Filed by the
Registrant ☒ Filed by a Party other than the
Registrant ☐
You are cordially invited to attend the Annual Meeting of Stockholders of Tejon Ranch Co. (the Company) on Wednesday, May 17,
2017, at 9:00 A.M., Pacific Time, at the Balboa Bay Resort, 1221 West Coast Highway, Newport Beach, California 92663. Your Board of Directors and management look forward to greeting those stockholders who are able to attend. If you are planning to
attend the meeting in person you will need to present proof that you own shares of the Company, such as a government-issued photo identification and a proxy card or voting instruction form with your name on it.
The Notice of Annual Meeting and Proxy Statement, which contain information concerning the business to be transacted at the meeting, appear in
the following pages.
It is important that your shares be represented and voted at the meeting, whether or not you plan to attend. Please
vote on the enclosed proxy at your earliest convenience.
Your interest and participation in the affairs of the Company are greatly
appreciated.
PROPOSAL 4
ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES TO APPROVE EXECUTIVE COMPENSATION
As described in Proposal 3, our stockholders are being asked to approve the compensation of our NEOs, as reported in this Proxy Statement. In
accordance with Section 14A of the Exchange Act, Proposal 4 gives stockholders the opportunity to cast a
non-binding
advisory vote on whether future advisory votes to approve executive compensation should
occur every year, every two years or every three years.
After careful consideration, the Board has determined that continuing to hold the
advisory vote on executive compensation every year is the most appropriate policy for the Company at this time, and recommends that stockholders vote for future advisory votes on executive compensation to occur every year. While the Companys
executive compensation programs are designed to promote a long-term connection between pay and performance, the Board recognizes that executive compensation disclosures are made annually. Holding an annual advisory vote on executive compensation
provides the Company with more direct and immediate feedback on our compensation programs.
We understand that our stockholders
may have different views as to what is an appropriate frequency for advisory votes on executive compensation, and we will carefully review the voting results on this proposal. Stockholders will be able to specify one of four choices for this
proposal on the proxy card: one year, two years, three years, or abstain. Stockholders are not voting to approve or disapprove the Boards recommendation. This advisory vote on the frequency of future advisory votes on executive compensation is
non-binding
on the Board. Notwithstanding the Boards recommendation and the outcome of the stockholder vote, the Board may in the future decide to conduct advisory votes on a more or less frequent basis
and may vary its practice based on factors such as discussions with stockholders and the adoption of material changes to compensation programs.
Brokers do not have discretion to vote on this proposal without your instruction. Therefore, if you are a beneficial owner and you do not
instruct your broker how to vote on this proposal, your shares will not be voted on this proposal.
THE BOARD RECOMMENDS THAT YOU VOTE
ONE YEAR WITH RESPECT TO THE FREQUENCY OF FUTURE ADVISORY VOTES TO APPROVE EXECUTIVE COMPENSATION.
8
THE BOARD OF DIRECTORS
Consideration of Director Nominees
The
Board believes the Board, as a whole, should possess the requisite combination of skills, professional experience, and diversity of backgrounds to oversee the Companys business. The Board also believes that each individual director should
possess certain attributes, as discussed below. Accordingly, the Board and the Nominating and Corporate Governance Committee (the Nominating Committee) consider the qualifications of directors and director candidates individually as well
as in the broader context of the Boards overall composition and the Companys current and future needs.
The Nominating
Committee is responsible for selecting nominees for election to the Board. In considering candidates for the Board, the Nominating Committee evaluates the entirety of each candidates credentials, attributes, and other factors (as described in
greater detail in the Companys Corporate Governance Guidelines), but does not have any specific minimum qualifications that a nominee must meet. However, the Nominating Committee seeks as directors individuals with substantial management
experience who possess the highest personal values, judgment, and integrity; an understanding of the environment in which the Company does business; and diverse experience with the key business, financial, and other challenges that the Company
faces. In addition, in considering the nomination of existing directors, the Nominating Committee takes into consideration (i) each directors contribution to the Board; (ii) any material change in the directors employment or
responsibilities with any other organization; (iii) the directors ability to attend meetings and fully participate in the activities of the Board and the committees of the Board on which the director serves; (iv) whether the director
has developed any relationships with the Company or another organization, or other circumstances that may have arisen, that might make it inappropriate for the director to continue serving on the Board; and (v) the directors age and
length of service on the Board.
Because the Nominating Committee recognizes that a diversity of viewpoints and practical experiences can
enhance the effectiveness of the Board, as part of its evaluation of each candidate, the Nominating Committee takes into account how each candidates background, experience, qualifications, attributes, and skills may complement, supplement, or
duplicate those of other prospective candidates. The Nominating Committee reviews its effectiveness in balancing these considerations when assessing the composition of the Board, which as discussed below is one of the committees
responsibilities.
Based on the parameters described above, the Board has determined that the directors standing for reelection and the
remaining members of the Board have the qualifications, experience, and attributes appropriate for a director of the Company. As reflected below, each director has a varied background in the real estate industry, finance, and/or agriculture. These
are all areas that are integral to the strategy, operations, and successful oversight of the Company.
Board Composition and Leadership Structure
The Board is grouped into three classes: (1) Class I Directors, whose terms will expire at the 2018 Annual Meeting;
(2) Class II Directors, whose terms will expire at the 2019 Annual Meeting; and (3) Class III Directors, whose terms will expire at the 2017 Annual Meeting. The Board currently consists of ten directors. The Boards leadership is
structured so that the Chairman of the Board and Chief Executive Officer are separate positions. The Chairman of the Board is also an independent director. The Board believes that this structure is appropriate for our Company and our stockholders at
this time because it provides an additional layer of oversight to management and managements activities and allows the Board to act independently of management.
9
Director Qualifications and Biographical Information
The Nominating Committee considered the character, experience, qualifications and skills of each director, including the current director
nominees, when determining whether each should serve as a director of the Company. In keeping with its stated criteria for director nominees described in the section entitled Consideration of Director Nominees above, the Nominating
Committee determined that each director, including the current director nominees, has substantial management experience, exhibits the highest personal values, judgment, and integrity, and possesses an understanding of the environment in which the
Company does business and diverse experience with the key business, financial, and other challenges that the Company faces. Each director is or has been a leader in his respective field and brings diverse talents and perspectives to the Board. The
Nominating Committee also considered the experience and qualifications outlined below in the biographical information for each director, including the current director nominees, as well as other public company board service.
The Nominating Committee noted the following particular attributes and qualities it considers when evaluating director nominees. The
Nominating Committee believes that nominees with business and strategic management experience gained from service as a chief executive officer or similar position is a critical leadership component to Board service. The Nominating Committee also
seeks nominees with backgrounds in finance, banking, economics, and the securities and financial markets, in order to have directors who can assess and evaluate the Companys financial and competitive position. The Nominating Committee
emphasizes familiarity with the real estate and agricultural industries, and considers customer perspectives to be important when evaluating director nominees. Although the directors listed below each possess a number of these attributes, the
Nominating and Corporate Governance Committee considered the specific areas noted below for each director when determining which of the directors qualifications best suit the needs of the Company and qualify them to serve as a director of the
Company.
10
The following table sets forth information regarding the nominees for Class III Directors as
well as the Class I and Class II Directors.
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Class III Directors Whose Terms Expire in 2017 and Principal Occupation,
Employment, or Directorships
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First
Became
Director
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Age
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Gregory S. Bielli
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2013
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56
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Mr. Bielli is President and Chief Executive Officer of Tejon Ranch Co., a position hes held since December
2013. Prior to this position, Mr. Bielli served as the Chief Operating Officer for the Company from September 2013 through November 2013. Mr. Bielli has 25 years of experience in real estate, land acquisition, development, and financing.
Prior to Tejon Ranch, he was a regional president of Newland Communities, one of the countrys largest and most successful master planned community developers. Mr. Bielli served as President of Newlands Western Region from 2006 until
September 2013. Mr. Bielli earned a bachelors degree in Political Science from the University of Arizona in 1983. Our Board believes Mr. Biellis experience in real estate operations, specifically master planned communities, and
his position as Chief Executive Officer of the Company, make him well qualified to serve as director.
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Anthony L. Leggio *
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2012
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65
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Mr. Leggio has been President of Bolthouse Properties, LLC, a commercial and residential real estate development
firm, since January 2006. Prior to serving at Bolthouse Properties, LLC, Mr. Leggio served as Vice President and General Counsel of Wm. Bolthouse Farms from July 2001 until December 2005. Previously, Mr. Leggio was Managing Partner of the
law firm of Clifford and Brown for nearly 25 years. Mr. Leggio has served as a director of Valley Republic Bank since 2008, Three Way Chevrolet Company since 2000, H.F. Cox Trucking since 1993, Mark Christopher Chevrolet since 2001, and W.B.
Camp Companies since 2009. Mr. Leggio received his B.S. degree from the University of the Pacific and his J.D. from the University of the Pacific, McGeorge School of Law. Our Board believes Mr. Leggios real estate development and
agricultural experience, his tenure as Chief Executive Officer of a real estate development company and his legal experience make him well qualified to serve as a director.
* As discussed above, Mr. Leggio currently serves as a Class I
Director but is being nominated for election as a Class III Director. See The Election of Directors for additional information.
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Norman J. Metcalfe
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1998
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74
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Mr. Metcalfe has served as Chairman of the Companys Board of Directors since 2014. Mr. Metcalfe has an
extensive history and background in real estate development and homebuilding. He previously was Vice Chairman and Chief Financial Officer of The Irvine Company, one of the nations largest real estate and community development companies.
Mr. Metcalfe retired from The Irvine Company in 1998. Prior to the Irvine Company, Mr. Metcalfe spent over 20 years in various real estate, corporate finance and investment positions with the Kaufman and Broad/SunAmerica family of
companies. These positions included President and Chief Investment Officer of SunAmerica Investments and Chief Financial Officer of Kaufman and Broad Home Corporation (currently known as KB Home). Mr. Metcalfe is currently a director of
CalAtlantic Homes, having served since 2000. Mr. Metcalfe received a B.S. and an M.B.A. from the University of Washington. Our Board believes Mr. Metcalfes extensive financial experience, understanding of capital structure within the
real estate industry, and experience in publicly held companies make him very qualified to serve as a director.
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11
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Class I Directors Whose Terms Expire in 2018 and Principal Occupation,
Employment, or Directorships
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First
Became
Director
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Age
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Geoffrey L. Stack
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1998
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73
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Mr. Stack has been the managing director of the Sares-Regis Group, a commercial and residential real estate
development and management firm, since 1993. Mr. Stack is responsible for all residential operations of Sares-Regis, including development, acquisitions, finance, and management activities. Mr. Stack graduated from Georgetown University
and received an M.B.A. in Real Estate Finance at the Wharton School, University of Pennsylvania. Our Board believes Mr. Stacks real estate development experience and his experience as the managing director of a real estate company make
him well qualified to serve as a director.
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Frederick C. Tuomi
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2014
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62
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Mr. Tuomi is currently the Chief Executive Officer of Colony Starwood Homes (SFR), the company formed from the
merger of Colony America Homes (CAH) and Starwood Waypoint Residential Trust (SWAY). SFR is a public single-family REIT, owning over 30,000 homes in markets across the U.S. Mr. Tuomi served as CAHs
Co-President
from March 2015 to January 2016 and COO from July 2013 to January 2016. He was responsible for setting CAHs strategic direction and leading CAHs operations including
construction/renovations, marketing, leasing, property management, asset management, human resources and information technology. Mr. Tuomi also served as Executive Vice President and President, Property Management for Equity Residential, a
multi-family REIT, from January 1994 through June 2013. He led the development of Equity Residentials Property Management Group through years of rapid growth and expansion to become the nations largest apartment REIT. Throughout his
35-year
career, he has served on numerous multi-family industry boards and executive committees, including the National Multi-Housing Council, California Housing Council, California Apartment Association, and the
USC Lusk Center for Real Estate. Mr. Tuomi also serves on the board of directors and as treasurer of the National Rental Housing Council. Mr. Tuomi is a graduate of Georgia State University, with a degree in Business Information Systems
and an M.B.A. Our Board believes that Mr. Tuomis real estate background and understanding of the single-family housing market make him very qualified to serve as a director.
