DIRECTOR COMPENSATION FOR FISCAL YEAR
2016
In fiscal year
2016
, the Company’s Director Compensation Policy provided the following elements of compensation to non-employee directors:
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An annual retainer of $100,000 (payable in quarterly installments).
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A grant of a deferred stock award for shares of Class A Common Stock having a value of $150,000 on the date of election or re-election as a director at the Annual Meeting, which award does not become payable until 180 days after the director ceases to serve on the Board. The director may elect, however, to not have the award deferred and instead be distributed on the date of election.
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An additional annual retainer (payable in quarterly installments) for each of the following positions in the amounts shown:
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Lead Independent Director
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$
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25,000
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Chairperson of the Audit Committee
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$
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20,000
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Chairperson of the Compensation and Leadership Development Committee
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$
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15,000
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Chairperson of the Governance and Nominating Committee
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$
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15,000
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Chairperson of the Strategy and Acquisitions Committee
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$
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15,000
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Each non-employee director also had the option to defer any portion of his or her cash retainer (which would be credited with interest semi-annually) or to take Class A Common Stock in lieu of the cash retainer. In fiscal year
2016
, none of our non-employee directors opted to defer any portion of his or her retainer.
The table below summarizes the total compensation earned or paid by the Company to non-employee directors during fiscal year
2016
.
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Name
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Fees
earned
or paid
in
cash ($)
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Stock
awards
($)(1)(2)
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Option awards
($)
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Non-equity
incentive
plan
compensation
($)
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Change in
pension value
and
nonqualified
deferred
compensation
earnings ($)
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All other
compensation
($)
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Total ($)
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Gaurdie E. Banister Jr.
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140,000
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150,000
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0
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0
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0
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0
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290,000
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Mike Beebe (3)
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75,000
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150,000
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0
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0
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0
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0
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225,000
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Mikel A. Durham
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100,000
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150,000
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0
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0
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0
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0
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250,000
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Jim Kever (4)
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50,000
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0
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0
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0
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0
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0
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50,000
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Kevin M. McNamara
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120,000
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150,000
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0
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0
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0
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0
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270,000
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Cheryl S. Miller (5)
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0
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0
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0
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0
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0
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0
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0
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Brad T. Sauer
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115,000
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150,000
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0
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0
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0
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0
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265,000
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Jeffrey K. Schomburger (5)
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0
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0
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0
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0
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0
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0
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0
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Robert Thurber
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115,000
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150,000
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0
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0
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0
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*
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265,196
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Barbara A. Tyson
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100,000
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150,000
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0
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0
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0
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15,550
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(6)
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265,550
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_______________________________
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*
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Indicates value less than $10,000
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(1)
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The amounts in this column represent the grant date fair value of deferred stock awards granted in fiscal year
2016
. The Company has determined the fair value of these awards in accordance with the stock-based compensation accounting rules set forth in Financial Accounting Standards Board Accounting Standards Codification Topic 718. The assumptions used in the calculation of the amounts shown are included in Note 13 to our audited consolidated financial statements, which are included in our Annual Report on Form 10-K for the fiscal year ended
October 1, 2016
. Recipients of these awards are entitled to dividends during the deferral period. These dividends are converted to additional shares and credited to each recipient, who then receives these additional shares upon distribution.
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(2)
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As of the last day of fiscal year
2016
, outstanding deferred stock awards for individuals serving as non-employee directors during fiscal year
2016
were as follows: Mr. Banister (
6,763
); Mr. Beebe (
2,645
); Ms. Durham (
2,645
); Mr. McNamara (
45,149
); Mr. Sauer (
32,607
); Mr. Thurber (
32,797
); and Ms. Tyson (
22,410
).
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(3)
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Mr. Beebe was elected to the Board on December 8, 2015.
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(4)
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Mr. Kever served as a director during fiscal year 2016 until the 2016 annual meeting of shareholders and, accordingly, did not receive any equity-based compensation during fiscal year 2016.
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(5)
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Ms. Miller and Mr. Schomburger were appointed to the Board in fiscal year 2017 and, as such, did not receive any compensation during fiscal year 2016.
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(6)
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This amount represents premiums paid by the Company for a health insurance plan and a medical reimbursement plan.
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RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Company’s Audit Committee has selected PwC to serve as the Company’s independent registered public accounting firm for the fiscal year ending
September 30, 2017
. Shareholders are asked to ratify this selection at the Annual Meeting. Representatives of PwC will be present at the Annual Meeting and will have the opportunity to make a statement and respond to appropriate questions. Even if the selection is ratified, the Audit Committee, in its sole discretion, may change the appointment at any time during the year if it determines that such a change would be in the best interests of the Company and its shareholders.
Audit Fees
The fees for professional services rendered by PwC for the audit of the Company’s annual financial statements for each of the fiscal years ended
October 1, 2016
and
October 3, 2015
, and the reviews of the financial statements included in the Company’s quarterly reports on Form 10-Q and for services that are normally provided by the independent registered public accounting firm in connection with statutory or regulatory filings or engagements for each of those fiscal years were
$5,557,945
and
$5,913,030
, respectively.
Audit-Related Fees
Aggregate fees billed or expected to be billed by PwC for assurance and related services reasonably related to the performance of the audit or review of the Company’s financial statements for the fiscal years ended
October 1, 2016
and
October 3, 2015
, and not included in the audit fees listed above, were
$415,400
and
$202,000
, respectively. For the fiscal year ended
October 1, 2016
, these services comprise engagements to perform audits of employee benefit plans and a due diligence project, and for the fiscal year ended
October 3, 2015
, the services comprise agreements to perform audits of employee benefit plans and required agreed-upon procedures.
Tax Fees
Aggregate fees billed or expected to be billed by PwC for tax compliance, tax advice and tax planning, which included expatriate tax services, federal research and development credit consulting and tax audit assistance, for each of the fiscal years ended
October 1, 2016
and
October 3, 2015
were
$378,491
and
$367,061
, respectively.
All Other Fees
For each of the fiscal years ended
October 1, 2016
and
October 3, 2015
, PwC billed the Company
$3,600
and
$159,600
, respectively, for services rendered, other than those services covered in the sections captioned “Audit Fees,” “Audit-Related Fees” and “Tax Fees.” For the fiscal year ended
October 1, 2016
, these fees were for an on-line research tool for accounting rules and guidance. For the fiscal year ended
October 3, 2015
, these fees were for (i) an on-line research tool for accounting rules and guidance, and (ii) software consulting services for The Hillshire Brands Company, which the Company acquired in August 2014.
None of the services described above were approved pursuant to the
de minimis
exception provided in Rule 2-01(c)(7)(i)(C) of Regulation S-X promulgated by the SEC.
Audit Committee Pre-Approval Policy
The Audit Committee has adopted policies and procedures for the pre-approval of all audit and non-audit services to be performed by the Company’s independent registered public accounting firm. The Audit Committee charter provides that the Audit Committee must approve in advance all audit services to be performed by the independent registered public accounting firm. The Audit Committee has approved a separate written policy for the approval of engagements for non-audit services to be performed by the independent registered public accounting firm. For non-audit services, any person requesting that such services be performed by the independent registered public accounting firm must prepare a written explanation of the project (including the scope, deliverables and expected benefits), the reason for choosing the independent registered public accounting firm over other service providers, the estimated costs, the estimated timing and duration of the project and other pertinent information. Non-audit services must first be pre-approved by each of the Company’s Chief Accounting Officer and Chief Financial Officer before being submitted for pre-approval to the Audit Committee, and then the Audit Committee or a designated member of the Audit Committee must pre-approve the proposed engagement before the engagement can proceed. The requirement for Audit Committee pre-approval of an engagement for non-audit services may be waived only if (i) the aggregate amount of all such non-audit services provided is less than five percent (5%) of the total amount paid by the Company to the independent registered public accounting firm during the fiscal year when the services are provided; (ii) the services were not recognized by the Company at the time of the engagement to be non-audit services; and (iii) the services are promptly brought to the attention of the Audit Committee and approved prior to the completion of the audit of the fiscal year in which the non-audit services were provided.
Board Recommendation
THE AUDIT COMMITTEE AND THE BOARD OF DIRECTORS OF THE COMPANY RECOMMEND THAT SHAREHOLDERS VOTE “
FOR
” RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING
SEPTEMBER 30, 2017
.
PROXIES SOLICITED BY THE BOARD WILL BE VOTED “
FOR
” RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM UNLESS SHAREHOLDERS SPECIFY A CONTRARY VOTE.
Vote Required
Ratification of PwC as the Company’s independent registered public accounting firm for the fiscal year ending
September 30, 2017
requires the affirmative vote of a majority of the votes cast at the Annual Meeting, with the holders of shares of Class A Common Stock and Class B Common Stock voting together as a single class. Ratification of the selection of PwC by shareholders is not required by law. However, as a matter of policy, such selection is being submitted to the shareholders for ratification at the Annual Meeting. If the shareholders fail to ratify the selection of this firm, the Board will reconsider the matter.
NON-BINDING ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICERS COMPENSATION
The Company is offering its shareholders an opportunity to cast a non-binding advisory vote to approve the compensation of the Company’s named executive officers, as disclosed in this proxy statement, pursuant to Section 14A of the Exchange Act (commonly referred to as a “say-on-pay” vote). Although the vote is non-binding, the Company values continuing and constructive feedback from its shareholders on compensation and other important matters. The Board and the Compensation and Leadership Development Committee will consider the voting results when making future compensation decisions.
In deciding how to vote on this proposal, the Company encourages you to review the “Compensation Discussion and Analysis” and “Executive Compensation” sections of this proxy statement for a detailed description of the Company’s executive compensation program. As described in the “Compensation Discussion and Analysis,” the Compensation and Leadership Development Committee has designed the Company’s compensation program to provide a competitive level of compensation deemed necessary to attract, motivate and retain talented and experienced executives and to motivate them to achieve short- and long-term corporate goals that enhance shareholder value. Consistent with this philosophy, the following are the key objectives of the Company’s executive compensation program:
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Shareholder Alignment.
Executive compensation should be appropriately linked with the Company’s financial performance and the creation of shareholder value.
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Attract, Motivate and Retain Key Employees.
Executive compensation should be competitive with the organizations with which the Company competes for talent in order to attract, motivate and retain superior executive talent for the long-term.
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Link Pay to Performance.
As an executive’s responsibility increases, a larger portion of his or her total compensation should be “at-risk” incentive compensation (both short- and long-term), subject to corporate, segment, individual, stock price and/or earnings performance measures.
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The Company asks for your advisory approval of the following resolution:
“RESOLVED, that the shareholders hereby approve, on a non-binding advisory basis, the compensation of the Company’s named executive officers, as described in this proxy statement, pursuant to the compensation disclosure rules of the U.S. Securities and Exchange Commission, which disclosure includes the section entitled ‘Compensation Discussion and Analysis,’ the Summary Compensation Table and the other related disclosure and tables.”
Board Recommendation
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT SHAREHOLDERS VOTE “
FOR
” THE APPROVAL OF THE ADVISORY RESOLUTION RELATING TO THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT.
PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED “
FOR
” THE APPROVAL OF THE ADVISORY RESOLUTION RELATING TO THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT UNLESS SHAREHOLDERS SPECIFY A CONTRARY VOTE.
Vote Required
Approval of the non-binding advisory resolution relating to the compensation of the Company’s named executive officers requires the affirmative vote of a majority of the votes cast at the Annual Meeting with the holders of shares of Class A Common Stock and Class B Common Stock voting together as a single class.
NON-BINDING ADVISORY VOTE TO APPROVE THE FREQUENCY OF THE ADVISORY VOTE REGARDING
NAMED EXECUTIVE OFFICERS COMPENSATION
The Company is offering its shareholders an opportunity to cast an advisory vote on whether a non-binding advisory vote to approve the compensation of the Company’s named executive officers should occur every one, two or three years. Although the vote is non-binding, the Company values continuing and constructive feedback from its shareholders on executive compensation and other important matters. The Board of Directors and the Compensation and Leadership Development Committee will take into consideration the voting results when determining how often a non-binding advisory vote to approve the compensation of the Company’s named executive officers should occur.
