at present was or is an officer or employee of the Company or any of its subsidiaries, or was
 
formerly an officer of the Company or any of its subsidiaries or had any relationships requiring disclosure by the Company, except that Mr. Buckwalter had a family relationship as disclosed under the section entitled “Certain Transactions”.

Role of Compensation Consultants
Compensation decisions are made by our Compensation Committee, based in part on input from independent consultants. Meridian Compensation Partners, LLC (Meridian) has served as our independent advisor on executive compensation since 2010. Meridian is retained by and reports directly to the Compensation Committee, which has the authority to approve Meridian’s fees and other terms of engagement. Services performed by Meridian for the Compensation Committee during 2016 included preparation of competitive benchmarking reviews
 
regarding the executive and Director compensation, evaluation of proposed compensation programs or changes to existing programs, provision of information on current trends in executive compensation, and updates regarding applicable legislative and governance activity. Annually, the Compensation Committee reviews the fee structure, services, and performance of their independent consultants.
Compensation Benchmarking Tools
In its consideration of 2016 compensation for the Named Executive Officers, the Compensation Committee reviewed a competitive benchmarking study prepared by Meridian. The benchmarking study provided market data for each of the Named Executive Officers, reflecting pay rates for similar positions among a group of general industry companies (the “Peer Group”). The Compensation Committee used the competitive benchmark study as a reference point for assessing the overall competitiveness of our executive compensation program.
At the request of the Compensation Committee, Meridian developed the Peer Group for 2016 by reviewing a
 
diversified group of companies that participated in the Equilar Executive Compensation Survey. The Compensation Committee does not selectively choose individual companies to be part the Peer Group, but rather uses all participants within appropriate size ranges for several financial metrics, including: revenue (median of $3.1 billion), market capitalization (median of $4.7 billion) and enterprise value (median of $6.4 billion). Notably, Stonemor and Carriage Services, two direct industry peers, were not included in our Peer Group as neither company met the financial criteria. The Compensation Committee believes this approach reflects an objective and credible

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COMPENSATION DISCUSSION & ANALYSIS


methodology and results in an effective working range of competitive compensation benchmarks that appropriately considers the overall complexity of SCI’s business model.
For example, the Company sells preneed contracts (approximately $1.6 billion in 2016) that are substantially deferred to our growing backlog that will be recognized as revenue at the time of need when we provide the services and merchandise. These preneed contracts are administered by the Company over long periods of time and the Company oversees the management and administration of approximately $5.7 billion in trust assets and related receivables, the earnings of which are typically deferred under GAAP. In addition, executive management oversees
 
a people-centric business of nearly 23,000 employees, including approximately 4,500 preneed sales personnel whose production does not initially impact revenue under GAAP. The Compensation Committee reviews the methodology and composition of the Peer Group annually and may consider modification to the methodology or source of data, as warranted.
The Peer Group used to inform 2016 pay decisions comprised the 104 companies set forth in Annex B, against which SCI is positioned near the median in terms of revenue, market capitalization, and enterprise value.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.
COMPENSATION COMMITTEE:

alanrbuckwalteriiisignature0.jpg
 
anthonylcoelhosignaturea01.jpg
 
johnwmecomjrsignaturepage43.jpg
Alan R. Buckwalter (Chairman)
 
Anthony L. Coelho
 
John W. Mecom, Jr.
 
 
 
 
 
ellenochocasignaturepage43.jpg
 
marcawattssignaturepage43.jpg
 
 
Ellen Ochoa
 
Marcus A. Watts
 
 
 
 
 
 
 






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EXECUTIVE COMPENSATION TABLES

EXECUTIVE COMPENSATION TABLES
Summary Compensation Table
The following table sets forth information for the three years ended December 31, 2016 with respect to the Chief Executive Officer, the Chief Financial Officer, and the three other most highly compensated executive officers of the Company. The determination as to which executive officers were most highly compensated was made with reference to the amounts required to be disclosed under the “Total” column in the table reduced by the amounts in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column.
Summary Compensation Table
Name and Principal Position
 
Year
 
Salary

 
Restricted
Stock
Awards(1)

 
Option
Awards(1)

 
Non-Equity
Incentive Plan
Compensation(2)

 
Change
in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings(3)

 
All Other
Compensation(4)

 
Total

Thomas L. Ryan
 
2016
 
1,200,000

 
1,688,824

 
1,629,693

 
5,012,396

 
6,728

 
866,121

 
10,403,762

Chairman of the Board &
 
2015
 
1,241,154

 
1,674,400

 
1,600,055