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Michael H. Winer
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2001
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61
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Mr. Winer has been employed by Third Avenue Management LLC since May 1994. He is a senior member of the investment
team. Mr. Winer has managed the Third Avenue Real Estate Value Fund since its inception in September 1998. Mr. Winer has served as a director of Five Point Holdings LLC (or its predecessor, Newhall Holdings Company LLC) since 2009 and as a
director of 26900 Newport Inc. since 1998. He retired as a director of Real Mortgage Systems Inc. in November 2009. Mr. Winer received a B.S. degree in accounting from San Diego State University and was formerly a certified public accountant in
California. Our Board believes that Mr. Winers investment industry background and specifically his experience with real estate investing make him very qualified to serve as a director on our Board.
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12
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Class II Directors Whose Terms Expire in 2019 and Principal Occupation,
Employment, or Directorships
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First
Became
Director
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Age
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Robert A. Alter
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2014
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66
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Mr. Alter is currently President of Seaview Investors, LLC, in Newport Beach, CA, and has held that position since
2007. He is the Chairman Emeritus and Founder of Sunstone Hotel Investors (NYSE: SHO), where he served as Chief Executive Officer of the company (or its predecessor) from 1985 to 2007, after which he became Executive Chairman and remained on the
board until 2012. He is one of the premier hotel investment and management executives in the hospitality industry. During the
22-year
period of Mr. Alters position as Chief Executive Officer,
Sunstone acquired 125 hotel properties with over 20,000 guest rooms. Mr. Alter received a B.S. in Hotel Administration from the Cornell University School of Hotel Administration. Our Board believes that Mr. Alters hospitality
background makes him very qualified to serve as a director.
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Steven A. Betts
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2014
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59
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Mr. Betts is Director of Development for Chanen Development Company, an affiliate of the award-winning,
full-service construction organization, Chanen Construction, headquartered in Phoenix and operating throughout the United States. Mr. Betts served as President of Chanen Development Company from 2014 until 2015, when he was appointed Director
of Development. Since 2015 he has also served as Senior Advisor to the Holualoa Companies, a commercial real estate investment company with three-quarters of a billion dollars in assets held all across the U.S. and in Europe, and beginning in 2016
as Senior Advisor to the Southwest Division of Hines, one of the largest commercial investment and development companies in the world. Mr. Betts also served as the Chief Executive Officer of Phoenix Mart, a 1.7 million square foot
multi-category manufacturing product-sourcing center, from June 2013 to October 2013, and as the Senior Vice President and Managing Director of Assets for the ASU Foundation from March 2012 through May 2013. Previous to these endeavors,
Mr. Betts was President and Chief Executive Officer of SunCor Development Company, a half-billion dollar plus asset base subsidiary of the publicly traded Pinnacle West Capital Corporation from 2005 to 2010. SunCor was a developer of master
planned communities throughout the Mountainwest and large-scale commercial projects in Metropolitan Phoenix. Mr. Betts holds numerous board and committee posts, including Chairman of the Interstate 11 Coalition, Chairman and Trustee of the
Arizona Chapter of The Nature Conservancy, and past-chair and current member of the Urban Land
Institute-Arizona
District Council Governance Committee. Mr. Betts received his law degree with honors from
DePaul University and a B.A. with honors from Augustana College. Our Board believes that Mr. Betts master planned community background makes him very qualified to serve as a director.
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Daniel R. Tisch
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2012
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66
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Mr. Tisch has been the managing member of TowerView LLC, an investment fund of the Tisch Family, since 2001. Since
January 2012, Mr. Tisch has also served as a director of Vornado Realty Trust. Mr. Tisch graduated from Brown University and has over 40 years of investing experience. Mr. Tisch worked for major Wall Street firms from 1973 to 1989 and
since then has been managing investment partnerships. Our Board believes that Mr. Tischs investment industry background and his experience in capital raising and risk management make him well qualified to serve as a director.
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Class III Directors not standing for reelections at the 2017 Annual
Meeting
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First
Became
Director
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Age
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John L. Goolsby
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1999
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75
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None of the corporations or organizations described in the biographical information above are subsidiaries
or other affiliates of the Company. There are no family relationships among any directors or executive officers of the Company.
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13
CORPORATE GOVERNANCE MATTERS
The Board has determined that all directors, except Mr. Bielli, are independent under the listing standards of the New York
Stock Exchange (the NYSE) and the Companys categorical criteria used to determine whether a director is independent (the Independence Standards). The Independence Standards are set forth in Attachment A to the
Companys Corporate Governance Guidelines (the Corporate Governance Guidelines), and a copy of the Independence Standards is attached as Appendix A to this Proxy Statement. Thus, the Board determined that the following directors are
independent: Robert A. Alter, Steven A. Betts, John L. Goolsby, Anthony L. Leggio, Norman J. Metcalfe, Geoffrey L. Stack, Daniel R. Tisch, Frederick C. Tuomi, and Michael H. Winer. Also, in making its independence determinations, the Board reviewed
additional information provided by the directors and the Company with regard to any business or personal activities or associations as they may relate to the Company and the Companys management. The Board considered this information in the
context of the NYSEs objective listing standards, the Independence Standards, and for directors serving on committees, the additional standards established for members of audit committees and compensation committees. In reaching a
determination on these directors independence, the Board considered that neither the directors nor their immediate family members have within the past three years had any direct or indirect business or professional relationships with the
Company other than in their capacity as directors.
The Boards independence determinations included a review of business dealings at
companies where the directors serve as directors or outside consultants, all of which were ordinary course business transactions. The Board also performs a review of the Companys charitable contributions to any organization where a director
serves as an executive officer and found no contributions in excess of the Independence Standards.
The independent directors of the Board
meet regularly in executive sessions outside the presence of management. As Chairman of the Board, Mr. Metcalfe presides over these executive sessions.
During 2016, there were five meetings of the Board. During 2016 all directors attended 75% or more of the aggregate total of such meetings of
the Board and committees of the Board on which they served.
The Companys policy is that all directors are expected to attend every
annual stockholders meeting in person. All directors attended the 2016 Annual Meeting of the Company.
14
COMMITTEES OF THE BOARD
Standing committees of the Board include the Executive, Audit, Compensation, Investment Policy, Real Estate, and Nominating and Corporate
Governance Committees. The current members of the standing committees are set forth below:
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Executive
Committee
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Audit
Committee
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Compensation
Committee
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Real Estate
Committee
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Nominating
and
Corporate
Governance
Committee
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Investment
Policy
Committee
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Robert A. Alter
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X
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X
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Steven A. Betts
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X (Chair)
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X
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Gregory S. Bielli
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X
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John L. Goolsby
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X
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X (Chair)
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Anthony L. Leggio
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X (Chair)
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X
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Norman J. Metcalfe
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X (Chair)
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X
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X
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X
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X
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Geoffrey L. Stack
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X
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X
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X
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Daniel R. Tisch
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X
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X
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X
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Frederick C. Tuomi
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X
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X
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Michael H. Winer
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X
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X
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X (Chair)
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X
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During 2016, there were four meetings of the Executive Committee, six of the Audit Committee, six of the
Compensation Committee, four of the Real Estate Committee, one of the Nominating Committee, and no meetings of the Investment Policy Committee. The major functions of each of these committees, including their role in oversight of risks that could
affect the Company, are described briefly below.
Each year, the Board performs a self-evaluation to assess its effectiveness and the
participation of each board member, in addition, on an annual basis, the Audit Committee, Real Estate Committee, Compensation Committee, and Nominating and Governance Committee all perform self-evaluations to measure their effectiveness.
The Executive Committee
Except for certain powers that, under Delaware law, may be exercised only by the full Board, or which, under the rules of the Securities and
Exchange Commission (the SEC) or the NYSE, may only be exercised by committees composed solely of independent directors, the Executive Committee may exercise all powers and authority of the Board in the management of the business and
affairs of the Company.
The Audit Committee
The Audit Committee represents and assists the Board in fulfilling the Boards oversight responsibility relating to (i) the
accounting, reporting, and financial practices of the Company and its subsidiaries, including the integrity of the Companys financial statements; (ii) the surveillance of administration and financial controls and the Companys
compliance with legal and regulatory requirements; (iii) the independent auditors qualifications and independence; and (iv) the performance of the Companys internal audit function and the Companys independent auditor. In
addition, the Audit Committee is directly responsible for the retention, compensation and oversight of the independent auditor and approves all audit and
non-audit
services the independent auditor performs. It
also reviews and discusses the Companys policies with respect to risk assessment and risk management. The Audit Committee reports regularly to the full Board with respect to its activities. The Audit Committee is governed by a written charter
adopted and approved by the Board. The Audit Committees current
15
charter is available on the Companys
web-site,
www.tejonranch.com
, in the Corporate Governance section of the Investor Relations webpage, and
is available in print form upon request to the Corporate Secretary, P.O. Box 1000, Tejon Ranch, California 93243.
The Board has
determined that each member of the Audit Committee is independent under the listing standards of the NYSE and under the Companys Independence Standards, and that each member of the Audit Committee is financially literate and meets the
requirements for audit committee membership set forth in
Rule 10A-3
of the Exchange Act. The Board has further found that Mr. Leggio qualifies as an audit committee financial expert for
the purposes of Item 407(d) (5) of Regulation
S-K,
and has accounting or related financial management expertise as described in the listing standards of the NYSE.
The Compensation Committee
The Compensation Committee oversees the Companys overall compensation structure, policies, and programs, and it assesses whether the
Companys compensation structure establishes appropriate incentives for management and employees. It also reviews and approves corporate goals and objectives relevant to the compensation of top managerial and executive officers, evaluates their
performance in light of those goals and objectives, and makes recommendations regarding their compensation. It administers and makes recommendations to the Board with respect to the Companys incentive compensation and equity-based compensation
plans and grants of awards thereunder. It also reviews and recommends to the Board the design of other benefit plans, employment agreements, and severance arrangements for top managerial and executive officers. The Compensation Committee oversees
the assessment of the risks related to the Companys compensation policies and programs applicable to officers and employees, reviews the results of this assessment, and also assesses the results of the Companys most recent advisory vote
on executive compensation. It approves, amends, or modifies the terms of any compensation or benefit plan that does not require stockholder approval, if delegated to the Committee by the Board. It reviews and recommends changes for the compensation
of directors, and it reviews succession plans relating to positions held by senior executive officers. It reports regularly to the Board with respect to its activities.
The Compensation Committee is governed by a written charter adopted and approved by the Board. The Compensation Committees current
charter is available on the Companys
web-site,
www.tejonranch.com
, in the Corporate Governance section of the Investor Relations webpage, and is available in print form upon request to the
Corporate Secretary, P.O. Box 1000, Tejon Ranch, California 93243. The Compensation Committee is authorized to delegate to a subcommittee consisting of not less than two members of the Compensation Committee the responsibility to review
specific issues, meet with management on behalf of the committee regarding such issues, and prepare recommendations for reports or review by the Committee. The Board has determined that each member of the Compensation Committee is independent under
the listing standards of the NYSE for directors and compensation committee members and under the Companys Independence Standards.
The CEO does not participate in the Compensation Committees deliberations with regard to his own compensation. At the Compensation
Committees request, the CEO reviews with the Compensation Committee the performance of the other executive officers, but no other executive officers have any input in executive compensation decisions. The Compensation Committee gives
substantial weight to the CEOs evaluations and recommendations, because he is particularly able to assess the other executive officers performance and contributions to the Company.