The Board has determined that holding a non-binding advisory vote to approve the compensation of the Company’s named executive officers every three years is the best approach for the Company based on a number of considerations. The Board believes that a triennial vote complements the Company’s goal to create a compensation program that enhances long-term shareholder value. As described in the section titled “Compensation Discussion and Analysis,” the Company’s executive compensation program is designed to motivate executives to achieve short- and long-term corporate goals that enhance shareholder value. To facilitate the creation of long-term, sustainable shareholder value, certain of the Company’s compensation awards are contingent upon successful completion of multi-year performance and service periods. A triennial vote will provide shareholders with the ability to evaluate the Company’s compensation program over a time period similar to the periods associated with the Company’s compensation awards, allowing them to compare the Company’s compensation program to the long-term performance of the Company.
The Compensation and Leadership Development Committee would similarly benefit from this longer time period between advisory votes. Three years will give the committee sufficient time to fully analyze the Company’s compensation program (as compared to the Company’s performance over that same period) and to implement necessary changes. In addition, this period will provide the time necessary for implemented changes to take effect and the effectiveness of such changes to be properly assessed. The greater period between votes will also allow the committee to consider various factors that impact the Company’s financial performance, shareholder sentiments and executive pay on a longer-term basis. The Board believes anything less than a triennial vote will yield a short-term mindset and detract from the long-term interests and goals of the Company.
Shareholders are not voting to approve or disapprove of the Board’s recommendation. Instead, the proxy card provides shareholders with four choices with respect to this proposal: (1) 1 year; (2) 2 years; (3) 3 years; or (4) abstaining from voting on the proposal. For the reasons discussed above, the Board is asking the Company’s shareholders to indicate their support for the non-binding advisory vote to approve the compensation of the Company’s named executive officers to be held every three years.
Board Recommendation
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT SHAREHOLDERS VOTE “3 YEARS” AS THE FREQUENCY OF THE NON-BINDING ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICERS COMPENSATION.
PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED “3 YEARS” AS THE FREQUENCY OF THE NON-BINDING ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICERS COMPENSATION UNLESS SHAREHOLDERS SPECIFY A CONTRARY VOTE.
Vote Required
Generally, approval of any matter presented to shareholders requires a majority of the votes cast, with the holders of shares of Class A Common Stock and Class B Common Stock voting together as a single class. However, because this is a non-binding advisory vote, if none of the frequency options receive a majority of the votes cast, the option receiving the greatest number of votes will be considered the frequency recommended by the Company’s shareholders.
SHAREHOLDER PROPOSALS
The Company has received notice of the intention of shareholders to present five separate proposals for voting at the Annual Meeting. The texts of the shareholder proposals and supporting statements appear exactly as received by the Company. All statements contained in a shareholder proposal and supporting statement are the sole responsibility of the proponents of those shareholder proposals. The Company will provide the names, addresses and shareholdings (to the Company’s knowledge) of the proponents of any shareholder proposal upon request made to the Company’s corporate secretary by mail at 2200 West Don Tyson Parkway, Mail Stop CP004, Springdale, Arkansas 72762-6999, or by calling (479) 290-4524.
SHAREHOLDER PROPOSAL TO REQUEST A REPORT DISCLOSING THE COMPANY’S POLICY AND PROCEDURES, EXPENDITURES AND OTHER ACTIVITIES RELATED TO LOBBYING AND GRASSROOTS LOBBYING COMMUNICATIONS
Whereas,
we believe in full disclosure of our company's direct and indirect lobbying activities and expenditures to assess whether Tyson's lobbying is consistent with Tyson's expressed goals and in the best interest of shareowners.
Resolved,
the shareowners of Tyson Foods ("Tyson"), request preparation of a report, updated annually, disclosing the following:
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1.
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Company policy and procedures governing lobbying, both direct and indirect, and grassroots lobbying communications;
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2.
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Payments by Tyson used for (a) direct or indirect lobbying or (b) grassroots lobbying communications, in each case including amount of payment and recipient;
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3.
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Tyson's membership in and payments to any tax-exempt organization that writes and endorses model legislation;
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4.
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Description of decision-making process and oversight by management and Board for making payments described in sections 2 and 3 above.
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For purposes of this proposal, a "grassroots lobbying communication" is a communication directed to the general public that (a) refers to specific legislation or regulation, (b) reflects a view on the legislation or regulation, and (c) encourages recipient of the communication to take action with respect to the legislation or regulation. "Indirect lobbying" is lobbying engaged in by a trade association or other organization of which Tyson is a member.
Both "direct and indirect lobbying" and "grassroots lobbying communications" include efforts at local, state and federal levels.
The report shall be presented to the Audit Committee or other relevant oversight committees and posted on Tyson's website.
Supporting Statement:
As shareowners, we encourage transparency and accountability in the use of corporate funds to influence legislation and regulation both directly and indirectly. Tyson spent over $5.6 million from 2012-2015 on direct federal lobbying activities (Senate reports). These figures do not include lobbying expenditures to influence legislation in states where Tyson also lobbies but disclosure is uneven or absent. Tyson has drawn attention for its lobbying at the federal level ("This Is Why You Crave Beef: Inside Secrets of Big Meat's Billion-dollar Ad and Lobbying Campaigns,"
Salon,
April 3, 2016), as well as its state lobbying on workers' compensation ("Tyson Foods' Secret Recipe for Carving Up Workers' Comp,"
ProPublica,
December 11, 2015).
Tyson serves on boards of the North American Meat Institute and the National Chicken Council. Tyson is also a member of the Grocery Manufacturers Association, which spent over $13 million on lobbying for 2014 and 2015. Tyson does not disclose trade association memberships, nor payments and the portions used for lobbying on its website. Absent a system of accountability, company assets could be used for objectives contrary to Tyson's long-term interests. For example, Tyson partners to fight childhood obesity but the Grocery Manufacturers Association has reportedly worked to undermine anti-obesity efforts ("Food Lobby Creates Stealth Campaign to Attack Anti Obesity Film,"
Huffington Post,
May 10, 2014).
Transparent reporting would reveal whether company assets are deployed for objectives contrary to Tyson's long-term interests. We encourage our Board to require comprehensive disclosure related to direct, indirect and grassroots lobbying.
Board of Directors’ Statement In Opposition to Shareholder Proposal to Request a Report Disclosing the Company’s Policy And Procedures, Expenditures, and Other Activities Related to Lobbying and Grassroots Lobbying Communications
The Board recommends that shareholders vote AGAINST this shareholder proposal. The Board believes that this proposal is not in the best interests of the Company or its shareholders and opposes it for the following reasons.
As an initial matter, we note that the proposal overstates the actual amount the Company paid for certain lobbying activities. The focus of the proposal appears to be on ensuring the transparency and accountability of the Company’s lobbying and political activities. The Company has from time to time pursued and will continue to pursue efforts to help inform public policy decisions at both the state and federal levels that have the potential to affect our customers, Team Members, and the communities in which we operate. We believe, however, that the Company already has in place a number of policies and processes that ensure the transparency and accountability sought by the proposal. Our Code of Conduct requires us to adhere to strict laws governing corporate political activities, lobbying, and contributions that vary around the globe. For this reason, we have specific individuals with the responsibility of engaging in efforts to discuss legislation or government policy with political officials. The Code of Conduct is publicly available to all shareholders on our website at www.tysonfoods.com. We also disclose to the U.S. House and Senate corporate expenditures paid to trade associations that are involved with advocacy efforts, and our reports are publicly available at:
http://www.senate.gov/legislative/Public_Disclosure/LDA_reports.htm
; and
http://lobbyingdisclosure.house.gov
.
In addition, the Company has a Charitable Donation and Political Contribution Policy that ensures that any charitable donation or political contribution made by the Company complies with relevant laws. Any political contributions made by the Company will be made and reported in accordance with all applicable federal, state, and local laws. All political contributions from the Company must be made through the Company’s Corporate Affairs department and must be approved by an officer in such department.
The Company also has a political action committee (“TYPAC”) that is a multicandidate committee. TYPAC is required to comply with all laws and files mandatory disclosures of receipts and disbursements with the Federal Election Commission, which are available at
http://fec.gov/
. Certain of the Company’s executive officers and Treasury Team Members are the officers of TYPAC, and contributors are salaried management Team Members. The Company’s vice president of government relations makes disbursement requests that the executive vice president of corporate affairs must approve. The Company’s Treasury department manages the bank account, makes deposits, writes disbursement checks, and files compliance reporting with the FEC, and the Company’s Accounting department reconciles the bank statements to the account ledger quarterly.
The proposal also highlights a particular concern regarding the transparency of trade associations to which the Company may belong. Participation as a member of these associations comes with the understanding that we may not always agree with all of the positions of the organizations or other members, but that we believe that the associations take many positions and address many issues in a meaningful and influential manner and in a way that will be to the Company’s benefit. Furthermore, we continually evaluate our support of office-holders, industry groups, and other associations to focus on key supporters of initiatives of value to the interests of the Company and its shareholders. As noted, we have in place effective reporting and compliance procedures to ensure that our contributions are made in accordance with applicable law, and we closely monitor the appropriateness and effectiveness of the political activities undertaken by the most significant trade associations of which we are a member. And, as discussed above, the Company is required to, and does, make certain disclosures at the federal level related to federal political activity, specifically lobbying.
We believe that participating in the political process in a transparent manner is key to good governance and an important way to enhance shareholder value and promote healthy corporate citizenship. However, given the existing system of reporting and accountability already in place for the Company, the proposal would require the Company to produce duplicative information that we already disclose, incurring additional expense with no added benefit to shareholders. If adopted, because the proposal would apply only to Tyson and to no other company in its industry, it could also result in a competitive disadvantage for the Company.
For the reasons stated above, the Board recommends a vote AGAINST this proposal.
Board Recommendation
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE SHAREHOLDERS VOTE “
AGAINST
” THIS SHAREHOLDER PROPOSAL.
PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED
“
AGAINST
” THIS SHAREHOLDER PROPOSAL UNLESS SHAREHOLDERS SPECIFY
A CONTRARY VOTE.
Vote Required
Approval of this shareholder proposal requires the affirmative vote of a majority of the votes cast at the Annual Meeting, with the holders of shares of Class A Common Stock and Class B Common Stock voting together as a single class.
SHAREHOLDER PROPOSAL TO REQUEST A REPORT ON STEPS THE COMPANY IS TAKING TO FOSTER GREATER DIVERSITY ON THE BOARD OF DIRECTORS
SHAREHOLDER PROPOSAL REGARDING BOARD DIVERSITY
RESOLVED:
Shareholders request that the Board of Directors prepare a report by April 1, 2018, at reasonable expense and omitting proprietary information and other information protected by privacy and other laws, on steps Tyson is taking to foster greater diversity on the Board over time, including but not limited to, the following:
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1.
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The inclusion of women and minority candidates in every pool from which Board nominees are chosen and Tyson's plans to advance Board diversity; and
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2.
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An assessment of challenges experienced and progress achieved.
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SUPPORTING STATEMENT:
Research has confirmed the business case for board diversity, linking it to better stock market and financial performance. As it relates to the American poultry industry, board diversity also has the potential to foster sustainable improvements in the health and welfare of workers. Board diversity brings a stronger mix of leadership skills, improved understanding of consumer preferences, reduced reputational harm associated with workplace discrimination, a larger candidate pool from which to pick top talent, and more attention to risk. Not surprisingly, nine out of ten investors believe boards should revisit their director diversity policies, according to a 2014 survey by PriceWaterhouseCoopers.
American poultry workers routinely face substandard working conditions and either cannot or do not know how to stand up for their human rights. Research demonstrates that poultry workers suffer elevated rates of injury and illness and face obstacles to reporting poor working conditions. While Tyson has publicly stated robust policies about working conditions, recent news reports and OSHA investigations have identified a substantial gap between these policies and actual conditions inside plants.