During 2016, the Compensation Committee retained the POE Group to advise the Committee on marketplace trends in executive compensation, peer
company identification for the benchmarking of NEO compensation and NEO compensation decisions. POE consults with the Compensation Committee about its recommendations to the Board on Chief Executive Officer and other NEOs compensation. The decision
to engage an outside compensation consultant was not recommended by management. POE Group was used throughout 2016. POE Group did not provide any other services to the Company in 2016, and its fees were
16
$41,287 for the year. The Compensation Committee has reviewed an assessment of any potential conflicts of interest raised by POE Groups work for the Compensation Committee, which assessment
considered the following six factors: (i) the provision of other services to the Company by POE Group; (ii) the amount of fees received from the Company by POE Group, as a percentage of POE Groups total revenue; (iii) the
policies and procedures of POE Group that are designed to prevent conflicts of interest; (iv) any business or personal relationship of the POE Group consultant with a member of the Compensation Committee; (v) any Company stock owned by the
POE Group consultants; and (vi) any business or personal relationship of the POE Group consultant or POE Group with any of the Companys executive officers. The Committee concluded that there are no such conflicts of interest.
The Real Estate Committee
The Real Estate Committee provides oversight, guidance and strategic input into management action plans for development and entitlement of
Company land, and it provides a review function to management regarding major decision points within the Companys development projects. It reviews and either approves or recommends to the Board appropriate action on significant proposed real
estate transactions and development
pro formas
and budgets. The Real Estate Committee also provides oversight and guidance to the Companys Chief Executive Officer with regard to recruitment and employment of senior real estate
executives. It reports regularly to the full Board with respect to its meetings. The Real Estate Committees current charter is available on the Companys
web-site,
www.tejonranch.com
, in the
Corporate Governance section of the Investor Relations webpage, and is available in print form upon request to the Corporate Secretary, P.O. Box 1000, Tejon Ranch, California 93243.
The Investment Policy Committee
The Investment Policy Committee reviews policies and activities related to the investment of the Companys cash assets and works in
coordination with the Real Estate Committee. It receives and reviews policy and data regarding marketable security investments and recommends approval of the Companys investment security policy to the Board.
The Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee (Nominating Committee) is charged with assessing existing directors to determine
whether to recommend them for reelection to the Board, identifying and recruiting potential new directors, establishing a procedure for consideration of candidates for director positions recommended by stockholders, and recommending candidates to be
nominated by the Board or elected by the Board as necessary to fill vacancies and newly created directorships. It also reviews and makes recommendations to the Board regarding the structure, composition, and functioning of the Board and its
committees, and evaluates and recommends changes to the Corporate Governance Guidelines. The Nominating Committee also annually reviews the independence of all directors and evaluates the Boards performance.
The Board has determined that each member of the Nominating Committee is independent under the listing standards of the NYSE and under the
Companys Independence Standards. The Nominating Committee is governed by a written charter adopted and approved by the Board. The Nominating Committees current charter is available on the Companys
web-site,
www.tejonranch.com
, in the Corporate Governance section of the Investor Relations webpage, and is available in print form upon request to the Corporate Secretary, P.O. Box 1000, Tejon Ranch,
California 93243.
The Nominating Committee is pleased to consider any properly submitted recommendations of director candidates from
stockholders. Stockholders may recommend a candidate for consideration by the Nominating Committee by sending written notice addressed to the Nominating and Corporate Governance Committee Chair, c/o Corporate Secretary, P.O. Box 1000, Tejon Ranch,
California 93243. The Nominating Committee does not
17
evaluate candidates differently based on who has made the recommendation. Stockholders may also nominate persons for election to the Board by providing timely notice in writing to the Secretary
of the Company pursuant to the procedures set forth in the Companys Certificate of Incorporation. See Stockholder Proposals for 2018 Annual Meeting for additional information on the procedure for stockholder nominations.
The Nominating Committee has the authority under its charter to hire and pay a fee to outside counsel, experts, or other advisors to assist in
the process of identifying and evaluating candidates. No such outside advisors were used during 2016, and, accordingly, no fees were paid to such advisors during 2016. Past practice has been for the Nominating Committee to seek recommendations for
new directors from current directors, the Chief Executive Officer, and outside advisors.
CODE OF
BUSINESS CONDUCT AND ETHICS AND CORPORATE GOVERNANCE GUIDELINES
The Board has adopted a Code of Business Conduct and Ethics,
which is applicable to all directors, officers, and employees. It also has adopted Corporate Governance Guidelines to guide its own operations. Both documents (including Attachment A to the Corporate Governance Guidelines, which constitutes the
Companys Independence Standards) are available on the Companys
web-site,
www.tejonranch.com
, in the Corporate Governance section of the Investor Relations webpage, and are available in print
form upon request to the Corporate Secretary, P.O. Box 1000, Tejon Ranch, California 93243.
SUCCESSION PLANNING
The Board, with the assistance of the Compensation Committee, oversees succession plans for the Chief Executive Officer and other senior
executive officers. These plans relate both to succession in emergency situations and longer-term succession. As set forth in the Corporate Governance Guidelines and Compensation Committee Charter, the Compensation Committee reviews the
Companys succession planning for senior executive officers at least annually. The Chief Executive Officer also provides the Board with input regarding these matters.
BOARDS ROLE IN RISK OVERSIGHT
The full Board oversees the Companys risk management process. The Board oversees a Company-wide approach to risk management, designed to
enhance stockholder value, support the achievement of strategic objectives, and improve long-term organizational performance. The full Board determines the appropriate level of risk for the Company generally, assesses the specific risks faced by the
Company, and reviews the steps taken by management to manage those risks. The full Boards involvement in setting the Companys business strategy facilitates these assessments and reviews, culminating in the development of a strategic plan
that reflects both the Boards and managements consensus as to appropriate levels of risk and the appropriate measures to manage those risks. The full Board assesses risk throughout the enterprise, focusing on risks arising out of various
aspects of the Companys strategic plan and the implementation of that plan, including financial, legal/compliance, operational/strategic, and compensation risks. In addition to discussing risk with the full Board, the independent directors
discuss risk management during executive sessions without management present.
While the full Board maintains the ultimate oversight
responsibility for the risk management process, its committees oversee risk in certain specified areas. In particular, the Audit Committee focuses on financial risk, including internal controls, and discusses the Companys risk profile with the
Companys internal auditors. The Audit Committee also reviews potential violations of the Companys Code of Ethics and related corporate policies. The Compensation Committee periodically reviews compensation practices and policies to
determine whether they encourage excessive risk-taking. Finally, the Nominating Committee manages risks associated with the independence of directors and Board nominees. Pursuant to the Boards instruction, management regularly
18
reports on applicable risks to the relevant committee or the full Board, as appropriate, additional review or reporting on risks is conducted as needed or as requested by the Board and its
committees.
The Compensation Committee has also reviewed the design and operation of the Companys compensation structures and
policies as they pertain to risk and has determined that the Companys compensation programs do not create or encourage the taking of risks that are reasonably likely to have a material adverse effect on the Company.
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis (CD&A) describes our compensation program for the following individuals, all of whom are considered
NEOs for 2016.
|
|
|
Name
|
|
Title
|
Gregory S. Bielli
|
|
Chief Executive Officer
|
Allen E. Lyda
|
|
Chief Financial Officer
|
Joseph N. Rentfro
|
|
Executive Vice President, Real Estate
|
Hugh F. McMahon
|
|
Executive Vice President, Commercial/Industrial Development
|
Dennis J. Atkinson
|
|
Senior Vice President, Agriculture and Water
|
This CD&A describes the components of our executive compensation program, providing a discussion of our
executive compensation philosophy, policies, and practices. It also describes how and why the Compensation Committee of the Board arrived at specific 2016 executive compensation decisions and the factors the Compensation Committee considered in
making those decisions.
Executive Summary
Our executive compensation program aligns with our strong
pay-for-performance
philosophy and ties a substantial portion of executive compensation to the achievement of annual and long-term strategic objectives directly tied to
the creation of stockholder value. The objectives of our executive compensation program are to (i) drive performance against critical strategic goals designed to create long-term stockholder value and (ii) pay our executives at a level and
in a manner that ensures Tejon Ranch is capable of attracting, motivating, and retaining top executive talent.
Our primary business
objective is to maximize long-term stockholder value through the monetization of our land-based assets. This is accomplished by moving our assets up the value creation chain through the entitlement process, the mapping process, and ultimately to
development. A key element of our strategy is to provide entitled land for large scale residential and
mixed-use
real state communities to serve the growing population of Southern and Central California. We
are currently engaged in commercial sales and leasing at our fully operational commercial/industrial center, and are in the mapping process and entitlement process for our three major residential projects. All of these efforts are supported by
diverse revenue streams generated from other operations, including farming, mineral resources, and our various joint ventures.
19
Company Performance 2016
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders for fiscal
2016 was $558,000, representing earnings per common share of $0.03, compared with $2,950,000, or earnings per common share of $0.14, for fiscal 2015. The year-over-year reduction was mainly due a decrease in farming profits of $4,877,000. This
decrease was partially offset by a $774,000 increase in equity in earnings of unconsolidated joint ventures compared with 2015 and a $1,044,000 gain on sale of an operating property during 2016.
|
|
|
Revenues and other income were $54,334,000 in fiscal
2016, a decrease of $4,046,000, or 6.9%, compared to revenue and other income of $58,380,000 in 2015. Commercial revenues increased 14.1% year over year, primarily related to the sale of 2.4 acres of land for $1,193,000 within Tejon Ranch Commerce
Center to a hotel developer, the Company recognized $710,000, in gain in 2016. In addition, the Company recognized a gain of $1,044,000 from the sale of a
non-core
operating property. These increases were
offset by a 21.8% decrease in farming revenue, attributed to lower than expected commodity prices in 2016, specifically almond prices, which decreased 24.9%, or $0.83 per pound. Mineral resource revenues also declined $963,000 year-over-year,
primarily due to slumping oil prices compared with 2015. See following chart for summary of revenues.
|
|
|
|
2016
|
|
|
2015
|
|
Total operating revenues
|
|
$
|
45,577,000
|
|
|
$
|
51,147,000
|
|
Total other income
|
|
|
615,000
|
|
|
|
909,000
|
|
Gain on sale of real estate
|
|
|
1,044,000
|
|
|
|
|
|
Equity in earnings of unconsolidated joint
ventures
|
|
|
7,098,000
|
|
|
|
6,324,000
|
|
|
|
|
|
|
|
|
|
|
Total Revenue and Other Income
|
|
$
|
54,334,000
|
|
|
$
|
58,380,000
|
|
|
Internally management is measured using a
non-GAAP
revenue number
that includes total sales proceeds from real estate sales rather than the GAAP presentation of recognizing only the gain on sales from real estate. The adjustment is as follows:
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Total revenues and other
income
|
|
$
|
54,334,000
|
|
|
$
|
58,380,000
|
|
Gain on sale of real estate
|
|
|
(1,044,000
|
)
|
|
|
|
|
Sales proceeds from sale of real
estate
|
|
|
4,700,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
57,990,000
|
|
|
$
|
58,380,000
|
|
|
|
|
|
|
|
|
|
|
20
2016 Company Highlights
|
|
|
|
|
|
In January 2016, we delivered a multi-tenant building
located at Tejon Ranch Commerce Center-East to Habit Burger and Baja Fresh, both of which began operations in 2016.
|
|
In August 2016, we entered into a limited liability
company agreement, forming a joint venture with Majestic Realty Co. to purchase, own, and manage a fully-leased, 651,909 square-foot industrial building located at the Tejon Ranch Commerce Center. The joint venture purchased the building in
September for $24.8 million which was financed through a $21.1 million promissory note guaranteed by both partners. Each member of the joint venture has a 50% interest.
|
|
In September 2016, we entered into a second limited
liability agreement, forming a joint venture with Majestic Reality Co. for the development, ownership, and management of a 480,480 square-foot industrial building at the Tejon Ranch Commerce Center. The Company is in the process of planning and
designing the building. Each member of the joint venture has a 50% interest.
|
|
In December 2016, the Kern County Board of Supervisors
unanimously approved the development of the Companys Grapevine at Tejon Ranch community.
|
Declines in total revenue and net income during 2016 led to EBITDA and total revenues, the annual corporate
incentive bonus quantitative metrics, being below the target goal levels for the year. These metrics are discussed below under Annual Performance-Based Incentives. Revenue and operating profit goals for commercial/industrial real estate
were above the target goal level. Revenue and operating goals for farming were below target for revenue and below the threshold level for operating profits. The NEOs met the 2014 rolling three-year cash flow objectives at 98% of the target award
level. The rolling three-year cash flow metric is described in the equity compensation section. The grants associated with the 2014 three-year cash flow metric were paid out during March 2017. The number of stock units that vested in 2017 is
identified in the footnotes to the Outstanding Equity Awards at 2016 Fiscal
Year-End
table that begins on page 47.
For 2016, the Compensation Committee made the following decisions:
|
1.
|
The Chief Executive Officers (CEOs) salary remained at $600,000 for 2016. At the beginning of 2016, the other NEOs salaries were increased by 3%. These adjustments are described in more detail below.
|
|
2.
|
The Compensation Committee, which was approved by the Board of Directors, granted to the CEO a
one-time
supplemental long-term stock incentive opportunity. The performance stock
opportunity provides the CEO with the opportunity to earn up to an additional 158,982 shares of stock at maximum achievement. This stock opportunity is described in more detail in the equity compensation section.
|
|
3.
|
For each NEO, the earned annual incentive plan bonus for 2016 was paid out entirely in cash.
|
Consideration of
Say-on-Pay
Results
At our 2016 Annual Meeting, our stockholders expressed support for our executive compensation program, with 65% of stockholders casting votes
in favor of the advisory vote proposal. As a result of the 2015 and 2016 advisory vote, the Company reached out to receive input from our largest investors. In terms of stockholder outreach, we received feedback regarding our executive compensation
program from stockholders representing in the aggregate more than 40% of the Companys voting stock. When evaluating our 2016 and 2017 executive
21
compensation programs, the Compensation Committee considered feedback we received from these stockholders, such as the need to tie long-term equity awards to performance goals and to stock return
metrics. The Company also considered feedback from the Compensation Committees independent consultant. After careful consideration of these results, and feedback as well as other factors described herein, the Compensation Committee determined
that the Company should continue forward with the direction of tying compensation to long-term milestone and performance goals. These goals will be tied to the Companys long-term real estate development objectives of entitlement of land for
development, development of land, and management of cash and capital allocations. During 2016, the Compensation Committee adjusted the CEOs long-term performance stock compensation to include a Total Stockholder Return (TSR) component. The
Compensation Committee also reviewed peer companies and adjusted our peer group to better reflect the Companys activities.
2017 The Year Ahead
The Company believes 2017 will be a challenging year in terms of the accomplishment of corporate objectives. The challenges of 2017 relate to
the continuing possibility of low oil production on our land; the decline in farm crop prices, especially almonds and pistachios; water management as we allocate our water resources to our permanent crops of almonds, pistachios, and wine grapes and
to real estate development; and the anticipated decline in water sales during 2017 as a result of increased rain and snow in California. The above items will challenge us in meeting our 2017 budgeted revenue and cash flow objectives. Our successes
may come from the successful approval of the specific plan for our Centennial development and the approval of the Mountain Village tentative tract map during 2017.
General Objectives and Compensation Philosophy
The compensation program for our NEOs is designed to align managements incentives with the long-term interests of our stockholders and to
be competitive with comparable employers. Our compensation philosophy recognizes the value of rewarding our NEOs for their past performance and motivating them to continue to excel in the future. The Compensation Committee has developed and
maintains a compensation program that rewards superior performance and seeks to encourage actions that drive our business strategy. Our compensation strategy is to provide a competitive opportunity for senior executives, taking into account their
total compensation packages, which include a combination of base salary, an annual cash-based incentive bonus, and long-term performance-based equity awards. At the NEO level, our incentive compensation arrangements are designed to reward the
achievement of long-term milestone objectives related to real estate development that are measurable and instrumental to our success. This will drive the creation of value, as well as the achievement of
year-to-year
operating performance goals.
Overall Compensation Plan Design and Core
Tenets
The compensation policies developed by the Compensation Committee are based on the philosophy that compensation should
reflect both financial and operational performance of the Company, the success of the Company in achieving real estate development milestones, and the individual performance of the executive. The Compensation Committee also believes that long-term
incentives should be a significant factor in determining compensation, particularly because the business of real estate development, including obtaining entitlement approvals and completing development, and many of the other actions and decisions of
our NEOs, requires a long time horizon before the Company realizes a tangible financial benefit. The following core tenets inform the design of our compensation plan.
22
|
Competitive Pay Opportunity
|
|
✓ We pay competitively to attract, motivate, and retain the executives who
drive our success and industry leadership.
|
|
Equity Incentives
|
|
✓ A significant percentage of annual target pay opportunity is in equity
to incentivize a long-term focus and strong alignment with stockholders.
|
|
Sustainable Long-Term Performance
|
|
✓ A large majority of total pay is subject to multi-year vesting or
performance requirements.
|
|
Explicit Pay and Performance Link
|
|
✓ We explicitly tie pay to performance by delivering a large majority of
pay through performance-based incentives.
|
|
Compensation Governance
|
|
✓ We discourage unnecessary and excessive risk-taking through our vesting
and stockholding requirements and clawback provisions.
|
Our Executive Compensation Best Practices
|
|
|
WHAT WE DO
|
|
WHAT WE DO NOT DO
|
✓ Utilize multiple performance metrics in our incentive plans tied to our short- and
long-term goals
|
|
×
Provide tax
gross-ups
for executive officers on perquisites or
change-in-control
severance payments
|
|
|
✓ Employ common short-term goals for the majority of our NEOs bonus
opportunities
|
|
×
Allow hedging of TRC stock
|
|
|
✓ Provide a majority of equity compensation opportunity through performance-based
goals
|
|
×
Allow pledging of TRC stock
|
|
|
✓ Align long-term equity opportunity to project milestones that relate to stockholder
value creation
|
|
×
Allow holding of TRC stock in margin
accounts
|
|
|
✓ Adhere to an executive compensation recovery, or clawback, policy to ensure
accountability
|
|
×
Reprice or replace equity awards
|
|
|
✓ Require executives and directors to own Company stock to reinforce the alignment of
their interests with those of our stockholders
|
|
×
Provide single trigger cash severance
based solely upon a change in control of the Company
|
|
|
✓ Utilize an independent compensation consultant who reports directly to the
Compensation Committee
|
|
×
Provide large bonus payouts without justifiable
performance linkage
|
|
|
✓ Recognize an independent Chairman of the Board in our corporate governance
structure
|
|
×
Provide guaranteed bonuses
|
|
|
✓ Provide an annual stockholder say on pay vote
|
|
|
23
The Role of the Compensation Committee in Setting Compensation
The Compensation Committee of the Board approves all compensation and awards to senior management, including the Chief Executive Officer and
the other NEOs. The Compensation Committee independently reviews and establishes the compensation levels of the Chief Executive Officer; it also reviews the performance of the Chief Executive Officer and discusses his performance with him. At the
beginning of the year, the Chief Executive Officer works with the Compensation Committee to establish his goals and objectives to be evaluated throughout the year. For the remaining executive officers, the Chief Executive Officer makes
recommendations as to compensation levels, including grants of equity awards, for final approval by the Compensation Committee, which then makes its recommendation to the full Board for approval.
The Role of the Compensation Consultant
In accordance with its Charter, the Compensation Committee has the sole authority to retain and terminate independent consultants on matters of
executive compensation and benefits, including sole authority to approve the consultants fees and other retention terms. The Compensation Committee also has the authority to obtain advice and assistance for internal and external legal,
accounting, or other advisors. The Compensation Committee utilizes the POE Group, Inc. as its compensation consultant. The POE Group reports directly to the Compensation Committee. The POE Group was not engaged to perform any additional services
beyond its support of the Compensation Committee.
In reviewing conflicts of interest, our Compensation Committee considered the following
six factors with respect to the POE Group:
|
The provision of other services to the Company.
|
The amount of fees received from the Company as a percentage of the POE Groups
total revenue.
|
The policies and procedures of the POE Group that are designed to prevent conflicts of
interest.
|
Any business or personal relationship of the POE Group with a member of the Compensation
Committee.
|
Any Company stock owned by the POE Group.
|
Any business or personal relationship of the POE Group with any of the Companys
executive officers.
|
Upon consideration of these factors, our Compensation Committee concluded that the engagement of the POE Group
did not present any conflicts of interest.
In connection with its engagement by the Compensation Committee, the POE Group has:
|
Provided information, insights, and advice regarding compensation
philosophy, objectives, and strategy.
|
Recommended peer group selection criteria and identified and recommended potential peer
companies.
|
Provided preliminary analysis of competitive compensation practices for
NEOs.
|
Consulted with the Compensation Committee on long-term incentive and equity plan
design.
|
Reviewed and commented on recommendations regarding CEO and NEO
compensation.
|
Advised the Compensation Committee on specific issues as they arose.
|
The total amount of fees paid to the POE Group for 2016 was $41,287.
24
Compensation Risk Assessment
As part of its risk assessment process, the Compensation Committee reviewed material elements of executive and
non-executive
employee compensation. The Compensation Committee concluded these policies and practices do not create risk that is reasonably likely to have a material adverse effect on the Company.
The structure of our compensation program for NEOs does not incentivize unnecessary or excessive risk-taking. The base salary component of
compensation does not encourage risk taking because it is a fixed amount. The incentive plan awards have these risk limiting characteristics:
|
✓ Annual incentive awards for each NEO are limited to the
fixed maximum specified in the incentive plan. Cash awards under the annual incentive plan are limited to 150% of the target cash award.
|
✓ Annual incentive awards are based on a review of a variety of performance
factors, thus diversifying the risk associated with any single aspect of performance, while amounts received from performance stock awards do not vary directly based on an individual executive officers performance.
|
✓ The variable compensation program places a greater weight on long-term plans as
compared to short-term plans.
|
✓ Cash-based incentive plans provide the highest weighting on overall corporate
performance.
|
✓ Stock awards are not tied to formulas that could focus our NEOs on specific
short-term outcomes.
|
✓ The Compensation Committee, which is composed of independent members of our
Board, approves final incentive plan cash and stock awards in its discretion after reviewing executive and corporate performance.
|
✓ Awards are subject to our clawback policy.
|
✓ The majority of long-term value is delivered in shares of the Company with a
multi-year vesting schedule, which aligns the interests of our NEOs to the long-term interests of stockholders.
|
✓ NEOs are subject to our executive stock ownership
requirements.
|
2016 Executive Compensation Plan Developments
Our annual incentive compensation plan (AICP) has four primary performance measures:
|
1.
|
Achievement of targeted corporate earnings before income taxes, depreciation, and amortization (EBITDA).
|
|
2.
|
Achievement of targeted corporate revenue.
|
|
3.
|
Achievement of two short-term milestone goals, which are defined each year.
|
|
4.
|
Divisional quantitative / individual measures.
|
The specific weight attached to each
performance measure is dependent on each positions responsibilities. Corporate goals have a greater weight than divisional goals for all positions. This encourages mutual accountability among the executive team.