Nearly two-thirds of Tyson's workforce is comprised of people of color, a statistic that Tyson is, and should be, proud of. Yet, only one person of color currently sits on Tyson’s Board. Similarly, the number of women on Tyson's Board (two out of nine) lags behind the proportion of women in its workforce (39%). Tyson has a moral and legal obligation to ensure the health and safety of its workers. A Board that better represents the gender and racial diversity of the workforce would go a long way towards identifying problems in working conditions and narrowing the gap between policy and reality.
While Tyson has laudably committed itself to promoting diversity among its Team Members and suppliers, its efforts can, and should, go further. Diversity should be emphasized and promoted at all levels, including, most importantly, in its Board, which is responsible for setting policies and objectives in an increasingly dynamic, multi-cultural and interconnected world. As a company that employs over 115,000 Team Members and provides products in 130 countries, Tyson has an obligation to its shareholders to ensure that its corporate governance principles appropriately take diversity into account.
Board of Directors’ Statement In Opposition to
Shareholder Proposal
to Request a Report on Steps the Company is Taking to Foster Greater Diversity on the Board of Directors
The Board recommends that shareholders vote AGAINST this shareholder proposal. The Board believes that this proposal is not in the best interests of the Company or its shareholders and opposes it for the following reasons.
As the proponent indicates, we are committed to diversity among our Team Members and suppliers. Inclusion and diversity are cornerstones that have supported the growth of our business throughout our history, especially in the past few decades. The Board believes that it takes the thoughts, backgrounds, and talents of all of our 114,000 Team Members to make Tyson Foods successful. Our Business Resource Groups, Talent Pipeline Management Process, and other key initiatives grew from the work and ideas of our inclusion and diversity programs.
Likewise, our Governance and Nominating Committee of the Board is committed to identifying director nominees of diverse thought, background and talents. While there are no specific minimum qualifications that a potential nominee must possess, nominees are selected for, among other things, their integrity, independence, diversity of experience, business or other relevant experience or expertise, proven leadership skills, their ability to exercise sound judgment, understanding of the Company’s business environment, and willingness to devote adequate time and effort to Board responsibilities. Gender and minority status are two of the variety of factors (some of which are described above) that the Governance and Nominating Committee have traditionally considered, and continue to consider, in connection with potential director nominees. We also participate in various activities that provide exposure to diverse corporate director associations.
While the Board acknowledges the benefits of broad diversity throughout the Company, including at the level of the Board, the proposal would inadvertently limit the Governance and Nominating Committee’s ability to select the most suitable and qualified candidates for membership on the Board and impose inefficiencies in the selection of director nominees that would not necessarily benefit the Board or our Team Members. For these reasons, the Board recommends you vote against this proposal.
For the reasons stated above, the Board recommends that shareholders vote AGAINST this shareholder proposal.
Board Recommendation
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE SHAREHOLDERS VOTE “
AGAINST
” THIS SHAREHOLDER PROPOSAL.
PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED
“
AGAINST
” THIS SHAREHOLDER PROPOSAL UNLESS SHAREHOLDERS SPECIFY
A CONTRARY VOTE.
Vote Required
Approval of this shareholder proposal requires the affirmative vote of a majority of the votes cast at the Annual Meeting, with the holders of shares of Class A Common Stock and Class B Common Stock voting together as a single class.
SHAREHOLDER PROPOSAL TO AMEND THE COMPANY’S BYLAWS TO IMPLEMENT PROXY ACCESS
RESOLVED: Shareholders of Tyson Foods, Inc. ("Tyson") ask the board of directors (“Board") to adopt, and present for shareholder approval, a "proxy access" bylaw. The bylaw should require Tyson to include in proxy materials prepared for a shareholder meeting at which directors are to be elected the name, Disclosure and Statement (defined below) of any person nominated for election to the board by a shareholder or group ("Nominator") satisfying the criteria below. It should also allow shareholders to vote on such nominee on Tyson's proxy card.
The number of shareholder-nominated candidates appearing in proxy materials should not exceed one quarter of the directors then comprising the Board. This bylaw, which would supplement existing rights, should provide that a Nominator must:
a)
have beneficially owned 3% or more of Tyson's outstanding common stock continuously for at least three years;
b)
give Tyson, within the time period identified in its bylaws, written notice of the information required by the bylaws and any SEC rules about (i) the nominee, including consent to being named in the proxy materials and to serving as director if elected; and (ii) the Nominator, including proof it owns the required shares (information required by this subsection (b) is the "Disclosure"); and
c)
certify that (i) it will assume liability stemming from any legal or regulatory violation arising out of the Nominator's communications with Tyson shareholders, including the Disclosure and Statement; (ii) it will comply with all applicable laws and regulations if it uses soliciting material other than Tyson's proxy materials; and (c) to the best of its knowledge, the required shares were acquired in the ordinary course of business and not to change or influence control at Tyson.
The Nominator may submit a statement not exceeding 500 words in support of each nominee (the "Statement"). The Board shall adopt procedures for promptly resolving disputes over whether notice of a nomination was timely, whether the Disclosure and Statement satisfy the bylaw and applicable rules, and the priority to be given when nominations exceed the one-quarter limit.
Supporting Statement
We believe proxy access is a fundamental shareholder right that will make directors more accountable and enhance shareholder value. A 2014 study by the CFA Institute concluded that proxy access:
•
Would "benefit both the markets and corporate boardrooms, with little cost or disruption"
•
Has the potential to raise overall US market capitalization by up to $140.3 billion if adopted market-wide.
(http://www.cfapubs.org/doi/pdf/10.2469/ccb.v2014.n9.1)
The proposed bylaw terms enjoy strong investor support. Votes on proxy access proposals averaged approximately 55% in 2015, as of July 26 (http://corpgov.law. harvard.edu/2015/08/10/proxy-access-proposals/)--and similar bylaws have been adopted by companies of various sizes across industries, including Chesapeake Energy, Hewlett Packard, Western Union and Verizon. The Council of Institutional Investors recently issued best practices for proxy access endorsing the 3% ownership threshold (with no limit on the number of nominating shareholders in a group) we propose. (CII, "Proxy Access: Best Practices," at 3 (Aug. 2015))
The Board recommends that shareholders vote AGAINST this shareholder proposal. The Board believes that this proposal is not in the best interests of the Company or its shareholders and opposes it for the following reasons.
The Board recognizes that the ability to elect directors is an important shareholder right. This recognition has led the Board and the Company to adopt corporate governance practices and policies to empower this right. The Board is also aware of past rulemaking attempts by the Securities and Exchange Commission to further enhance this right. In light of these circumstances, the Board believes that adoption of this proposal is unnecessary and not in the best interests of our long-term shareholders. The Board recommends that you vote against this proposal.
As stated, we have adopted numerous corporate governance practices and policies that reinforce the Board’s accountability to shareholders. Examples include:
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Annual elections for all directors
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No supermajority voting provisions
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Under existing SEC rules and state law, shareholders already have the power to directly nominate and solicit proxies for their own director candidates at shareholder meetings without having to navigate any additional ownership thresholds or satisfy various holding requirements
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The Board has appointed an independent lead director
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The Board annually evaluates its performance through formal Board and committee evaluation processes
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Our independent directors’ compensation consists primarily of deferred stock-based compensation, thereby aligning directors’ long-term interests with long-term shareholder interests
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Shareholders may call special meetings at which they can nominate director candidates or propose other business
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Shareholders may submit names of potential director candidates directly to the Board for consideration
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In addition to regular shareholder engagement processes, shareholders are able to directly communicate with the Board
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In addition to the open director nomination process accessible to all shareholders as described above, our Governance and Nominating Committee regularly reviews director candidates that it believes will respond to shareholders’ interests and possess the industry and leadership skills needed to represent all shareholders and guide our Company’s continued success. Even as a controlled company under New York Stock Exchange rules, the Board composition is over 75% independent, with a diverse mix of background, tenure and industry expertise.
Given that our shareholders have by large majorities supported directors nominated by our Board and not nominated opposing candidates who stood for election, and shareholders have straightforward means of nominating directors to the Board, this proposal appears to not benefit our shareholders in any meaningful way. Notwithstanding, the Board will continue to monitor developments on proxy access and engage with shareholders where appropriate.
For the reasons stated above, the Board recommends that shareholders vote AGAINST this shareholder proposal.
Board Recommendation
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE SHAREHOLDERS VOTE “
AGAINST
” THIS SHAREHOLDER PROPOSAL.
PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED
“
AGAINST
” THIS SHAREHOLDER PROPOSAL UNLESS SHAREHOLDERS SPECIFY
A CONTRARY VOTE.
Vote Required
Approval of this shareholder proposal requires the affirmative vote of a majority of the votes cast at the Annual Meeting, with the holders of shares of Class A Common Stock and Class B Common Stock voting together as a single class.
SHAREHOLDER PROPOSAL TO ADOPT AND IMPLEMENT A WATER STEWARDSHIP POLICY AT COMPANY AND SUPPLIER FACILITIES
Policy
to
Address Water
Impacts
of Business Operations and Suppliers 2017
Tyson
Foods
is exposed to regulatory, reputational, and financial risk associated with water pollution from animal feed and byproducts
through
its direct operations, contract farms, and feed suppliers.
The cultivation of feed ingredients for average weekly production of 35,529,000
livestock
requires fertilizer inputs that can contribute to nutrient pollution if improperly managed. Animal waste from direct operations
and
over
11,000
independent or contract farmers may contain nutrients, antibiotic-resistant bacteria and pathogens, and pharmaceutical residue. These contaminants and poor
manure
disposal practices can contaminate local waterways, endangering the environment, workers, and public
health (including
contributing to "blue baby syndrome" and cancer).
The UN Human Right to Water ensures the right to sufficient, safe, acceptable and physically accessible
and
affordable water for personal and domestic uses. Contamination of water sources from Tyson operations and contract farms would interfere with this
right.
UN Sustainable Development Goal 6 includes a commitment to
improve
water quality by
reducing
pollution and
minimizing release
of hazardous chemicals.
Many of Tyson's 83 processing plants release huge volumes of toxic substances into waterways. In 2014, Tyson
discharged
over 20
million pounds
of
permitted toxic pollutants to
waterways.
1
In
2015, Tyson paid a $540,000
judgment in
Missouri
after
a wastewater discharge caused a
major
"fish
kill."
Tyson
faces
ongoing federal criminal
investigation
by
the
U.S. EPA
into this incident which
could cost
Tyson up to
$500
million
annually if government contracts
are
suspended.
In
2015, Tyson reported
117
wastewater permit exceedances, 29
notices
of violation, and
11
chemical
releases,
2
representing
potential financial
or
legal liabilities.
There
is a growing
trend toward increased
state
regulation
and oversight of animal production and water stewardship, including in Iowa, Washington, Wisconsin, Maryland,
and
Virginia,
with
tightened
requirements
related
to manure
disposal,
field
application of
manure,
and groundwater
monitoring.
Wal-Mart,
Tyson's largest
customer with
16.8%
of 2015 sales,
uses a
Sustainability
Index to assess
suppliers,
which
includes Key Performance
Indicators
on water,
manure management, nutrient management, and
fertilizer
use.
3
Tyson
competitor Perdue
has launched a large
-sca
le
poultry
litter recycling
operation
to
prevent
nutrient
pollution.
Tyson's
policies, contracts,
and
codes do not address water
quality.
Tyson's disclosure on
water quality
does
not include its supply
chain and contract
farms.
Shareholders cannot
assess performance due to lack
of
metrics,
goals, or information about
management
of contamination
risks
.
Resolved:
Shareholders
request the Board
of Directors adopt
and implement a
water stewardship policy designed
to reduce risks
of water contamination at:
Tyson-owned facilities;
facilities
under
contract
to Tyson;
and T
yson's
suppliers.
_______________________________
1
Environment America,
http ://www.environmentamerica.org/news/ame/report-tyson-l-water-polluter-among-agribusinesses
2
http://www.tysonsustainability.com/environment#Water
3
http://www.walmartsustainabilityhub.com/app/answers/detail/aid/242; https://www.sustainabilityconsortium.org/product-categories/
The Board recommends that shareholders vote AGAINST this shareholder proposal. The Board believes that this proposal is not in the best interests of the Company or its shareholders and opposes it for the following reasons.
Our Core Values - which define who we are, what we do, and how we do it - are the foundation of corporate sustainability at Tyson Foods and recognize that we serve as stewards of the animals, land, and environment entrusted to us. The Board agrees with the proponent on the importance of water stewardship, and the Company has implemented a wide range of initiatives to reduce risks of water contamination. The Board believes the Company’s present policies and procedures appropriately and adequately address the concerns raised in the proposal and the adoption of another policy is unnecessary and duplicative.
As part of our commitment to the environment, our operations have implemented practices relating to nutrient management and limits on pollution. During fiscal year 2016, we operated 35 full-treatment and 52 pretreatment wastewater facilities in North America. These facilities are operated in accordance with site-specific permit requirements which are established by the local authorities governing these operations. On a monthly basis, these facilities submit water quality data via their Discharge Monitoring Reports to their respective governing authority. Our goal for these facilities is to eliminate Notices of Violations and permit exceedances.
We depend on independent farmers to supply our plants with chicken, beef, and pork. As of October 1, 2016, we contracted with over 3600 independent poultry producers who operate more than 4800 farms and bought cattle and hogs from approximately 7,000 independent producers. We strive to support farmers in their efforts to run their businesses wisely and to be independent and sustainable enterprises. While we do not have responsibility for the day-to-day management of these operations, we do require that farmers comply with all local, state, and federal regulations applicable to their operations, which would include nutrient management requirements.
In fiscal year 2016, we set a goal to reduce water usage by 12% in our direct operations by 2020 and began installing new equipment at domestic facilities to measure and continuously monitor water usage.
We have already established transparent mechanisms to regularly disclose the progress of our water stewardship efforts and have reported water usage as part of our sustainability report since 2005. Furthermore, we recently reported our water management and performance efforts to CDP, formerly the Carbon Disclosure Project, via the 2016 CDP Water Questionnaire.
We have developed robust systems to support our water preservation goals. We have implemented an environmental management system (EMS) at each of our facilities in the United States. Modeled after the International Organization for Standardization 14001 criteria, our first EMS was implemented in 2004 followed by the remainder of our locations in 2009. We are now working to implement it in our Hillshire Brands operations. Our EMS is designed to support achievement of our environmental sustainability goals and to drive year-over-year continual improvement in environmental compliance. Additionally, in fiscal year 2013, we formed a Water Council to ensure we have a comprehensive approach to sustainable water use. The goal of the Council is to understand the current landscape for water management in the world, how it relates to our global operations, and to create both short- and long-term plans for water management across our Company. Since the creation of the Council, we have completed a Stage Two Geographic Water Risk Assessment for all of our U.S. operations and conducted a review of U.S. water usage, infrastructure, conservation practices, and scarcity risks.
We have been active in the development of life cycle assessments (LCAs) for the production chain. For instance, we are involved in the National Pork Board’s water, air, land, and carbon footprint assessment. Additionally, we worked with the United Nations’ Food and Agriculture Organization Technical Advisory Group in the harmonization of LCA standards for poultry production, and we have partnered with U.S. Poultry and Egg and other poultry integrators to define sustainable poultry production for our U.S. operations. We are also a founding member of the U.S. Roundtable for Sustainable Beef, a multi-stakeholder initiative developed to advance continuous improvement in the environmental, social, and economic sustainability of the beef value chain.
In 2010, we implemented a Supplier Code of Conduct that sets forth the principles and high ethical standards that we strive to achieve and expect our supply partners to try to work toward throughout the course of our business relationship. These principles and ethical standards include, among other things, a dedication to protection of the environment and a commitment to sustainable business practices. We expect our supply partners to operate in a manner that strives to manage responsibly the impacts of their operations on the environment.
Nothing is more important to our business than maintaining the confidence customers and consumers have in our products. As such, we are committed to ensuring the wholesomeness and safety of our food products. Water is an essential component of our food safety and quality processes, and we take actions to protect and preserve water quality, particularly in and around our facilities. In light of current policies and continuous efforts with respect to water conservation and quality, the Board believes the Company is addressing the concerns raised in the proposal. Accordingly, the Board recommends that shareholders vote AGAINST this shareholder proposal.
For the reasons stated above, the Board recommends that shareholders vote AGAINST this shareholder proposal.
Board Recommendation
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE SHAREHOLDERS VOTE “
AGAINST
” THIS SHAREHOLDER PROPOSAL.
PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED
“
AGAINST
” THIS SHAREHOLDER PROPOSAL UNLESS SHAREHOLDERS SPECIFY
A CONTRARY VOTE.
Vote Required
Approval of this shareholder proposal requires the affirmative vote of a majority of the votes cast at the Annual Meeting, with the holders of shares of Class A Common Stock and Class B Common Stock voting together as a single class.
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
This Compensation Discussion and Analysis provides information regarding the compensation paid to our Chairman, Chief Executive Officer, Chief Financial Officer and certain other executive officers who were the most highly compensated in fiscal year
2016
. These individuals, referred to as “named executive officers” or “NEOs,” are identified below along with their offices held during fiscal year
2016
:
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John Tyson, Chairman of the Board (“Chairman”)
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Donnie Smith, President and Chief Executive Officer (“CEO”)
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Dennis Leatherby, Executive Vice President and Chief Financial Officer (“CFO”)
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Donnie King, President North American Operations
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Noel White, President Poultry
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During fiscal year 2016, the Company began its transition and succession process for its President and Chief Executive Officer. The Board chose to implement the succession in a two-step process in order to provide for an orderly and effective transition of duties. In June 2016, the Board appointed Tom Hayes to the position of President as part of the first step of this process. Formerly the Chief Commercial Officer, Mr. Hayes succeeded Mr. Smith in the role of President. Mr. Hayes worked directly with Mr. Smith who continued in his role as the Chief Executive Officer of the Company. In November 2016, the Board announced the second step in the transition process. Effective December 31, 2016, Mr. Hayes will become President and Chief Executive Officer.
In connection with Mr. Smith’s departure and the Company’s desire to retain his consulting services, the Company and Mr. Smith entered into a transition, non-compete and consulting agreement, in which Mr. Smith agreed to an expanded non-competition agreement which extends the duration of his existing non-competition agreement and a non-solicitation restriction, and the Company agreed to provide severance payments, consulting fees and additional vesting of some of Mr. Smith’s prior equity grants.
Although Mr. Hayes was not an NEO during fiscal year 2016, this Compensation Discussion and Analysis also provides, on an informational basis only, details of compensation paid to Mr. Hayes during fiscal year 2016.
Compensation Philosophy and Objectives
Our executive compensation program is designed to provide a competitive level of compensation necessary to attract, motivate and retain talented and experienced executives and to motivate them to achieve short- and long-term corporate goals that enhance shareholder value. Consistent with this philosophy, the following are the key objectives of our executive compensation programs.
Shareholder Alignment.
One of the primary objectives of our executive compensation philosophy is to appropriately link executive pay with the Company’s financial performance and the creation of shareholder value. We believe that linking executive compensation to corporate performance results in a better alignment of compensation with corporate goals and shareholder interests.
Attract, Motivate and Retain Key Employees.
Our executive compensation program is shaped by the competitive market for management talent in the food industry and at other public and private companies. We believe our executive compensation should be competitive with the organizations with which we compete for talent. As such, it is our goal to provide compensation at levels (both in terms of benefits provided and amounts paid) that attracts, motivates and retains superior executive talent for the long-term.
Link Pay to Performance.
We believe that as an executive’s responsibility increases, a larger portion of his or her total compensation should be “at-risk” incentive compensation (both short-term and long-term), subject to corporate, segment, individual, stock price and/or earnings performance measures. Our compensation program is designed to link pay to performance by making a substantial portion of total executive compensation variable, or “at-risk,” through incentive awards based on Company earnings and performance goals. As performance goals are met or exceeded, executives are rewarded commensurately.
How We Determine Compensation
Role of the Compensation and Leadership Development Committee.
In general, the Compensation and Leadership Development Committee (the “Compensation Committee”) works with management to set the Company’s executive compensation philosophy and objectives and to compensate key executives in accordance with such philosophy and objectives. More specifically, the Compensation Committee periodically reviews and approves the Company’s stated compensation philosophy, corporate goals and objectives relevant to management compensation and total compensation policy to evaluate whether they support business objectives, create shareholder value, are consistent with shareholder interests, attract, motivate and retain key executive talent and link compensation to corporate performance. The Compensation Committee also annually reviews the composition of the peer groups used for competitive pay/
performance benchmarking. Periodically the Compensation Committee compares total compensation for the Chairman and the CEO and the Company’s band level structure to the relevant external benchmarks. A discussion of the peer group and external benchmarks used in establishing compensation is set forth below under the heading “Role of Compensation Consultants/Benchmarking.” The Compensation Committee’s charter describes additional duties and responsibilities of the Compensation Committee with respect to the administration, oversight and determination of executive compensation. A copy of the Compensation Committee’s charter can be found on the Company’s Investor Relations website at
http://ir.tyson.com
.
The Compensation Committee works with the intention that its decisions will be consistent with tax regulations, relevant law and NYSE listing requirements while also ensuring that compensation matters are handled in a manner satisfactory to the Company’s principal shareholder. Because the Company meets the definition of a “controlled company” under NYSE corporate governance rules, the Compensation Committee is not required to determine the compensation of our CEO in its sole discretion. However, the Compensation Committee has approved the employment contracts and total compensation for our CEO since 2003.
The Compensation Committee is expressly authorized in its charter to retain outside legal, accounting or other advisors or experts at the Company’s expense. For fiscal year
2016
compensation decisions, the Compensation Committee used general industry and peer group information provided to the Company by Hay Group and retained FW Cook for compensation information in connection with Mr. Smith’s and Mr. Hayes’ management transition.
Say on Pay.
Approximately 99% of the votes cast at the 2014 Annual Meeting of Shareholders on the non-binding advisory vote on our named executive officer compensation were voted in support of our executive compensation program. Consistent with our shareholders’ approval, the Compensation Committee continued to apply the same effective principles and philosophy it has used in prior years to determine executive compensation and will continue to consider shareholder concerns and feedback in the future.
Band Structure.
Except for Messrs. Tyson and Smith, our executive officers and key employees are compensated based on the Company’s band structure. Our band structure has ten levels, each of which sets forth target amounts for base salary, annual cash performance incentive payments, equity grants and eligibility standards for participation in the Tyson Foods, Inc. Supplemental Executive Retirement and Life Insurance Premium Plan (“SERP”). Actual amounts can be adjusted above or below such targets based on an individual’s responsibility and performance or as a means to align an individual’s total direct compensation with a targeted percentile of a comparison group as determined on a case-by-case basis by such individual’s supervisor. An executive officer’s band level designation is made by the CEO subject to Compensation Committee approvals, including those deemed necessary for Section 162(m). The designation is based on the individual’s level of responsibility and ability to affect shareholder value relative to other executive officers and key employees.
Our band structure was initially established in 2004 by our human resources group and senior management based on their collective review of recommendations provided by the Company’s compensation consultant at the time (Hay Group) together with market analysis and data of executive compensation trends of public and private companies in general (“General Industry Data”). The General Industry Data comprises compensation information from hundreds of companies and is provided by Hay Group. The General Industry Data, as updated from time to time, is used as the benchmark for the Company’s band structure because the Compensation Committee believes it serves as a stable representation of national pay levels. The Compensation Committee and the Company’s human resources group periodically review the band structure and updated market analysis (including the compensation practices of the Compensation Peer Group, discussed below) with senior management and suggest modifications as they deem necessary to ensure that our executive officers and key employees are generally compensated in accordance with our compensation philosophies and objectives. For more detailed discussion regarding decisions with respect to each element and amount of compensation provided for in the band structure, see the section below titled “Elements of Compensation.”
Interaction Between the Compensation Committee and Management.