Our long-term incentive plan (LTIP) consists of three equity delivery vehicles:
|
1.
|
Project-related milestone grants reflect the first phase of stockholder value creation. The performance milestone
focus is on identifying projects, securing approvals, and project implementation of our real estate holdings. These milestone performance units have specific defined goals that are measurable and not subjective. The timeframe associated with the
project-related milestones is three years, reflecting
|
25
|
the long-term nature of our business. This component of our LTIP delivers 40% of the long-term compensation opportunity. Project-related milestones are awarded once each three-year period and are
tied to specific milestones. The first three-year period began with 2014 performance milestone grants. New performance milestone grants were determined by the Compensation Committee for the next three-year measurement period beginning in 2017 and
are described in more detail below.
|
|
2.
|
Three-year performance share grants capture the second phase of value creation: the management and creation of cash flow. The Compensation Committee has selected three-year cumulative corporate operating cash flow as
the performance share plan metric. This component of our LTIP delivers 40% of the long-term compensation opportunity.
|
|
3.
|
Time-vested restricted stock units are the final component of our LTIP. This element in the plan design recognizes the inherent risk in large-scale land development. Time-vested restricted stock units help balance the
performance orientation of our approach with the objective of retaining our executive team. The grants vest
one-third
each year for three years. This component of our LTIP delivers 20% of the long-term
compensation opportunity.
|
The Compensation Committee believes that the changes to our executive compensation program
approved in 2014 encourage mutual accountability among our executive team while focusing the team on important goals in the short and long term. Furthermore, our new long-term design reflects the value creation process inherent in large-scale land
development by first identifying projects, securing entitlements, and mapping projects, and then developing the projects to maximize financial returns.
2017 Executive Compensation Plan Developments
At the end of 2016, the Board of the Company, on the
recommendation of the Compensation Committee, approved the 2017-2019 performance milestone measurement objectives that will be used to measure the vesting of performance milestone grants. The objectives are:
|
1.
|
Create a destination retail development program on land adjacent to the Outlets of Tejon and begin construction of that program. Grant Date value of award equals 35% of total.
|
|
2.
|
Provide assistance in obtaining approval of and/or be a part of an approved ground water sustainability agency for the White Wolf Basin and the Castac Lake Basin. Grant date value of award equals 40% of total.
|
|
3.
|
Develop a program for the development of one of our residential master plans through a joint venture agreement, a letter of intent with a potential joint venture partner, or a program to develop the identified community
ourselves. Grant date value of award equals 25% of total.
|
Shares were granted in March 2017 with a target vesting date of
December 2019. Maximum award achievement is 150% of target and occurs if performance objectives are achieved ten months prior to target date. Threshold award achievement is 50% of target and occurs if objectives are achieved no more than ten months
after the target vesting date. The following table identifies the target value and target shares granted:
|
|
|
|
|
|
|
|
|
|
|
Target
Value
|
|
|
Target
Shares
|
|
Gregory S. Bielli
|
|
$
|
1,500,000
|
|
|
|
65,076
|
|
Allen E. Lyda
|
|
|
556,654
|
|
|
|
24,150
|
|
Joseph N. Rentfo
|
|
|
470,475
|
|
|
|
20,411
|
|
Dennis J. Atkinson
|
|
|
257,142
|
|
|
|
11,156
|
|
Hugh F. McMahon
|
|
|
446,582
|
|
|
|
19,374
|
|
26
Pay Mix Analysis
The target mix of total compensation elements for our NEOs, as a percentage of total compensation, is set forth in the table below. The first
set of exhibits illustrates the three-year compensation target selected by the Compensation Committee. We show a three-year period to account for the granting of project milestone equity performance grants that occurs once every three years. A
project milestone grant was most recently made in March 2017 and prior to that in 2014. For comparison purposes, the second set of exhibits shows the 2014 2016 actual granted pay mix. The actual to target comparison shows that we are in line
with the three-year target and that the CEOs long-term equity portion has increased as a percentage of his total compensation. This increase in the CEOs long-term equity compensation is consistent with the intent of the Compensation
Committee to have a greater percentage of pay tied to equity performance milestones.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Compensation
|
|
Named Executive Officer : Target Mix
|
|
Base
Salary
|
|
|
Annual
Incentives
|
|
|
(2)
Long-Term
Equity
|
|
CEO
3-Year
Target (1)
|
|
|
25
|
%
|
|
|
25
|
%
|
|
|
50
|
%
|
Other NEOs
3-Year
Target (1)
|
|
|
34
|
%
|
|
|
21
|
%
|
|
|
45
|
%
|
In comparison to the above three-year target pay mix the actual granted pay mix is shown in the chart and table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer Actual Granted Pay Mix
|
|
Base
Salary
|
|
|
Annual
Incentives
|
|
|
(2)
Long-Term
Equity
|
|
CEO
3-Year
Target (1)
|
|
|
20
|
%
|
|
|
24
|
%
|
|
|
56
|
%
|
Other NEOs
3-Year
Target (1)
|
|
|
31
|
%
|
|
|
22
|
%
|
|
|
47
|
%
|
27
1.
|
The three-year measurement period covers 2014 2016. LTIP project milestones are only granted in the first year of the three-year period.
|
2.
|
Includes LTIP project milestones that are granted once every three years and are tied to specific milestones that lead to the achievement of development objectives. For this three-year period, LTIP project milestones
were granted in 2014.
|
Also illustrated is the 2016 actual pay mix for our CEO and other NEOs compared to the peer group,
based on data for 2015. 2016 is the end of a three-year measurement period; therefore, the comparison does not include project milestone equity grants that were granted in 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Compensation
|
|
Named Executive Officer
|
|
Base Salary
|
|
|
Incentives
|
|
|
Equity
|
|
CEO 2016 Actual
|
|
|
18
|
%
|
|
|
19
|
%
|
|
|
63
|
%
|
2015/2016 Average Peer Data - CEO
|
|
|
26
|
%
|
|
|
26
|
%
|
|
|
48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Compensation
|
|
Named Executive Officer
|
|
Base Salary
|
|
|
Incentives
|
|
|
Equity
|
|
Other NEOs 2016 Actual
|
|
|
39
|
%
|
|
|
23
|
%
|
|
|
38
|
%
|
2015/2016 Average Peer Data - Other NEOs
|
|
|
44
|
%
|
|
|
25
|
%
|
|
|
31
|
%
|
The pay component percentages illustrate that variable compensation comprises a significant percentage of
total compensation. The emphasis on variable compensation supports the Compensation Committees goal of a
pay-for-performance
orientation with a significant
percentage of total compensation at risk. Also evident in the tables above is the importance placed by the Compensation Committee on long-term compensation elements. The Companys business is long-term in nature. Therefore, the compensation
program places strong emphasis on long-term pay opportunity to link the executive pay programs to the business strategy.
28
The chart below compares the five-year change in CEO compensation and the change in value of $100
invested in the Company (indexed total stock return, or TSR). CEO compensation has increased over the period, while the change in value of the $100 investment has slightly decreased over the period. CEO compensation in 2014 was higher than in other
years due to three-year performance milestone grants awarded that year, and 2016 compensation increased as a result of the supplemental performance milestone grants that potentially vest at the end of 2017 and 2019. The 2014 milestone grants, which
comprised a significant portion of long-term compensation, represented long-term pay opportunity for 2014 2016.
Market Comparison Review 2016 Peer Group
Although the Compensation Committee does not believe that it is appropriate to establish compensation levels based solely on market comparisons
or industry practices, the Committee believes that information regarding pay practices at other companies is useful in three respects. First, marketplace information is one of the many factors that the Compensation Committee considers in assessing
the reasonableness of compensation. Second, it recognizes that our compensation practices must be generally competitive for executive talent in the real estate, land development, and agriculture industries and the market overall. Third, it
recognizes that marketplace information reflects emerging and changing components and forms of compensation. While the Compensation Committee considers peer compensation levels and practices when making its compensation decisions, it does not target
compensation at any particular point within a range established by a comparison of the financial performance or compensation levels of our peer companies.
In 2016, the Compensation Committee, with guidance from our independent compensation consultant, the POE Group, reviewed our 2015 peer group.
The goal was to identify companies that are engaged in real estate development activities and are appropriate for comparison purposes based on revenues and market capitalization. The Compensation Committee compared NEOs total compensation
against the peer group when evaluating 2016 compensation. In comparison to the peer group, TRC CEO pay is at the top of the rankings as a result of a supplemental performance grant in early 2016 as described in the Equity Compensation section
beginning on page 38.
Note in the table below that TRCs revenue is below the majority of the peer group, but market
capitalization is at the peer group median. The Compensation Committee believes that market capitalization is a more appropriate criteria for comparison to peer companies, considering that our primary assets are under development and are not yet
producing their projected revenues.
29
The peer group data is based on 2015 and 2016 results and consisted of the following companies:
|
|
|
|
|
|
|
|
|
Agree Realty
|
|
Forestar Group
|
|
|
|
|
Alexander & Baldwin
|
|
Kite Realty Group
|
|
|
|
|
Alico
|
|
Limoneira
|
|
|
|
|
AV Homes
|
|
One Liberty Properties
|
|
|
|
|
BRT Realty Trust
|
|
Retail Opportunity Investments
|
|
|
|
|
Consolidated-Tomoka Land
|
|
Saul Centers
|
|
|
|
|
Cousins Properties
|
|
St. Joe Co.
|
|
|
|
|
First Industrial Trust
|
|
Stratus Properties
|
|
|
Peer Company Data Comparison
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Peer
Median (1)
|
|
|
Tejon (2)
|
|
|
Tejon Ranking
|
|
Total Revenues
|
|
$
|
168
|
|
|
$
|
54
|
|
|
|
3
|
%
|
Market Capitalization
|
|
$
|
721
|
|
|
$
|
529
|
|
|
|
47
|
%
|
Net Income
|
|
$
|
18
|
|
|
$
|
.6
|
|
|
|
8
|
%
|
Total Compensation - CEO
|
|
$
|
2.2
|
|
|
$
|
3.3
|
|
|
|
83
|
%
|
(1)
|
Peer company data as of December 31, 2015; September 30, 2016; and October 31, 2016.
|
(2)
|
Tejon company data as of December 31, 2016.
|
30
Elements of Compensation
The Compensation Committee seeks to create a compensation plan that is balanced in its use of short-term and long-term compensation elements in
order to align managements incentives with the long-term interests of our stockholders. In developing the compensation plan, the Compensation Committee seeks to be aware of changing economic and industry conditions, as well as changing
compensation trends. To achieve these objectives, the plan uses a variety of compensation elements as described below.
|
|
|
|
|
Compensation Component
|
|
Objective
|
|
Characteristics
|
Base Salary
|
|
Provide a fundamental level of compensation to the NEOs for performing their roles and assuming their levels of responsibility.
|
|
Fixed cash component, annually reviewed and adjusted from time to time based on performance and peer group analysis.
|
|
|
|
Annual Incentive Bonus
|
|
Drive the achievement of performance goals in a particular fiscal year.
|
|
Annual incentive bonuses are paid in cash. This performance- based bonus opportunity is based on the achievement of quantitative and
qualitative goals.
|
|
|
|
Long-Term
Incentive Compensation
|
|
Promote the achievement of our long-term financial goals and development milestone goals to create value by aligning NEO and stockholder interests, promoting NEO retention, and rewarding
NEOs for performance over time.
|
|
Long-term incentive compensation is in the form of performance shares and time- vested awards. The payout of performance shares is
based on the achievement of targets set by the Compensation Committee related to cash flow management and the achievement of measurable performance goals and development milestones.
|
Base Salaries
When establishing base salaries, the Compensation Committee takes into account each NEOs performance of his role and responsibilities
and, to the extent useful, the range of compensation of comparable executives in a peer group. The Compensation Committee believes that compensation objectives are effectively met when a majority of an executives compensation is composed of
performance-based bonuses and long-term incentive compensation, rather than fixed compensation such as base salaries. We believe that having the overall compensation emphasis on long-term equity incentives instead of short-term fixed compensation
better aligns management with stockholders.
The Compensation Committee approved the following 2015 and 2016 base salaries for our NEOs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
2015
Salary
|
|
|
2016
Salary
|
|
|
Percent Increase
|
|
Peer Group
Rank
|
|
Gregory S. Bielli
|
|
$
|
600,000
|
|
|
$
|
600,000
|
|
|
0%
|
|
|
70
|
%
|
Allen E. Lyda
|
|
$
|
291,500
|
|
|
$
|
300,245
|
|
|
3%
|
|
|
46
|
%
|
Joseph N. Rentfro
|
|
|
$250,000
|
|
|
$
|
256,250
|
|
|
3%
|
|
|
25
|
%
|
Dennis J. Atkinson
|
|
$
|
201,984
|
|
|
$
|
208,044
|
|
|
3%
|
|
|
20
|
%
|
Hugh F. McMahon
|
|
$
|
235,000
|
|
|
$
|
240,875
|
|
|
3%
|
|
|
21
|
%
|
31
Mr. Biellis 2016 base salary did not increase from 2015. The Compensation Committee
determined
mid-year
2015 to provide Mr. Bielli with an adjustment in base salary from $500,000 to $600,000. The analysis the Compensation Committee undertook to support the increase included comparison of
CEO salaries in the peer group, recognition of Mr. Biellis leadership and contribution to our short-term goals, the general experience of the Compensation Committees members in our industry, the Companys current stage within
the land development process, the current economic environment, the status of the current real estate industry and market, and how these factors impact current compensation levels.
The base salaries for Mr. Lyda, Mr. Rentfro, Mr. McMahon, and Mr. Atkinson were increased by 3% for 2016. When granting
these salary increases, the Compensation Committee, along with the Chief Executive Officer, performed an annual review of each of the other NEOs salaries and evaluated changes to base salary. This review considered several factors, including
peer group information, the market for similar job functions, the economic environment, and the general experience of the Compensation Committee members.
In December 2016, the Compensation Committee determined that for 2017, our Chief Executive Officers salary would increase to $625,000
and the base salaries of the other NEOs would be increased by 3%, with the exception of Mr. Rentfro, whose salary will be increased by 2% for 2017. In determining the 2017 salary levels, the Compensation Committee evaluated overall Company
performance, peer group information, base salary compensation in relation to total compensation, and information from the POE Group, our compensation consultant.
Annual Performance-Based Incentive
Tejons practice is to award annual incentive bonuses based upon the achievement of performance objectives established at the beginning of
each year. At least 50% of the annual incentive bonus for each NEO is based upon corporate total revenues and EBITDA. At least 20% of the annual incentive bonus for each NEO is tied to corporate short-term objectives that are defined and measurable.
The remaining 30% of the annual incentive is tied to divisional revenues and earnings and identified individual objectives that the Compensation Committee believes are important for the particular NEO to focus on in the context of achieving the
Companys long-term strategic goals and creating stockholder value. Annual incentive bonuses are paid in cash. The attainment of each years quantitative financial goals for each of the NEOs is uncertain and is dependent upon factors such
as real estate sales and leasing programs, the timing of entitlement activities for our developments, and the uncertainty inherent in our farming and mineral operations due to the commodity nature of the products we produce and the fact that we do
not know the ultimate price we will receive for our products each year. The achievement of individual objectives tied to land entitlement, development, and conservation efforts is highly dependent on working with groups outside of the Company, such
as government agencies, local county planning departments, and environmental resource groups, all of which make the timing of achieving specific steps in the process very complicated. Accordingly, goal achievement under the annual bonus plan is not
guaranteed.
32
The following chart provides the performance level weightings for the Chief Executive Officer and
the other NEOs who were employed for the entire fiscal year and were eligible to receive an annual performance-based incentive bonus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Measures
|
|
Gregory S.
Bielli -
Chief
Executive
Officer
|
|
|
Allen E.
Lyda -
Chief
Financial
Officer
|
|
|
Joseph
Rentfro -
EVP
Real
Estate
|
|
|
Dennis J.
Atkinson -
SVP
Agriculture
|
|
|
Hugh F.
McMahon -
EVP
Commercial
|
|
|
|
|
Corporate Quantitative Measurements
|
|
EBITDA
|
|
|
40
|
%
|
|
|
40
|
%
|
|
|
40
|
%
|
|
|
40
|
%
|
|
|
40
|
%
|
Total Company Revenue
|
|
|
10
|
%
|
|
|
10
|
%
|
|
|
10
|
%
|
|
|
10
|
%
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Quantitative Measurements
|
|
|
50
|
%
|
|
|
50
|
%
|
|
|
50
|
%
|
|
|
50
|
%
|
|
|
50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Short-Term Objectives
|
|
Centennial Joint Venture Restructure
|
|
|
15
|
%
|
|
|
15
|
%
|
|
|
15
|
%
|
|
|
10
|
%
|
|
|
10
|
%
|
Phase II of Outlet at Tejon
|
|
|
15
|
%
|
|
|
15
|
%
|
|
|
15
|
%
|
|
|
10
|
%
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Short-Term Objectives
|
|
|
30
|
%
|
|
|
30
|
%
|
|
|
30
|
%
|
|
|
20
|
%
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divisional Quantitative / Qualitative Measurements
|
|
Division Revenue
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
6
|
%
|
|
|
6
|
%
|
Division Net Operating Income
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
9
|
%
|
|
|
9
|
%
|
Individual Objectives
|
|
|
20
|
%
|
|
|
20
|
%
|
|
|
20
|
%
|
|
|
15
|
%
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divisional Quantitative/Qualitative Weighting
|
|
|
20
|
%
|
|
|
20
|
%
|
|
|
20
|
%
|
|
|
30
|
%
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Weighting
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Generally, the Chief Executive Officers individual objectives are tied to land entitlement, public
outreach in support of entitlement, and development and conservation goals as well as operational, strategic planning, and staffing objectives. The individual objectives for the other NEOs are generally related to land entitlement, development, and
operational goals that support the achievement of corporate entitlement and development goals. The Compensation Committee, after taking into account the Chief Executive Officers recommendations, sets the specific weighting for the individual
objectives of each NEO at 15% to 20% of the total annual bonus. This judgment is based on the relative importance of a specific objective in moving the Company forward in achieving its long-term goals and objectives, and also each NEOs direct
role in achieving such objective.
The annual incentive plan is structured and bonus levels are determined based upon the level of
achievement of threshold, target, and maximum performance of quantitative and qualitative objectives. If achievement of a performance objective is below threshold, no incentive bonus is earned for that objective, and if achievement is greater than
maximum, the maximum bonus level is earned. The Chief Executive Officer and the other NEOs have different cash incentive pay levels (expressed as a percentage of base salary) for achievement at the threshold, target, and maximum levels. These
percentage levels are based on a 2014 Compensation Report prepared by the POE Group that compared prior target bonus levels with market levels and determined that the Company was below competitive levels.
33
The target percentage levels are outlined below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
Gregory S. Bielli, Chief Executive Officer
|
|
|
50.00
|
%
|
|
|
100.00
|
%
|
|
|
150.00
|
%
|
Allen E. Lyda, Chief Financial Officer
|
|
|
35.00
|
%
|
|
|
70.00
|
%
|
|
|
105.00
|
%
|
Joseph N. Rentfro, EVP, Real Estate
|
|
|
35.00
|
%
|
|
|
70.00
|
%
|
|
|
105.00
|
%
|
Dennis J. Atkinson, SVP, Agriculture
|
|
|
30.00
|
%
|
|
|
60.00
|
%
|
|
|
90.00
|
%
|
Hugh F. McMahon, EVP, Commercial/Industrial
|
|
|
30.00
|
%
|
|
|
60.00
|
%
|
|
|
90.00
|
%
|
Quantitative Financial Goal Corporate
Because the achievement of entitlement and the beginning of development for our real estate projects is a very important long-term goal, and
because Tejon does not generate significant revenue at this time, its short-term objectives, both quantitative and qualitative, are tied to metrics that are critical for the accomplishment of long-term goals. For our annual incentive, two corporate
financial goals are considered: EBITDA and total corporate revenue. Total gross corporate revenue includes revenue from operations, gross sales of investment property, other income, and equity in earnings of unconsolidated joint ventures. Our
definition of EBITDA is earnings before interest, taxes, depreciation, amortization, and
non-cash
stock compensation. We believe this is a more accurate measurement of the cash used in the operations of the
Company. Each NEOs weighting is different based on whether the officer has division revenue and operating income responsibility and the emphasis placed each year on division performance. EBITDA is being used with total revenue because at this
stage in the Companys business, EBITDA provides a better indicator of managements creation of operating cash, which is critical to the funding of our entitlement and development efforts, since the Company has significant
non-cash
expenses each year. The following table outlines EBITDA and total revenue results for 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Quantitative Goal
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Actual
|
|
|
% of Target
|
|
EBITDA *
|
|
$
|
7,948,000
|
|
|
$
|
10,597,000
|
|
|
$
|
15,896,000
|
|
|
$
|
9,528,000
|
|
|
|
89.91
|
%
|
Total Revenue **
|
|
$
|
43,511,000
|
|
|
$
|
58,015,000
|
|
|
$
|
87,023,000
|
|
|
$
|
57,990,000
|
|
|
|
99.96
|
%
|
These performance measurement numbers are determined based on calculations within the Companys 2016
business plan and operating budget. The Compensation Committee uses data from each years annual budget because it is a reflection of what the Company believes will happen in the coming year. Our revenues are still very much driven by commodity
markets where we do not have any control over pricing or, in the case of our agriculture business, the weather. Our best estimates of the coming year are included in each years operating budget, and the Compensation Committee feels this is a
more accurate gauge of management than using a comparison to the prior year. The tables below reflect actual achievement shown in the format used by the Company internally to measure NEOs performance compared to the approved 2016 operating budget.
|
|
|
|
|
* EBITDA Actual 2016 Calculation
(non-GAAP):
|
|
|
|
|
Net income attributable to common stockholders
|
|
$
|
558,000
|
|
Net income attributable to
non-controlling
interest
|
|
|
(43,000
|
)
|
Interest, net
|
|
|
(457,000
|
)
|
Depreciation and amortization
|
|
|
4,549,000
|
|
Stock compensation expense
|
|
|
4,585,000
|
|
Income taxes
|
|
|
336,000
|
|
|
|
|
|
|
Total EBITDA
|
|
$
|
9,528,000
|
|
|
|
|
|
|
34
|
|
|
|
|
** Total Revenue
(non-GAAP):
|
|
|
|
|
Real Estate Commercial /Industrial (includes joint venture income and investment sales
proceeds)
|
|
$
|
21,236,000
|
|
Mineral Resources
|
|
|
14,153,000
|
|
Farming
|
|
|
18,648,000
|
|
Ranch Operations
|
|
|
3,338,000
|
|
Other Revenue
|
|
|
615,000
|
|
|
|
|
|
|
Total Revenue and Other Income
non-GAAP
|
|
$
|
57,990,000
|
|
Proceeds from sale of real estate
|
|
|
(4,700,000
|
)
|
Gain on sale of real estate
|
|
|
1,044,000
|
|
|
|
|
|
|
Total Revenue and Other Income (1)
|
|
$
|
54,334,000
|
|
|
|
|
|
|
(1)
|
As shown in the 2016 Annual Report filed on Form
10-K.
|
Quantitative Financial Goal Division
The following are the division financial results for the
Executive Vice President, Commercial/Industrial Development and the Senior Vice President, Agriculture.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Actual
|
|
|
% of Target
|
|
Mr. McMahon - EVP Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Goal
|
|
$
|
14,441,000
|
|
|
$
|
19,254,000
|
|
|
$
|
28,881,000
|
|
|
$
|
21,236,000
|
|
|
|
110
|
%
|
Net Income Goal
|
|
$
|
6,342,000
|
|
|
$
|
8,456,000
|
|
|
$
|
12,684,000
|
|
|
$
|
10,480,000
|
|
|
|
124
|
%
|
|
|
|
|
|
|
Mr. Atkinson - SVP Agriculture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Goal
|
|
$
|
14,366,000
|
|
|
$
|
19,154,000
|
|
|
$
|
28,731,000
|
|
|
$
|
18,648,000
|
|
|
|
97
|
%
|
Net Income Goal
|
|
$
|
383,000
|
|
|
$
|
511,000
|
|
|
$
|
767,000
|
|
|
$
|
(25,000
|
)
|
|
|
0
|
%
|
In the setting of quantitative goals each year, we develop target goals through our annual budgeting process.