Band level designations for all executive officers and key employment contract terms (other than Messrs. Tyson, Smith and, following his promotion, Mr. Hayes) are determined by the CEO in consultation with the Company’s human resources group. The Company’s human resources group then presents a summary of the key terms of each executive officer’s contract, including band level designations, to the Compensation Committee. The Compensation Committee reviews and discusses the contracts and will meet with the Company’s human resources group as it deems necessary to discuss any questions or issues it has regarding these decisions. Once all questions and issues have been addressed to the satisfaction of the Compensation Committee, the Compensation Committee will ultimately ratify the employment contracts and band level designations. In addition, the Compensation Committee undertakes to review and make all approvals under Section 162(m) as suggested by Company management or otherwise deemed necessary by the Compensation Committee from time to time.
Role of Compensation Consultants/Benchmarking.
Since fiscal year 2001, the Company has retained Hay Group to periodically identify, and provide data and market analyses regarding compensation practices of, a certain group of publicly traded companies in the protein and packaged foods industries (which we refer to as the “Compensation Peer Group”) and to periodically update the General Industry Data. The companies listed below made up the Compensation Peer Group for performance-based equity awards during fiscal year
2016
. The Compensation Peer Group for fiscal year 2016 consisted of the same companies included in the Compensation Peer Group for fiscal year 2015 except for the removal of Kraft Foods Group, Inc., due to its acquisition.
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Archer-Daniels-Midland Company
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The J.M. Smucker Company
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Bunge Limited
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Kellogg Company
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Campbell Soup Company
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McCormick & Company, Inc.
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ConAgra Foods, Inc.
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Mondelez International, Inc.
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Dean Foods Company
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PepsiCo, Inc.
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General Mills, Inc.
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Pilgrim’s Pride Corporation
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The Hershey Company
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Sanderson Farms, Inc.
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Hormel Foods Corporation
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Hay Group furnishes the data and analyses to our human resources group which are then summarized and presented by our human resources group to the Compensation Committee. The Compensation Committee uses this summary information in its review of compensation for the NEOs and compensation levels within our band structure to determine whether the compensation levels are consistent with our compensation philosophy and our objective of providing competitive compensation that attracts, motivates and retains executive talent.
In fiscal year 2016, the Compensation Committee also retained FW Cook to provide compensation information in connection with Mr. Hayes’ promotions and Mr. Smith’s retention as a consultant. The Compensation Committee used this data in its determination of compensation to be provided to Messrs. Hayes and Smith in connection with their transition.
The Compensation Committee targeted total direct compensation in fiscal year
2016
for Mr. Smith near the 50th percentile of the Compensation Peer Group. The Compensation Committee targeted total direct compensation in fiscal year
2016
near the 50th percentile for Mr. Leatherby, between the 50th and 75th percentiles for Messrs. King and White, and at the 50th percentile for Mr. Hayes, of all of the General Industry Data. The Compensation Committee does not benchmark Mr. Tyson’s target total direct compensation due to insufficient data with respect to similarly situated officers. The Compensation Committee believes it is necessary to target our CEO’s compensation based on the smaller Compensation Peer Group, which is made up exclusively of public companies in the food industry, because these are companies against which we compete for the specialized talents and experience possessed by our CEO. On the other hand, because many of the talents possessed by the other NEOs transcend a variety of industries, the Compensation Committee believes it appropriate to use the General Industry Data in evaluating the other NEOs’ (other than Mr. Tyson’s) compensation as it represents a cross section of consumer products and other industries, not just food industry companies.
In fiscal year
2016
, the data and market analyses described above were the only consulting services provided by Hay Group to the Company. FW Cook did not provide any consulting services to the Company other than in connection with the Compensation Committee’s retention as described above. Neither the Compensation Committee nor the Company believes that provision of these services by Hay Group or FW Cook raises any conflict of interest.
How NEOs and Mr. Hayes Are Compensated
It is the Company’s practice to enter into employment contracts with its executive officers. Once compensation decisions are made and an employment contract is executed, the executive officer is entitled to receive the compensation provided for in his or her contract until it is terminated or amended. For a more detailed discussion of each NEO’s and Mr. Hayes’ employment contract, see the section titled “Employment Contracts” in this Proxy Statement.
John Tyson.
Mr. Tyson entered into his current employment contract with the Company on May 1, 2014. The terms of Mr. Tyson’s contract were approved by the Compensation Committee prior to execution. Mr. Tyson is entitled to a base salary, which may be adjusted by the Compensation Committee from time to time, and to participate in the Company’s annual cash and long-term equity incentive plans, on terms and at levels determined by the Compensation Committee. Decisions regarding whether to increase Mr. Tyson’s base salary and his participation in the Company’s cash and equity performance incentive payment programs are made annually by the Compensation Committee. For a more detailed analysis regarding these decisions see the section titled “Elements of Compensation” in this Proxy Statement.
Donnie Smith.
Upon the expiration of Mr. Smith’s November 2012 employment contract, Mr. Smith entered into a new employment contract with the Company in November 2015, the terms of which were approved by the Compensation Committee prior to execution. The decision to approve the new contract and the compensation payable thereunder was based upon:
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an evaluation of historical total compensation made to individuals with similar responsibilities at companies in the Compensation Peer Group;
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an evaluation of the proposed total compensation in comparison to the Company’s other executive officers to provide compensation commensurate with level of responsibility; and
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recommendations from the Company’s human resources group and the competitive market data discussed above from Hay Group.
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Mr. Smith was entitled to a base salary, which may be adjusted by the Compensation Committee from time to time, and to participate in the Company’s annual cash and long-term equity incentive plans, on terms and at levels determined by the Compensation Committee. Decisions regarding whether to increase Mr. Smith’s base salary and his participation in the Company’s cash and equity performance incentive payment programs are made annually by the Compensation Committee. Prior to November 17, 2015, Mr. Smith was compensated under his previous employment contract, the terms of which were also approved by the Compensation Committee prior to execution. For a more detailed analysis regarding these decisions see the section titled “Elements of Compensation” in this Proxy Statement.
As discussed above, Mr. Smith’s total direct compensation was targeted at the 50th percentile of the Compensation Peer Group for fiscal year
2016
. Based on available published information, his actual total direct compensation for fiscal year
2016
was between the 50th and 75th percentiles, reflecting Company performance, consistent with the pay-for-performance design of the Executive Incentive Plan.
Shortly following the conclusion of fiscal year 2016, Mr. Smith entered into a transition, consulting and non-compete agreement with the Company as part of the Compensation Committee’s CEO succession process. This agreement provides for Mr. Smith’s departure from the Company effective December 31, 2016, his retention for three years as a consultant to the Company, and associated benefits. The benefits provided are consistent with severance under Mr. Smith’s employment contract and include continued payments of Mr. Smith’s base salary for a period of three years and vesting of his performance shares on a pro-rata basis determined by taking the total number of days Mr. Smith was employed during the applicable performance period divided by the total number of days of such performance period, but only to the extent the performance criteria are ultimately satisfied. With respect to stock options and restricted stock held by Mr. Smith at the date of his separation, such grants will vest 100%. Mr. Smith is also entitled to subsidized health coverage under COBRA for up to 18 months. The agreement also contemplates a three year consulting term during which Mr. Smith has agreed to provide consulting services to the Company as requested by the Board or its designee or the CEO in exchange for an annual fee of $2,300,000.
All Other NEOs.
The compensation payable to Messrs. Leatherby, King and White under their respective employment contracts is based on their respective band level designations. During fiscal year
2016
, Messrs. King and White were compensated at the highest band level, and Mr. Leatherby was compensated at the second-highest band level.
On November 14, 2012, Mr. Leatherby entered into his current employment contract with the Company and on November 15, 2013, Messrs. King and White entered into their current employment contracts. The decision to approve these contracts and the compensation payable thereunder was based upon recommendations by the Company’s CEO and human resources group and advice from Hay Group. Under these contracts, Messrs. Leatherby, King and White are entitled to a base salary, which may be adjusted by the Company from time to time, and to participate in the Company’s annual cash and long-term equity incentive plans, on terms and at levels determined by the Company’s senior management and as approved by the Compensation Committee when deemed required.
With respect to target total direct compensation in fiscal year
2016
, Mr. Leatherby was targeted near the 50th percentile, and Messrs. King and White were targeted between the 50th and 75th percentiles, all for similarly situated employees in the General Industry Data. Based on available published information, for fiscal year
2016
, Mr. Leatherby’s actual total direct compensation was between the 50th and 75th percentiles, and Messrs. King’s and White’s actual total direct compensation was above the 75th percentile, primarily due to the performance incentive payments under the Executive Incentive Plan.
Mr. Hayes.
From the beginning of fiscal year 2016 until his promotion to President in June 2016, Mr. Hayes was employed pursuant to an employment contract entered into on August 29, 2014, under which he was compensated at the second-highest band level. The decision to approve this contract and the compensation payable thereunder was based upon recommendations by the Company’s CEO and human resources group and advice from Hay Group. Under this contract, Mr. Hayes was entitled to a base salary, which was subject to adjustment by the Company from time to time, and to participate in the Company’s annual cash and long-term equity incentive plans, on terms and at levels determined by the Company’s senior management and as approved by the Compensation Committee when deemed required.
In June 2016, Mr. Hayes was promoted to President of the Company and entered into a new employment contract, which was approved by the Compensation Committee with advice from FW Cook. Under this contract, Mr. Hayes is entitled to a base salary, which
may be adjusted by the Compensation Committee from time to time, and to participate in the Company’s annual cash and long-term equity incentive plans, on terms and at levels determined by the Compensation Committee. Decisions regarding whether to increase Mr. Hayes’ base salary and his participation in the Company’s cash and equity performance incentive payment programs are made annually by the Compensation Committee. With respect to target total direct compensation in fiscal year 2016, Mr. Hayes was targeted at the 50th percentile per his position at the beginning of fiscal year 2016.
Subsequent to the end of fiscal year 2016 in November 2016, Mr. Hayes entered into an amended and restated employment contract with the Company, the terms of which were approved by the Compensation Committee prior to execution. The decision to approve this contract and the compensation payable thereunder was based upon:
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•
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an evaluation of historical total compensation for individuals with similar responsibilities at companies in the Compensation Peer Group;
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•
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an evaluation of the proposed total compensation in comparison to the Company’s other executive officers to provide compensation commensurate with level of responsibility; and
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•
|
market data from the Compensation Peer Group discussed above and additional market perspectives provided by FW Cook.
|
Mr. Hayes’ total direct compensation was targeted to fall between the 25th percentile and the median of the Compensation Peer Group for fiscal year 2017.
Under his November 2016 contract, Mr. Hayes is entitled to a base salary of $1,150,000, which may be adjusted by the Compensation Committee from time to time, and to participate in the Company’s annual cash and long-term equity incentive plans, on terms and at levels determined by the Compensation Committee, generally intended to be consistent with the plans in place for other NEOs and commensurate with the duties and responsibilities of a CEO. Decisions regarding whether to increase Mr. Hayes’ base salary and his participation in the Company’s cash and equity performance incentive payment programs will be made annually by the Compensation Committee. For a more detailed analysis regarding these decisions see the section titled “Elements of Compensation” in this Proxy Statement.
Elements of Compensation
The Company’s executive compensation program consists of:
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•
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annual performance incentive payments;
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•
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equity-based compensation;
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•
|
financial, retirement and welfare benefit plans; and
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|
•
|
certain defined perquisites.
|
Compensation Mix
Because of the ability of executive officers to directly influence the overall performance of the Company, and consistent with our philosophy of linking pay to performance, it is our goal to allocate a significant portion of compensation paid to our executive officers to performance-based, short- and long-term incentive programs. In addition, as an executive officer’s responsibility and ability to affect financial results of the Company increases, base salary becomes a smaller component of total compensation and long-term, equity-based compensation becomes a larger component of total compensation, further aligning the executive officer’s interests with those of the Company and its shareholders. The following table illustrates the mix of total compensation for Messrs. Tyson, Smith and Hayes, individually, and Messrs. Leatherby, King and White, as a group, based on compensation paid in fiscal year
2016
.
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Compensation Element
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2016 Total Compensation
Mix for
Mr. Tyson
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2016 Total Compensation
Mix for
Mr. Smith
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2016 Total Compensation
Mix for Messrs.
Leatherby, King and White
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2016 Total Compensation Mix for Mr. Hayes
|
Base Salary
|
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9.7%
|
|
10.2%
|
|
12.5%
|
|
15.4%
|
Performance Incentive Payment
|
|
25.5%
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|
27.0%
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|
27.4%
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|
32.7%
|
Equity-Based Compensation
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|
44.9%
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|
47.0%
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|
41.8%
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|
31.4%
|
Financial, Retirement and Welfare Benefit Plans and Perquisites
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19.9%
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15.8%
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|
18.3%
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20.5%
|
In comparison to the compensation mix for fiscal year 2015, performance incentive payments our NEOs and Mr. Hayes received for fiscal year 2016 represent a larger percentage of each their total compensation due to the achievement of more than 50% improvement
in Company performance (relative to the target) over fiscal year 2015. For details regarding this performance in fiscal year
2016
, see the below subsection titled “Annual Performance Incentive Payments” in this Proxy Statement.
Base Salary
Each NEO’s and Mr. Hayes’ employment contract sets an amount for base salary. The Compensation Committee approved such amounts for Messrs. Tyson and Smith (and Mr. Hayes in connection with his June 2016 promotion) as part of its process in approving their respective employment contracts. Base salary amounts for all other NEOs are based on each NEO’s band level. The Company’s band structure sets forth a target amount for base salary at each level. The CEO has discretion to set base salary above or below the target amount as he deems appropriate based on each NEO’s level of responsibility when employment contracts for these individuals are entered into or amended.
The employment contract effective for each NEO during fiscal year
2016
(other than Mr. Tyson’s) states that base salary is subject to adjustment. The base salary under Mr. Tyson’s employment contract can be increased but not decreased. The Compensation Committee has the ability to adjust Messrs. Tyson’s or Smith’s base salary as it deems appropriate. The CEO has the discretion to adjust base salaries for the other current NEOs as he deems appropriate. In determining whether to adjust an NEO’s base salary, the Compensation Committee or the CEO, as applicable, considers (i) changes in an individual’s band level, (ii) the individual’s past performance, (iii) the individual’s potential for advancement within the Company, (iv) changes in level and scope of responsibility for the individual, (v) salaries of persons holding comparably responsible positions at companies represented in the Compensation Peer Group or the General Industry Data, as applicable, and (vi) the targeted percentile of the applicable comparison group for an individual’s total direct compensation. The Compensation Committee or the CEO also considers cost of living adjustments in determining annual base salary adjustments. Neither the CEO nor the Compensation Committee assigns a particular weight to any factor. Annual salary merit increases for NEOs that are approved by the CEO are generally consistent with merit increases for other officers and management personnel.
The table below discloses the base salary in effect for each NEO and Mr. Hayes at the end of fiscal years
2015
and
2016
. Each NEO (except for Messrs. Tyson and Smith) received an annual salary merit increase of approximately 1.2% during fiscal year
2016
. Mr. Smith received an increase of 2.4%. Mr. Hayes’ salary increase was in connection with his promotion to President in June 2016 and was based on market pay data as described above and internal pay equities commensurate with job responsibilities.
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Name
|
|
End of
Fiscal Year
2015 Salary
($)
|
|
End of
Fiscal Year
2016 Salary
($)
|
John Tyson
|
|
928,818
|
|
|
928,818
|
|
Donnie Smith
|
|
1,147,363
|
|
|
1,175,000
|
|
Dennis Leatherby
|
|
654,050
|
|
|
661,899
|
|
Donnie King
|
|
848,720
|
|
|
858,905
|
|
Noel White
|
|
770,250
|
|
|
779,493
|
|
Tom Hayes
|
|
611,500
|
|
|
950,000
|
|
Annual Performance Incentive Payments
Employment contracts with our NEOs and Mr. Hayes provide them an opportunity to receive performance incentive payments. In fiscal year
2016
, the cash performance incentive payment plan in place for senior executive officers was the Executive Incentive Plan. This plan is designed to align the interests of management towards the achievement of common corporate goals while attempting to maximize the Company’s ability to deduct for tax purposes any payments made under the Executive Incentive Plan. An NEO selected to participate in the Executive Incentive Plan is not eligible to participate in other cash performance incentive payment plans maintained by the Company. For fiscal year
2016
, the Compensation Committee designated all NEOs, as well as other executive officers (including Mr. Hayes), as eligible participants under the Executive Incentive Plan.
Performance incentive eligibility under the Executive Incentive Plan is based on one or more performance measures established each year by the Compensation Committee. For fiscal year
2016
, the Compensation Committee selected Adjusted EBIT as the performance measure under the plan. “EBIT” is the Company’s operating income (which takes into account accruals for performance incentive payments) before interest and taxes, and “Adjusted EBIT” for purposes of performance incentive payments takes into account any unusual or unique items, such as one-time gains or losses. The Compensation Committee believes Adjusted EBIT is an appropriate measure of Company performance to utilize in making performance-based compensation decisions because senior management uses this same measure, in large part, to evaluate the day-to-day performance of the business. For fiscal year
2016
, the Compensation Committee set the target Adjusted EBIT level for 100% of target performance incentive payments at $2.228 billion and a threshold level of Adjusted EBIT for 50% of target performance incentive payments at $1.782 billion.
Target performance incentive payment eligibility under the Executive Incentive Plan, expressed as a percentage of base salary at the end of the fiscal year, is established each year by the Compensation Committee. Eligibility begins at threshold Adjusted EBIT and increases linearly, up to a maximum of $10 million per NEO. For fiscal year
2016
, Messrs. Tyson and Smith were awarded higher performance incentive payment eligibility by the Compensation Committee given their respective levels of responsibility and ability to affect shareholder value relative to the other NEOs. In determining actual performance incentive payments, the Compensation Committee has the discretion to award amounts below, but not above, the eligibility level pertaining to Adjusted EBIT. Actual Adjusted EBIT for purposes of performance incentive payments for fiscal year
2016
was approximately $2.831 billion, resulting in the NEOs’ eligibility for performance incentive payments of approximately 167.4% of their respective target eligibilities. At the end of fiscal year
2016
, the Compensation Committee reviewed each NEO’s and Mr. Hayes’ eligibility based on this Adjusted EBIT amount and the individual performance of each with our CEO and other members of management and the Board. Based on this review, the Compensation Committee awarded the NEOs and Mr. Hayes the performance incentive payment amounts set forth in the following table.
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Name
|
|
Salary at 2016
Fiscal Year-
End
($)
|
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Eligibility at Target Adjusted EBIT of
$2.228 billion (100% of target
performance incentive payment)
($)
|
|
Eligibility at
Target Adjusted
EBIT (expressed as
percentage of
base salary)
|
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Maximum Eligibility at Actual Adjusted EBIT of $2.831 billion (167.4% of target
performance incentive payment)
($)
|
|
Actual
Performance
Incentive
Payment for
Fiscal Year
2016
($)
|
John Tyson
|
|
928,818
|
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|
1,671,872
|
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|
180%
|
|
2,798,714
|
|
|
2,448,875
|
|
Donnie Smith
|
|
1,175,000
|
|
|
2,115,000
|
|
|
180%
|
|
3,540,510
|
|
|
3,097,946
|
|
Dennis Leatherby
|
|
661,899
|
|
|
873,707
|
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|
132%
|
|
1,462,858
|
|
|
1,279,762
|
|
Donnie King
|
|
858,905
|
|
|
1,339,892
|
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|
156%
|
|
2,242,979
|
|
|
1,962,607
|
|
Noel White
|
|
779,493
|
|
|
1,216,009
|
|
|
156%
|
|
2,035,599
|
|
|
1,781,149
|
|
Tom Hayes
|
|
950,000
|
|
|
1,254,000
|
|
|
132%
|
|
2,099,196
|
|
|
1,519,059
|
|
Equity-Based Compensation
We believe equity-based compensation awarded annually is an effective long-term incentive for executives and managers to create value for shareholders as the value of such compensation has a strong correlation to appreciation of the Company’s stock price. Messrs. Tyson’s, Smith’s and Hayes’ employment contracts provide for equity-based compensation as determined by the Compensation Committee. The remaining NEOs’ employment contracts provide for equity-based compensation consistent with that provided to other employees in such NEO’s band level (as did Mr. Hayes’ employment contract prior to his promotion to President). The Company’s band structure sets forth the target dollar amount of the equity awards for each band level.
The amounts and types of equity-based compensation to be awarded within the band levels are determined by management and/or the Compensation Committee with a view towards aligning the interests of executives and other managers with the interests of the Company’s shareholders. In determining these amounts, management and the Compensation Committee consider the relationship of long-term compensation to cash compensation, the goal of providing additional incentives to executives and managers to increase shareholder value and the value of equity-based compensation awarded to NEOs and other executives to awards made to executives in similar positions within the applicable peer group, and the targeted percentile of the applicable comparison group for an individual’s total direct compensation.
Prior to fiscal year 2016, the dollar value of equity compensation was weighted 50%, 25% and 25% among stock options, restricted stock with performance criteria (“restricted stock”), and performance stock, respectively. For fiscal year 2016, the Compensation Committee, relying in part on market data provided to the Company by Hay Group, reallocated equity-based compensation in favor of performance stock relative to stock options, which resulted in the allocation described below.
Stock Options
. Stock option awards comprised approximately 25% of the NEOs’ and Mr. Hayes’ equity-based compensation, on a weighted average basis, for fiscal year
2016
. The Compensation Committee believes that stock options allow the Company to provide employees with an incentive different from base salary and cash performance incentive payments as options increase in value based on Company share price rather than individual performance. Stock options are typically awarded and approved annually by the Compensation Committee prior to or on a pre-determined grant date. The grant date for fiscal year awards usually occurs four business days after the Company announces fiscal year-end financial results. The actual number of stock options granted during fiscal year
2016
was determined by dividing the designated band level dollar value or the dollar value assigned by the CEO or Compensation Committee, as applicable, for stock options by the grant date fair value of such stock options. The exercise price for option awards is the closing price for our Class A Common Stock as reported on the NYSE on the grant date. Option awards expire ten years after the grant date. The Company does not backdate, re-price or grant equity awards retroactively. All stock options vest in equal annual increments on each of the first, second and third anniversary of the dates of the award and become fully vested after three years. For the fiscal year
2016
stock option awards, the Compensation Committee set the grant date of November 30, 2015 at its April 29, 2015 meeting and approved the awards at its November 18, 2015 meeting. All stock option awards are issued under the Tyson Foods, Inc. 2000 Stock Incentive Plan (the “Stock
Incentive Plan”). For details regarding stock options granted to the NEOs and Mr. Hayes in fiscal year
2016
, see the table titled “Grants of Plan-Based Awards During Fiscal Year
2016
” in this Proxy Statement.
Restricted Stock with Performance Criteria
. Restricted stock awards comprised approximately 25% of the NEOs’ and Mr. Hayes’ equity-based compensation, on a weighted average basis, for fiscal year
2016
. The actual number of shares of restricted stock granted during fiscal year
2016
was determined by dividing the designated band level dollar value or the dollar value assigned by the CEO or Compensation Committee, as applicable, for restricted stock by the closing price of the Company’s stock on the grant date. For example, if the designated dollar value for restricted stock was $200,000 and the closing stock price on the grant date was $50 per share, the executive received a grant of 4,000 shares of restricted stock.
Restricted stock awards represent the right to vest in shares of Class A Common Stock if one or more performance criteria are met within the time period indicated in the grant. Performance criteria are measured three years from the beginning of the fiscal year in which the restricted stock is awarded, and, if the performance criteria are achieved, the award vests. The right to vest in the shares of Class A Common Stock under a restricted stock award is conditioned upon the executive officer remaining continuously in the employment of the Company from the grant date through the vesting date, subject to certain exceptions involving the death, disability or retirement of the executive officer.
On November 18, 2015, the Compensation Committee determined the performance criterion pertaining to the restricted stock awards granted in November 2015 would be the Company’s achievement of a cumulative $125 million Adjusted EBIT for the 2016 through 2018 fiscal years. These criteria were intended to qualify these awards as performance-based compensation under Section 162(m).