We believe these are realistically attainable goals and that maximum achievement levels will be difficult to attain without significant effort and development of new business opportunities.
Individual Performance Objectives
In addition to the quantitative goals described above, the Chief Executive Officers annual incentive bonus in 2016 was based upon the
achievement of individual performance objectives proposed by the Chief Executive Officer and agreed upon and approved by the Compensation Committee. These objectives are tied to business development and organizational goals that move the Company
forward in achieving its long-term objectives, including the achievement of strategic milestones related to land development and entitlement efforts that the Compensation Committee and the Board believe to be critical to the achievement of the
Companys long-term business plan. Individual goals for 2016 specifically related to leading and directing a ranch-wide strategy to facilitate future successful entitlement of our development projects, overseeing an outreach strategy to build
support for our entitlement programs in Los Angeles County and Kern County, obtaining approval in Kern County for Grapevine community entitlements, filing tentative tract maps for Mountain Village at Tejon, and overseeing the continued
implementation of our water strategy. Based on approval of entitlements for the Grapevine community, filing of the tentative tract maps for Mountain Village, and the new joint venture arrangement with Majestic Realty for the development of a
speculative building for lease and the ownership of a current leased building within TRCC, the Compensation Committee determined that the Chief Executive Officer achieved a maximum level of performance.
35
The other NEOs have more diverse individual performance goals than the Chief Executive Officer.
These goals are generally tied to individual areas of responsibility, which focus on both short-term and long-term goals (including improving operational efficiencies and achieving milestones and other goals with respect to the Companys
long-term business strategy related to land entitlement, development, and conservation). Generally, the qualitative goals covered:
|
Coordination regarding entitlement and permitting activity
milestones for our Mountain Village community, Centennial community, and Grapevine community.
|
Guiding the Company in working with various government agencies as a part of the
entitlement process.
|
Acquiring and managing water resources to include the drilling of new water
wells.
|
Development of speculative building for lease within Tejon Ranch Commerce
Center.
|
Selling investment building in Rancho Santa Fe by end of 2016.
|
Opening of multi-tenant retail building in the first half of 2016 at Tejon Ranch
Commerce Center.
|
Meeting implementation dates related to farm developments.
|
Expansion of investor relations program during 2016.
|
Updating and filing of new shelf registration statement.
|
Coordination with key Resource Organizations and the Tejon Ranch Conservancy to allow
for successful entitlement of our development projects.
|
The Chief Executive Officer and the Compensation Committee evaluate the success of the NEOs (other than the
Chief Executive Officer) in meeting their individual performance objectives, with final approval provided by the Compensation Committee. The Chief Executive Officer and the Compensation Committee note whether each objective was accomplished in the
time frame designated and if the outcome achieved was as specified in the original objective.
36
2016 Performance Achievement
The following chart provides a breakdown of 2016 annual incentive award measurement by performance measurement category and the total 2016
incentive award as a percentage of salary. Final award measurement for the NEOs reflect actual results. The award measurement percentage for each NEO for each category is a number between target and maximum achievement for 2016. As an example, if
the EBITDA goal achievement for a particular year was 25% in excess of target, then the award measurement for the CEO would be 125% for that year, or 1.25 times his target level of 100%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Measures
|
|
Gregory S.
Bielli - Chief
Executive
Officer
|
|
|
Allen E.
Lyda - Chief
Financial
Officer
|
|
|
Joseph
Rentfro -
EVP
Real Estate
|
|
|
Dennis J.
Atkinson -
SVP
Agriculture
|
|
|
Hugh F.
McMahon -
EVP
Commercial
|
|
|
|
|
Corporate Quantitative Measurements
|
|
EBITDA
|
|
|
40.00
|
%
|
|
|
40.00
|
%
|
|
|
40.00
|
%
|
|
|
40.00
|
%
|
|
|
40.00
|
%
|
Incentive Payout Factor
|
|
|
89.91
|
%
|
|
|
62.94
|
%
|
|
|
62.94
|
%
|
|
|
53.95
|
%
|
|
|
53.95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Total (1)
|
|
|
35.96
|
%
|
|
|
25.18
|
%
|
|
|
25.18
|
%
|
|
|
21.58
|
%
|
|
|
21.58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company Revenue
|
|
|
10.00
|
%
|
|
|
10.00
|
%
|
|
|
10.00
|
%
|
|
|
10.00
|
%
|
|
|
10.00
|
%
|
Incentive Payout Factor
|
|
|
99.96
|
%
|
|
|
69.97
|
%
|
|
|
69.97
|
%
|
|
|
59.97
|
%
|
|
|
59.97
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Total (1)
|
|
|
10.00
|
%
|
|
|
7.00
|
%
|
|
|
7.00
|
%
|
|
|
6.00
|
%
|
|
|
6.00
|
%
|
|
|
|
|
|
Corporate Short-Term Objectives
|
|
Blended Short-Term Objectives
|
|
|
30.00
|
%
|
|
|
30.00
|
%
|
|
|
30.00
|
%
|
|
|
20.00
|
%
|
|
|
20.00
|
%
|
Incentive Payout Factor
|
|
|
86.60
|
%
|
|
|
60.63
|
%
|
|
|
60.63
|
%
|
|
|
51.95
|
%
|
|
|
51.95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Total (1)
|
|
|
25.98
|
%
|
|
|
18.19
|
%
|
|
|
18.19
|
%
|
|
|
10.39
|
%
|
|
|
10.39
|
%
|
|
|
|
|
|
Divisional Quantitative / Qualitative Measurements:
|
|
Blended Revenue/Net Operating Income
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
15.00
|
%
|
|
|
15.00
|
%
|
Incentive Payout Factor
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
71.09
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Total (1)
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
10.66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual Objectives
|
|
|
20.00
|
%
|
|
|
20.00
|
%
|
|
|
20.00
|
%
|
|
|
15.00
|
%
|
|
|
15.00
|
%
|
Incentive Payout Factor
|
|
|
150.00
|
%
|
|
|
88.74
|
%
|
|
|
61.00
|
%
|
|
|
73.75
|
%
|
|
|
74.66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Total (1)
|
|
|
30.00
|
%
|
|
|
17.75
|
%
|
|
|
12.20
|
%
|
|
|
11.06
|
%
|
|
|
11.20
|
%
|
|
|
|
|
|
Total
|
|
Total Incentive Award as a Percentage of Salary
|
|
|
101.94
|
%
|
|
|
68.12
|
%
|
|
|
62.57
|
%
|
|
|
49.03
|
%
|
|
|
59.83
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Weighted total is calculated as the performance objective times the performance achievement factor.
|
37
Equity Compensation
The Compensation Committee believes that the long-term value of the Company will be driven by the execution of its long-term strategies.
Accordingly, Tejon uses long-term incentives to align senior managements interests with stockholders interests. The Compensation Committee believes that management should own stock and that teamwork among the management group is
important in meeting business goals. Therefore, long-term milestone incentives are goal-based, with common performance measures for all participants to encourage teamwork.
|
|
|
|
|
|
|
|
|
Long-Term Equity
Compensation Vehicle
|
|
Grant
Frequency
|
|
Target
Long-
Term
Vehicle
Weight
|
|
Vesting
|
|
Purpose
|
Performance Related Milestone Grants
|
|
Every three years, new grant in 2017
|
|
40%
|
|
Cliff vesting at the end of
the three-year
period
|
|
To tie equity compensation to longer-term real estate development milestones
|
Three-Year Cash Flow Performance Shares
|
|
Annually
|
|
40%
|
|
Cliff vesting at the end of the three-year period
|
|
To measure and tie equity compensation opportunity to ongoing cash flow of our business, which is needed to fund our real estate
development activities
|
Time-Vested Restricted Stock
|
|
Annually
|
|
20%
|
|
Three-year prorated vesting
|
|
To encourage share ownership and retention of executives
|
When granting three-year cash flow performance shares, the Companys practice is to determine annually a
dollar amount of equity compensation to be provided, and to grant a number of performance shares that have a fair market value equal to that amount on the date of grant. Vesting of these annual grants is tied to the achievement of a rolling
three-year cash metric. The rolling three-year cash metric is budgeted cash provided from operations as calculated per GAAP for cash flow statements. For 2016, the dollar amount attributed to performance shares for the Chief Executive Officer was
$480,000, and for the other NEOs it ranged from $84,000 to $180,000, depending on the importance of each NEOs input to the successful achievement of the goal. The level of the target dollar amount for each named executive officer is based on
the POE Group report from 2014 that recommended long-term compensation goals for each position. The shares granted are expensed based on the closing price of the stock on grant date.
The annual performance shares are tied to the achievement of the rolling three-year cash flow metric, described above. This performance metric
was selected by the Compensation Committee as a measurement of managements ability to create operating cash over an extended period at a time when cash demands will be high and net income will not be significant. For 2016, this cash flow
measure covers the years 2016 through 2018 and has a cumulative cash from operations target of $34,924,000. The Company believes that achievement of this target level of performance will require significant effort and is dependent on the continued
absorption of land at Tejon Ranch Commerce Center, improvement in oil and mineral revenues, maintenance of farm revenues at current levels, and progress with respect to
pre-development
activities at Mountain
Village and entitlement activities at Centennial and Grapevine. Please refer to our Annual Report on Form
10-K
for the year ended December 31, 2016 for additional information regarding entitlement and
development activities. This target assumes we are moving forward in a positive manner with respect to our development projects. These grants vest after three years. The number of shares to be received is determined by the extent of performance
achievement and can range from zero shares to the maximum award amount, which is 150% of the target award.
38
For the 2014 2016 period, the goal for cumulative cash from operations was $36,374,000.
For the 2014 2016 period, goal achievement was 98% of the target objective, with actual cash from operations at $35,770,000. These grants, which are referenced in footnote 2 to the Outstanding Equity Awards at 2016 Fiscal
Year-End
table that begins on page 47, vested and were delivered in early March after approval by the Compensation Committee.