All restricted stock awards are issued under the Stock Incentive Plan. For details regarding restricted stock granted to the NEOs and Mr. Hayes in fiscal year
2016
, see the table titled “Grants of Plan-Based Awards During Fiscal Year
2016
” in this Proxy Statement.
Performance Stock
. Performance stock awards comprised approximately 50% of the NEOs’ and Mr. Hayes’ equity-based compensation, on a weighted average basis, for fiscal year
2016
. Performance stock awards represent the right to receive shares of Class A Common Stock if certain performance criteria are met within the time period indicated in the grant. The target number of shares of performance stock granted during fiscal year
2016
was determined by dividing the designated band level dollar value or the dollar value assigned by the CEO or Compensation Committee, as applicable, for performance stock by the closing price of the Company’s stock on the grant date. The Compensation Committee approved the fiscal year
2016
performance stock awards at its November 18, 2015 meeting with a grant date of November 30, 2015. Performance criteria are measured three years from the beginning of the fiscal year in which the performance stock is awarded, and, if the performance criteria are achieved, the award vests as set forth below. The right to receive Class A Common Stock under a performance stock award is conditioned upon the executive officer remaining continuously in the employment of the Company from the grant date through the vesting date, subject to certain exceptions involving the death, disability or retirement of the executive officer. All performance stock awards are issued under the Stock Incentive Plan.
On an annual basis, the Company’s senior management, Compensation Committee and human resources group meet to discuss the performance criteria options and levels to be considered for the following year’s grants. Through the course of its review and discussions, the Compensation Committee chooses such options that the Compensation Committee believes provide the appropriate balance between (i) significant performance measures aimed at increasing shareholder value if achieved, and (ii) performance measures that are reasonably attainable so as to motivate the officers to achieve the performance goals.
The performance criteria adopted by the Compensation Committee for performance stock awards granted in fiscal year
2016
were as follows:
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•
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achievement of a cumulative Adjusted EBIT target over the 2016, 2017 and 2018 fiscal years (the “cumulative EBIT criterion”); and
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•
|
a comparison of the stock price performance of the Company’s Class A Common Stock relative to the stock price performance of the Compensation Peer Group over the 2016, 2017 and 2018 fiscal years (the “stock price comparison criterion”).
|
The Compensation Committee utilized adjusted EBIT as an element in both the Company’s annual incentive program and long-term incentive program in recognition that this measure is viewed as a core driver of the Company’s performance and shareholder value creation. In designing the Company’s executive compensation program, the Compensation Committee supplemented this measure in the long-term incentive program with a stock price performance comparison measure in order to strike an appropriate balance with respect to incentivizing top-line growth and shareholder returns over both the short-term and long-term horizons.
Each performance criterion accounts for one-half of the performance stock award and is subject to the achievement of performance goals as set forth in the below tables. With respect to the cumulative EBIT criterion, the Adjusted EBIT measure selected is based on management’s projected earnings for the Company over a three-year period. As noted above, the targeted performance goal was established at a level that was designed to be reasonably attainable so as to motivate the officers to achieve or exceed the goal. Also, in selecting the cumulative EBIT criterion, the Compensation Committee recognized the importance placed by senior management on this measure in its evaluation of the day-to-day performance of the business. Based on the percentage of the Adjusted EBIT measure achieved, our NEOs
and Mr. Hayes are entitled to receive upon achievement of the Adjusted EBIT goals the number of shares as set forth in the following table:
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|
|
|
|
|
|
|
|
|
Name
|
|
Percentage of Cumulative Adjusted EBIT Goal Achieved
|
|
|
|
80%
|
|
100%
|
|
120%
|
|
140%
|
|
John Tyson
|
|
12,525
|
|
|
25,050
|
|
|
37,576
|
|
|
50,101
|
|
|
Number of Shares Awarded*
|
Donnie Smith
|
|
15,627
|
|
|
31,255
|
|
|
46,882
|
|
|
62,510
|
|
|
Dennis Leatherby
|
|
4,216
|
|
|
8,432
|
|
|
12,648
|
|
|
16,864
|
|
|
Donnie King
|
|
11,721
|
|
|
23,442
|
|
|
35,164
|
|
|
46,885
|
|
|
Noel White
|
|
6,265
|
|
|
12,531
|
|
|
18,796
|
|
|
25,062
|
|
|
Tom Hayes
|
|
4,216
|
|
|
8,432
|
|
|
12,648
|
|
|
16,864
|
|
|
* Amounts rounded down to the nearest share.
|
With respect to the stock price comparison criterion, the NEO is entitled to receive the number of shares set forth below, based on the number of Compensation Peer Group members’ stock prices that the Company’s stock price outperforms during the measurement period:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Number of Companies’ Stock Prices Outperformed*
|
|
|
|
|
5
|
|
8
|
|
11
|
|
13
|
|
|
John Tyson
|
|
12,525
|
|
|
25,050
|
|
|
37,576
|
|
|
50,101
|
|
|
Number of Shares Awarded**
|
|
Donnie Smith
|
|
15,627
|
|
|
31,255
|
|
|
46,882
|
|
|
62,510
|
|
|
|
Dennis Leatherby
|
|
4,216
|
|
|
8,432
|
|
|
12,648
|
|
|
16,864
|
|
|
|
Donnie King
|
|
11,721
|
|
|
23,442
|
|
|
35,164
|
|
|
46,885
|
|
|
|
Noel White
|
|
6,265
|
|
|
12,531
|
|
|
18,796
|
|
|
25,062
|
|
|
|
Tom Hayes
|
|
4,216
|
|
|
8,432
|
|
|
12,648
|
|
|
16,864
|
|
|
|
* If members of the Compensation Peer Group at the date of the grant are subsequently removed from the Compensation Peer Group for reasons set forth in the performance stock award, the stock price comparison criterion is reduced by that same number.
|
|
|
** Amounts rounded down to the nearest share.
|
For details regarding performance stock awards granted to the NEOs in fiscal year
2016
, see the table titled “Grants of Plan-Based Awards During Fiscal Year
2016
” in this Proxy Statement.
Following certification of the Company’s fiscal year
2016
performance and stock price performance relative to certain peers, the Compensation Committee approved the vesting of performance shares awarded to the NEOs in fiscal year 2014 based on the Company’s achievement of (i) three years’ cumulative EBIT of $6.55 billion where the three-year cumulative target was $6.344 billion and (ii) the stock price performance ranking of first against the thirteen other companies in the compensation peer group for purposes of this award in the following amounts:
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|
|
|
|
|
|
|
Name
|
|
Number of Shares of Performance Stock
|
|
Stock Price Criterion (200%)
|
|
Cumulative EBIT Criterion (108.127%)
|
John Tyson
|
|
31,426.776
|
|
|
16,990.415
|
|
Donnie Smith
|
|
50,282.841
|
|
|
27,184.664
|
|
Dennis Leatherby
|
|
14,582.024
|
|
|
7,883.552
|
|
Donnie King
|
|
28,284.098
|
|
|
15,291.373
|
|
Noel White
|
|
21,998.743
|
|
|
11,893.29
|
|
These performance awards were granted prior to the Company’s acquisition of The Hillshire Brands Company and, consequently, Mr. Hayes’ employment with the Company.
Financial, Retirement and Welfare Benefit Plans
Our NEOs and Mr. Hayes are eligible to participate in the Company’s financial, retirement and welfare benefit plans that are generally available to all employees of the Company. The NEOs and Mr. Hayes are also eligible to participate in certain plans, described below, that are only available to contracted officers and managers. We believe these benefits are a basic component in attracting, motivating and retaining executives and are comparable to the benefits offered by the companies in our peer groups according to market data.
Deferred Compensation
. The SERP is a nonqualified deferred compensation plan providing a retirement benefit to certain officers of the Company, including all NEOs and Mr. Hayes. The SERP also provided participants as of July 1, 2014 (which includes Messrs. Smith, Leatherby, King and White), life insurance protection. The SERP allows participating officers to supplement the officers’ existing anticipated retirement payments and benefits. Additional information about our SERP is included in the narrative text following the section titled “Pension Benefits” in this Proxy Statement.
Retirement Plans
. We also provide the following qualified and nonqualified plans to the NEOs and Mr. Hayes:
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Employee Stock Purchase Plan;
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Retirement Savings Plan;
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Executive Savings Plan; and
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Executive Long-Term Disability Plan.
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The Employee Stock Purchase Plan is a nonqualified benefit plan available to all NEOs, Mr. Hayes and most employees (some bargaining units do not participate). The purpose of the plan is to offer employees who participate a way to purchase our Class A Common Stock on terms better than those available to a typical investor. Participants are eligible to participate on the first day of the month following 59 days of service and can contribute (on an after tax basis) up to 20% of base pay to this plan per pay period. After one year of service the Company will match 25% of the first 10% of base pay contributed. The plan provides for 100% immediate vesting.
The Retirement Savings Plan is a qualified benefit plan (401(k)) available to all NEOs, Mr. Hayes and most employees (some bargaining units do not participate). The plan allows employees who participate to save money for retirement while deferring income taxes on the amount saved and any earnings on those amounts until the funds are withdrawn. Participants may elect how their accounts are invested from a number of investment options. Participants are eligible to participate on the first day of the month following 59 days of service and can contribute from 2% to 60% of eligible pay to this plan per pay period, subject to IRS annual limits on contributions and compensation. After one year of service the Company will match 100% of the first 3% of base pay contributed, plus 50% of the next 2% contributed. This plan provides for 100% immediate vesting.
The Executive Savings Plan is a nonqualified deferred compensation plan available to the NEOs and other highly compensated employees of the Company, including Mr. Hayes. The plan is available for those who wish to defer additional dollars over and above the IRS limits for qualified plans. After reaching the annual IRS limits in the Retirement Savings Plan, participants can begin deferring up to 60% of base pay into this plan. Participants can also defer up to 100% of the annual performance incentive payment to this plan. All deferrals and payout elections to this plan must be elected by December 31 of the year prior to the deferral year. This plan provides Company matching contributions in the same manner and amount as the Retirement Savings Plan not otherwise matched under the Retirement Savings Plan. Participants may elect the investment options available under the Retirement Savings Plan plus an investment option paying the prime rate as reported in the
Wall Street Journal
plus two hundred basis points. This plan provides for 100% immediate vesting. Additional information on the Executive Savings Plan can be found in the narrative text following the table titled “Nonqualified Deferred Compensation for Fiscal Year 2016” in this Proxy Statement.
Officers and certain managers of the Company who are party to a written employment contract (including the NEOs and Mr. Hayes) participate in the Executive Long-Term Disability Plan. This plan replaces (tax free) up to 60% of “insured earnings” to a maximum benefit of $25,000 per month. “Insured Earnings” include salary, annual performance incentive payment and a portion of the current estimated value of restricted stock and stock options. The value of the premiums paid by the Company are included in the participant’s taxable income.
Welfare Plans
. Our NEOs and other executives (including Mr. Hayes) participate in our broad-based employee welfare plans, including medical, dental, vision and other insurance. These plans and benefits are available to all salaried employees. In addition, contracted officers and managers, including our NEOs and Mr. Hayes, have an additional health insurance benefit known as the Executive Medical Reimbursement Plan (“EMRP”). The EMRP reimburses contracted officers and certain contracted managers of the Company and their covered dependents up to 100% of medical, prescription drug, dental and vision expenses not covered by Company plans. The benefits eligible to be reimbursed include only those expenses allowable as tax deductions for the Company under tax regulations existing at the time of reimbursement. Benefits through this plan are limited to annual maximums which vary based on position with the Company ($30,000 for each NEO and Mr. Hayes). Each participant is charged a supplemental premium for this benefit. The EMRP is being terminated effective January 1, 2017.