For Actual shares earned in respect of 2014 performance milestones are as follows:
|
|
|
|
|
Name
|
|
2014-2016
Performance Grants Cash
from Operations
|
|
Gregory S. Bielli, Chief Executive Officer
|
|
|
11,242
|
|
Allen E. Lyda, Chief Financial Officer
|
|
|
5,028
|
|
Joseph N. Rentfro, EVP, Real Estate
|
|
|
N/A
|
|
Dennis J. Atkinson, SVP, Agriculture
|
|
|
2,323
|
|
Hugh F. McMahon, EVP, Commercial /Industrial
|
|
|
1,161
|
|
See the 2016 Grants of Plan Based Awards Table on page 46 for the number of shares granted to each NEO
for the 2016-2018 rolling three-year period. The table below summarizes the outstanding (as of the end of 2016) performance share measurement goals.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
Performance Grants
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Actual
|
|
2014-2016 Cash Flow Objective - Cash From Operations
|
|
$
|
18,187
|
|
|
$
|
36,374
|
|
|
$
|
54,561
|
|
|
$
|
35,770
|
|
2015-2017 Cash Flow Objective - Cash From Operations
|
|
$
|
16,146
|
|
|
$
|
32,292
|
|
|
$
|
48,438
|
|
|
|
N/A
|
|
2016-2018 Cash Flow Objective - Cash From Operations
|
|
$
|
17,462
|
|
|
$
|
34,924
|
|
|
$
|
52,386
|
|
|
|
N/A
|
|
During 2016, the Compensation Committee granted time-vested restricted stock to the NEOs. This element is seen
as a balance to the strong performance orientation of both the LTIP and the annual incentive program, with the objective of retaining our executive team. The dollar value attributed to these shares is
one-half
the annual performance share grant. For 2016, the dollar amount for the Chief Executive Officer was $240,000, and for the other NEOs it ranged from $42,000 to $90,000.
In early 2016, the Board of Directors of the Company, on the recommendation of the Compensation Committee, approved and granted to the Chief
Executive Officer a
one-time
supplemental long-term stock incentive compensation opportunity. The supplemental stock incentive provides the CEO with the opportunity to earn up to an additional 158,982 shares
of stock at maximum achievement level, with a potential maximum grant date value of $3,000,000, primarily from the achievement of two multi-year strategic performance components through December 31, 2019. The Board and Compensation Committee
awarded the CEO the supplemental incentive opportunity to increase his stock ownership in consideration of his relatively short tenure, for retention purposes, and to drive performance against critical long-term strategic development objectives,
including a total stockholder return component. The milestone performance grant values described below are included in the Fiscal Year 2016 Summary Compensation Table.
39
Under the first component (Component 1), the CEO will have the opportunity to earn up
to a maximum of 42,395 shares of stock with a grant date value of $800,000. The performance criteria for Component 1 is based on an increase of the net
two-year
Tejon Ranch Commerce Center-East
(TRCC-East) revenue as a percentage of 2015 actual revenues over the measurement period from December 31, 2015 to December 31, 2017 as follows:
Increase in TRCC-East Revenue
|
|
|
|
|
|
|
|
Level of Performance
|
|
Below Threshold
|
|
Threshold
|
|
Maximum
|
Actual Performance
|
|
Below 40%
|
|
40% (75% of Max)
|
|
54%
|
Payout (% of Maximum)
|
|
0%
|
|
50%
|
|
100%
|
Note: Payout will be determined through interpolation for performance results between 40% and
54%
The second component (Component 2) allows the CEO the opportunity to earn up to a maximum of 90,090 shares of stock with
a grant date value of $1,700,000, if, by December 31, 2019, full and clear entitlement is in place, a preliminary tract map is developed and approved, and the business plan is approved by the Board for Grapevine at Tejon Ranch and
Mountain Village at Tejon Ranch.
A threshold award, at 50% of maximum, would be achieved if, by December 31, 2019, full and
clear entitlement is in place, a preliminary tract map is developed and approved, and a business plan is approved by the Board for either Grapevine at Tejon Ranch or Mountain Village at Tejon Ranch. No prorated award will occur for results between
threshold and maximum. No incentive award is earned for results below the threshold level described. Any award payment is made at the end of the measurement period and is conditioned upon the CEO remaining employed by the Company.
The third component (Component 3) is payable if and to the extent that the CEO is entitled to a payment pursuant to Component 1
and/or Component 2. Under Component 3, the CEO may earn up to an additional 26,497 shares of stock, which have a grant date value of $500,000, based on the Companys total stockholder return relative to the Companys peer group
(Relative TSR), calculated for January 1, 2016 through December 31, 2017 for Component 1 and for January 1, 2016 through December 31, 2019 for Component 2, as follows:
Increase in TRC Relative TSR
|
|
|
|
|
|
|
|
Level
of Performance
|
|
Below Threshold
|
|
Threshold
|
|
Maximum
|
TSR Performance relative to the Peer
Group
|
|
50
th
Percentile
or
Below
|
|
51
st
Percentile
|
|
Greater Than the 75
th
Percentile
|
Incentive Modifier
|
|
0%
|
|
+ 10% of Earned
Incentive
|
|
+ 20% of Earned
Incentive
|
Note:
1.
|
TRC stock price must be at or above a $20.00 average for the last thirty days of the respective measurement periods in addition to meeting the relative TSR goal described in the chart above.
|
2.
|
Payout will be determined through interpolation for performance results between the 51
st
and 75
th
percentiles of
the 2016 TRC peer group.
|
40
During 2016, Mr. Rentfro was granted 2014 performance milestone shares that were
pro-rated
based on his start of service in 2015. The measurement date for these shares was the end of 2016.
The Company does not have any program, plan, or practice to time equity awards in coordination with the release of material
non-public
information, nor does the Company time the release of material
non-public
information for the purpose of affecting the value of executive compensation.
Benefits and Perquisites
Retirement Plans
The Compensation Committee believes that retirement programs are important to the Company,
as they contribute to the Companys ability to be competitive with its peers and are consistent with Tejons philosophy of preferring long-term pay to short-term pay. For many of our employees, including the Chief Financial Officer, the
Executive Vice President Commercial/Industrial, and the Senior Vice President Agriculture, Tejon provides a pension plan and a 401(k) plan. In addition, the Company provides for the Chief Financial Officer and the Senior Vice President Agriculture a
supplemental executive retirement plan, or SERP. Based on their hiring dates, the Chief Executive Officer and the Executive Vice President Real Estate are not included in the pension plan or SERP, which were frozen as of February 1, 2007, but
are included in the 401(k) plan. The Compensation Committee believes that retirement benefits are an important piece of the overall compensation package for the NEOs.
The NEOs may elect to defer cash- and equity-based compensation payable to them pursuant to the Companys deferred compensation plan.
This plan is designed to allow for retirement savings above the limits imposed by the IRS for 401(k) plans on an income
tax-deferred
basis. Cash amounts deferred into the plan are held in accounts with values
indexed to the performance of selected mutual funds. Stock awards deferred into the plan can be converted to cash or kept in the Companys stock. All participants to date have only deferred stock awards and have maintained stock in the plan.
The Company does not provide a match on executive deferrals under the deferred compensation plan.
Change in Control Benefits
The Compensation Committee believes that stockholders interests will be best served if the interests of executive
management are aligned with them, and that providing management with change in control benefits supports that objective by focusing executives on stockholder interests when considering strategic alternatives. Except for accelerated vesting of equity
awards pursuant to our equity compensation plan, change in control benefits, as provided in a severance agreement with each of our NEOs, are only provided upon a termination of employment without cause or a resignation for good reason in connection
with a change in control. Please refer to the Potential Payments Upon Termination or Change in Control table on page 51 of this Proxy Statement for a more detailed description and an estimate of value of these benefits. None of the agreements
with our NEOs or other compensation plans or arrangements provide for a
gross-up
payment or reimbursement for excise taxes that could be imposed on the executives.
In addition to the foregoing change in control severance benefits, the NEOs who participate in the pension plan and SERP will also continue to
be entitled to benefits under any existing pension plan and SERP as determined in accordance with the terms of those plans. If a named executive officer has been credited with more than 15 years of service, as of the effective date of termination,
he or she shall also be credited with additional years of service under the plans for the period of salary continuation referred to above.
41
Separation or Severance Benefits
In some circumstances, the Compensation Committee believes it is in the Companys best interest to provide a severance benefit in order to
provide a smooth transition period for the Company when an executive leaves, even if the Company does not have a contractual obligation to provide a separation package. Separation benefits in the form of salary continuation and health benefits may
be provided to departing executives on a
case-by-case
basis. These benefits have historically endured for approximately one year.
Unless the Compensation Committee determines otherwise, if an NEOs employment with the Company is terminated for any reason, including
death or disability, prior to vesting of all or any part of a restricted stock award or performance unit award, the NEO will forfeit to the Company the portion of the award that has not vested.
Perquisites and Other Personal Benefits
The Compensation Committee reviews annually the perquisites that NEOs receive. The primary benefits for the NEOs are Company vehicles and
related maintenance. In addition, the Chief Executive Officer receives additional life insurance in excess of the insurance that is part of the Companys broad-based life insurance policy. This additional insurance supplement is necessary to
provide the same three-time salary benefit that other employees receive. These benefits are provided to attract and retain highly qualified executives, and because executives often place a higher value on these benefits relative to cost to the
Company as compared to increases in cash compensation. In addition, the automobile benefit is provided to executives as well as other Company employees because the Companys location and the size of the Companys property necessitate
extensive car travel.
Senior management also participates in the Companys other benefit plans on the same terms as other employees.
These plans include medical, dental, and life insurance.
Other Compensation Practices and Policies
Clawback Policy
The Company has a policy requiring a fixed course of action with respect to compensation adjustments following restatements of our financial
statements. In the event that our Board determines there has been a restatement due to material noncompliance with any financial reporting requirement under the securities laws, the Board will review all incentive payments that were made to
executive officers and all performance-based equity awards granted to executive officers that were vested in each case, on the basis of having met or exceeded such performance targets in grants or awards made during the three full fiscal years prior
to the filing of the Current Report on Form
8-K
announcing the restatement.
If such payments
and/or vesting would have been lower had they been calculated based on such restated results, the Board will, to the extent permitted by governing law, seek to recoup for the benefit of the Companys stockholders such payments to and/or equity
awards held by executive officers who are found personally responsible for the material restatement, as determined by the Board, by requiring such executive officers to pay such amounts to the Company by
set-off,
by reducing future compensation, or by such other means or combination of means as the Board determines to be appropriate.
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Stock Ownership Guidelines
The Companys stock retention guidelines are as follows:
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Position
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Stock Multiple
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Chief Executive Officer
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5.0 x Base Salary
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Chief Financial Officer
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3.0 x Base Salary
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Other NEOs
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2.0 x Base Salary
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All NEOs are expected to make reasonably steady progress toward these ownership guidelines each year. The
Chief Executive Officer has until 2018 to meet the guidelines, and the Executive Vice Presidents of Real Estate and Commercial/Industrial have until 2020 to reach their guidelines based on their participation dates in 2015. The Chief Financial
Officer and the Senior Vice President Agriculture have met the stock ownership guidelines. The Compensation Committee reviews such progress annually. Since these guidelines are not a contractual basis for remaining in the employment of the Company,
the success or lack of success in meeting the guidelines will be evaluated by the Compensation Committee and reflected in each NEOs annual review for that year.
Securities Trading Policy
The Company has a policy that prohibits executive officers and directors from trading in Company stock while in the possession of nonpublic
information. Executive officers and directors are also prohibited from trading in options, puts, calls, or other derivative instruments related to the Companys stock. They are also prohibited from purchasing stock on margin, borrowing against
the Companys stock held in a margin account, or pledging stock as collateral for a loan.
Tax Considerations
Section 162(m) of the Internal Revenue Code imposes a $1 million limit on the deductibility of compensation paid to
certain executive officers of public companies, unless the compensation meets certain requirements for performance-based compensation. In determining executive compensation, the Compensation Committee considers, among other factors, the
possible tax consequences to the Company and to the executives. However, tax consequences, including but not limited to tax deductibility by the Company, are subject to many factors (such as changes in the tax laws and regulations or interpretations
thereof and the timing and nature of various decisions by executives regarding options and other rights) that are beyond our control. In addition, the Compensation Committee believes that it is important for us to retain maximum flexibility in
designing compensation programs that meet our stated objectives. For these reasons, although the Compensation Committee will consider tax deductibility as one of the factors in determining executive compensation, it will not necessarily limit
compensation to those levels or types of compensation that will be deductible. We will, of course, consider alternative forms of compensation consistent with our compensation goals that preserve deductibility as much as possible.