Perquisites
Pursuant to the employment contracts with the NEOs and Mr. Hayes, we provide certain perquisites that the Compensation Committee believes are reasonable and consistent with our overall compensation program. The Company pays any taxes owed by the NEOs and Mr. Hayes on certain of these perquisites. The value of these perquisites and the estimated income taxes thereon are imputed as income to the executive. The Compensation Committee believes that these personal benefits provide executives with benefits comparable to those they would receive at other companies within our peer groups and are necessary for us to remain competitive in the
marketplace for executive talent. The Compensation Committee reviews the perquisites on a periodic basis to ensure that they are appropriate in light of the Company’s total compensation program and market practice. For the last completed fiscal year, Messrs. Tyson, Smith, King, White and Hayes were permitted by their employment contracts to personal use of Company-owned aircraft (subject to certain contractual limits), and all NEOs and Mr. Hayes were eligible for personal use of Company-owned aircraft in the CEO’s discretion. In addition, all NEOs and Mr. Hayes were provided access to event tickets. For fiscal year
2016
, Mr. Tyson’s employment contract also entitled him to receive up to $50,000 per year in security services and reimbursement for the annual premium payment on a $7,500,000 life insurance policy. The attributed costs of the perquisites described above for the NEOs and Mr. Hayes for fiscal year
2016
are included in the “All Other Compensation” column of the “Summary Compensation Table for Fiscal Years
2016
,
2015
and
2014
” in this Proxy Statement.
Employment Contracts
The Company maintained employment contracts with each NEO and Mr. Hayes during fiscal year
2016
. A summary description of these contracts is provided below.
John Tyson
. The Company and Mr. Tyson entered into his current employment contract on May 1, 2014. Mr. Tyson’s employment contract provides for, among other things, an annual base salary of not less than $850,000 (which had increased to $928,818 at the end of fiscal year 2016 in accordance with its terms), participation in the Company’s annual performance incentive payment programs on terms and in amounts as determined by the Compensation Committee, eligibility for equity awards under the Company’s equity incentive plans on terms and in amounts as determined by the Compensation Committee, continued annual payments of $175,196 under the SERP, and participation in the Company’s benefit plans. Additionally, Mr. Tyson is entitled to certain perquisites, including personal use of Company-owned aircraft for up to 275 hours per year, use of Company security personnel consistent with past practice (the expense for which the Company estimates to be $80 per hour), travel security services up to $50,000 annually and payment of an annual premium on a $7,500,000 life insurance policy. The Company has also agreed to reimburse Mr. Tyson and gross-up any tax liability incurred by Mr. Tyson from the receipt of any perquisites. The contract expires on November 25, 2017.
Donnie Smith
. Mr. Smith’s November 17, 2015 employment contract provides for, among other things, an annual base salary of $1,175,000, participation in the Company’s annual performance incentive payment programs on terms and in amounts as determined by the Compensation Committee, eligibility for equity awards under the Company’s equity incentive plans on terms and in amounts as determined by the Compensation Committee, and participation in the Company’s benefit plans. Additionally, Mr. Smith is entitled to personal use of Company-owned aircraft for up to 50 hours per year. The Company has also agreed to reimburse Mr. Smith and gross-up any tax liability incurred by Mr. Smith from his personal use of Company-owned aircraft. The term of the contract was three years. Prior to his entering into the 2015 contract, Mr. Smith’s compensation and benefits were provided pursuant to his 2012 employment contract, which provided for, among other things, substantially the same benefits as his 2015 employment contract.
All Other NEOs.
The employment contracts with Messrs. Leatherby, King and White, which are described below in more detail, provide for base salary, and participation in the Company’s performance incentive payment programs, equity plans and employee benefit plans. Mr. Leatherby’s employment contract was entered into on November 14, 2012, and Messrs. King’s and White’s employment contracts were entered into on November 15, 2013.
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Mr. Leatherby’s contract provides for a salary of $566,500 (which had increased to $661,899 at the end of fiscal year 2016 in accordance with its terms). He is eligible for awards under the Company’s performance incentive payment programs and equity plans consistent with other employees at his band level, subject to the discretion of the Company’s senior management and the Compensation Committee as deemed necessary. The term of the contract is indefinite.
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Mr. King’s contract provides for a salary of $800,000 (which had increased to $858,905 at the end of fiscal year 2016 in accordance with its terms). He is eligible for awards under the Company’s performance incentive payment programs and equity plans consistent with other employees at his band level, subject to the discretion of the Company’s senior management and the Compensation Committee as deemed necessary. Additionally, Mr. King is entitled to personal use of Company-owned aircraft for up to 25 hours per year. The Company also agreed to reimburse Mr. King and gross-up any tax liability incurred by him through his use of Company-owned aircraft. The term of the contract is indefinite.
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Mr. White’s contract provides for a salary of $725,000 (which had increased to $779,493 at the end of fiscal year 2016 in accordance with its terms). He is eligible for awards under the Company’s performance incentive payment programs and equity plans consistent with other employees at his band level, subject to the discretion of the Company’s senior management and the Compensation Committee as deemed necessary. Additionally, Mr. White is entitled to personal use of Company-owned aircraft for up to 25 hours per year. The Company also agreed to reimburse Mr. White and gross-up any tax liability incurred by him through his use of Company-owned aircraft. The term of the contract is indefinite.
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Mr. Hayes.
Prior to Mr. Hayes’ promotion to President on June 13, 2016, his compensation and benefits were provided pursuant to a 2014 employment contract, which provided for a base salary of $500,000 and eligibility for awards under the Company’s performance incentive payment programs and equity plans consistent with other employees at his band level, subject to the discretion of the Company’s senior management and the Compensation Committee as deemed necessary. In connection with his promotion, he entered into an amended
and restated contract, which provided for a base salary of $950,000 and eligibility for awards under the Company’s performance incentive payment programs and equity plans on terms and in amounts consistent with those provided to other senior executive-level employees, subject to the discretion of the management. Additionally, Mr. Hayes was entitled to personal use of Company-owned aircraft on the same terms and conditions as such use is made available to similarly situated executives.
In addition to Mr. Hayes’ employment contract, in connection with the Company’s acquisition of The Hillshire Brands Company (of which Mr. Hayes was an officer), the Company and Mr. Hayes entered into a key employee retention agreement in fiscal year 2014 pursuant to which Mr. Hayes was awarded a retention bonus, $
591,568
of which was paid to Mr. Hayes in fiscal year 2016 and is reflected in the “Bonus” column of the “Summary Compensation Table for Fiscal Years 2016, 2015 and 2014.”
Notwithstanding the term of any employment contract, the Company has the right to terminate the contract at any time upon written notice subject to the obligation, if terminated without cause or for good reason, to continue to pay base salary for a period specified in the contract and subject to provisions relating to the early vesting of equity-based compensation. Severance information is more particularly described in the section titled “Potential Payments Upon Termination” in this Proxy Statement.
Certain Benefits Upon a Change in Control
Employment Contracts.
Each employment contract in effect during fiscal year
2016
between the Company and our NEOs and Mr. Hayes provided for certain benefits payable to the NEO and Mr. Hayes following a change in control of the Company. The Compensation Committee believes these benefits are an important part of the total executive compensation program because they protect the Company’s interest in the continuity and stability of the executive group. The Compensation Committee also believes that the change in control benefits are necessary to retain and attract highly qualified executives and help to keep them focused on minimizing interruptions in business operations by reducing any concerns they may have of being terminated prematurely and without cause during any ownership transition.
Impact of Change in Control on the SERP.
No later than thirty days after a change in control of the Company, a grantor trust created under the SERP will be funded with the present value of the higher of (i) the minimum defined benefit or (ii) all accrued benefits for each participant under the SERP. Participants will vest in a benefit equal to the amount calculated under the general provisions of the SERP as of the effective date of the change in control, but without regard to any age or service requirements, if following the change in control the SERP is terminated in a manner that adversely affects a participant or a participant experiences a termination of employment (other than a voluntary resignation without good reason or an involuntary termination for cause). For this purpose, “good reason” means: (i) a substantial adverse change in position, duties, title or responsibilities; (ii) any material reduction in base salary or annual performance incentive opportunity or benefit plan coverages; (iii) any relocation required by the Company to an office or location more than 25 miles from the current location; or (iv) failure by a successor to assume the plan. Payment of the amount calculated as of the effective date of the change in control would begin following termination of employment, regardless of age, on an actuarially adjusted basis.
Executive Life Insurance Program.
Following a change in control of the Company, the Company will continue to pay the annual life insurance premiums (plus a tax gross-up based on the withholding rates for supplemental wages) under the Executive Life Insurance Program for active participants on the date of the change in control up to the earlier of termination of employment or age 62.
Change in control information is more particularly described in the section titled “Potential Payments Upon a Change in Control” in this Proxy Statement.
Tax and Accounting Considerations
Limits on Deductibility of Compensation.
Section 162(m) of the Internal Revenue Code generally prevents public corporations from deducting as a business expense that portion of compensation paid to NEOs (excluding the CFO) that exceeds $1,000,000 unless it qualifies as “performance-based compensation” under Section 162(m). The goal of the Compensation Committee is to comply with the requirements of Section 162(m), to the extent possible, to avoid losing this deduction. However, the Compensation Committee may elect to provide compensation outside those requirements when it deems it necessary to achieve the Company’s compensation objectives. For this and other reasons, the Compensation Committee will not necessarily limit executive compensation to the amount deductible under Section 162(m). The Compensation Committee will consider various alternatives to preserve the deductibility of compensation payments and benefits to the extent reasonably practicable and to the extent consistent with its other compensation objectives.
Compensation Expense.
The Company accounts for equity-based awards by recognizing the compensation expense of the equity award to an employee based on the fair value of the award on the grant date. The Company has determined the fair value of these awards based on the assumptions set forth in Note 13 to our fiscal year
2016
audited financial statements included in our Form 10-K for the fiscal year ended
October 1, 2016
. Compensation expense of deferred cash awards are based on the amount of the award. The compensation expense for stock options, stock appreciation rights, restricted stock, phantom stock, performance stock and deferred cash is ratably recognized over the vesting period.
Stock Ownership Requirements
The Company’s stock ownership and holding requirements require senior officers (which includes the NEOs and Mr. Hayes) and directors to maintain a minimum equity stake in the Company. These requirements were put into place to strengthen the alignment between the interest of the Company’s directors and senior officers and the interests of its shareholders.
The requirements set forth the minimum amount of shares of Company stock a director and certain officers must own. These ownership requirements are reviewed and modified, if necessary, by the Company at least annually or after a significant increase or decrease in the share price. Each officer subject to the requirements has five years from the effective date of their current employment contract to achieve the applicable level of ownership. Directors have five years from the later of the Company’s annual meeting of shareholders held on February 1, 2013 or his or her initial election as director.
For officers, the levels are based on a multiple of the officer’s salary. Officers that are promoted into new bands will be assigned the appropriate ownership levels based on the new band and will have five years from the date of their promotion to comply with their new ownership requirements. The CEO’s current ownership level is five times annual salary and the remaining NEOs’ levels are currently two times annual salary. As of
December 12, 2016
, all NEOs and Mr. Hayes were in compliance with the stock ownership requirements. Directors’ ownership levels are four times their annual cash retainer (exclusive of any retainer amounts attributable to positions of Lead Independent Director or committee chairmanships).
Risk Considerations in our Overall Compensation Program
We believe that the Company’s compensation program is structured in such a way as to discourage excessive risk-taking. In making this determination, we considered various aspects of our compensation program, including the mix of fixed and performance-based compensation for management and other key employees. The Company’s performance-based compensation awards are designed to reward both short- and long-term performance. By linking a portion of total compensation to the Company’s long-term performance, we seek to mitigate short-term risks that could be detrimental to the Company’s long-term best interests and the creation of shareholder value. Another aspect we considered is our practice of increasing an individual’s equity-based performance compensation as a percentage of his or her total compensation as his or her responsibility and ability to affect the financial results of the Company increases. Such equity-based performance awards are subject to multi-year vesting periods and derive their value from the Company’s total performance, which we believe further encourages decision-making that is in the long-term best interests of the Company and its shareholders. Finally, we considered our stock ownership guidelines for executive officers and directors, which are designed to strengthen the alignment between the interests of our Board and executive officers and the Company’s shareholders. We believe these guidelines discourage excessive risk-taking that could be detrimental to the long-term interests of the Company, its performance or our stock price. In conclusion, we believe that the Company’s compensation policies and practices for all employees, including executive officers, do not create risks that are reasonably likely to have a material adverse effect on the Company.