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2016 Pay Component
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Compensation Decision
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Base Salary
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A review of competitive position of base salaries against the external market, and the company's financial position, were considered when determining base salary changes for 2016. However, given the business environment for 2016, no adjustments were
made to the base salaries of the Named Executive Officers for 2016.
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Annual Incentive Program ("AIP")
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Design
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The design for the 2016 program remained generally consistent with the 2015 program, with awards tied to pre-established EBITDA (as defined below) targets. The Company did not achieve the threshold EBITDA and, therefore, no awards were paid to the
Named Executive Officers for 2016 performance under the AIP.
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2016 Pay Component
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Compensation Decision
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Target Values
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2016 performance-based cash award target values were held constant year-over-year for the Named Executive Officers.
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Long-Term Incentive Awards
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Design
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The Committee maintained the weighting of approximately 50% stock options and 50% restricted stock units for awards to the Named Executive Officers.
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Target Values
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Target values for 2016 long-term incentive awards were held constant year-over-year for Named Executive Officers.
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COMPENSATION POLICIES AND OBJECTIVES
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The
Compensation Committee believes that compensation for Named Executive Officers should be determined according to a competitive framework, taking into account the financial
performance of the Company, individual contributions and the external market in which the Company competes for executive
talent. In determining the compensation of the Company's Named Executive Officers, the Compensation Committee seeks to achieve the following objectives through a combination of fixed and variable
compensation.
Pay Competitively
A total compensation package should be competitive. For Named Executive Officers, including the Company's CEO, the Compensation Committee
considers the level of compensation paid to individuals in comparable executive positions in the Company's peer group in order to recruit and retain executive talent.
Pay for Performance
Our compensation practices are designed to create a direct link between the aggregate compensation paid to each Named Executive Officer and
the financial performance of the Company. In order to accomplish this, the Compensation Committee considers the individual performance of each Named Executive Officer by reviewing, among other
factors, the achievement of pre-established corporate objectives as well as the recommendations of the CEO. The amount of each component of a Named Executive Officer's compensation is based in part on
the Compensation Committee's assessment of that individual's performance as well as the other factors discussed in this section.
Executives as Stockholders
Our compensation practices are also designed to link a portion of each Named Executive Officer's compensation opportunity directly to the
value of the Company's Common Stock through the use of stock-based awards.
To
accomplish its compensation objectives and philosophy, the Compensation Committee relies on the following elements of compensation, each of which is discussed in more detail
below:
-
-
Base salary;
-
-
Eligibility to receive annual performance-based cash awards; and
-
-
Long-term incentive compensation (in the form of stock options and restricted stock units).
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When
approving the compensation of the Company's Named Executive Officers, the Compensation Committee reviews all of the elements of the Company's executive compensation program. Each component of
executive compensation is designed for a specific purpose. For example, salaries are a significant component of cash-based annual compensation. Salaries are set to compensate each executive based on
that executive's employment and salary history and position within the Company and comparable competitive salaries at companies included in our peer group and the survey data. With regard to the
variable components of the compensation package, annual performance-based cash awards are tied generally to the Company's short-term financial performance, while equity-based compensation is directed
towards the Company's successful results over a longer period. The purpose of the combination of salary, annual cash awards, and equity awards is to provide the appropriate level of total annual cash
compensation and long-term incentives, combined with an appropriate performance-based component. The Compensation Committee places the greatest emphasis on performance-based compensation through
annual cash awards and long-term equity-based awards, which together comprise the largest portion of Named Executive Officer compensation. The Compensation Committee believes that the Company's
executive compensation package, consisting of these components, is comparable to the compensation provided in the market in which the Company competes for executive talent and is critical to
accomplishing its recruitment and retention aims.
The
Company does not have employment agreements or severance arrangements with any of the Named Executive Officers or other executive officers.
OVERVIEW OF COMPENSATION PROGRAM AND PROCESS
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Role of Compensation Committee
The Compensation Committee is responsible for reviewing and approving the base salaries, annual performance-based cash awards, and long-term
incentive compensation for the Company's Named Executive Officers.
Role of Management
Management assists the Compensation Committee in fulfilling its responsibilities with respect to evaluating executive performance, proposing
appropriate performance targets for the annual and long-term incentive plans and developing recommendations as to appropriate salary levels and award amounts. For 2016, the Company's then CEO,
Mr. Stone, provided to the Compensation Committee his recommendations with respect to potential compensation of the other Named Executive Officers. The Compensation Committee reviewed and gave
considerable weight to these recommendations because of Mr. Stone's direct knowledge of the other executives' performance and contributions. With respect to those officers, the Compensation
Committee ultimately used its collective judgment to determine the compensation levels, including base salaries, annual performance-based cash awards and long-term equity award grants.
Mr. Stone recommended that his compensation levels be identical to those of the Company's then President, Mr. Kaplan, due to the current and historical level of work and responsibilities
shared by them. The Compensation Committee ultimately determined and approved Mr. Stone's compensation independently based on its collective judgment, and accepted his recommendation to
compensate Mr. Kaplan in the same manner.
Role of Compensation Consultant
As part of its process, the Compensation Committee utilized the assistance of Frederic W. Cook & Co., an executive compensation
consulting company ("Cook"), to assist in evaluating executive compensation programs and in evaluating Named Executive Officers' compensation compared to an established peer group of similar
companies. Cook was engaged by and communicated directly with the Compensation Committee. In determining compensation for 2016, the Compensation Committee considered a market analysis prepared by Cook
in late 2015 which compared our compensation program to third-party industry compensation surveys and a peer group of eighteen
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companies.
The companies included in the peer group are set forth in this Compensation Discussion and Analysis under the heading "Benchmarking." In addition, at the request of the Nominating and
Governance Committee, Cook also performed a review of director compensation.
Other
than as described herein, Cook did not provide any other services to the Company or the Compensation Committee in 2016. The Compensation Committee has considered the independence of Cook in
light of SEC rules and NYSE listing standards. In connection with this process, the Compensation Committee has reviewed, among other items, a letter from Cook addressing the independence of Cook and
the members of the consulting team serving the Compensation Committee, including the following factors: (i) other services provided to us by Cook; (ii) fees paid by us as a percentage of
Cook's total revenue; (iii) policies or procedures of Cook that are designed to prevent conflicts of interest; (iv) any business or personal relationships between the senior advisor of
the consulting team with a member of the Compensation Committee; (v) any Company stock owned by the senior advisor or any immediate family member; and (vi) any business or personal
relationships between our executive officers and the senior advisor. The Compensation Committee discussed these considerations and concluded that the work performed by Cook and its senior advisor
involved in the engagement did not raise any conflict of interest.
Results of Advisory Votes
At the 2016 Annual Meeting of Stockholders, the Company's stockholders approved, on a non-binding advisory basis, the overall compensation of
the Company's Named Executive Officers as presented in the Proxy Statement for that meeting, with approximately 94% of the votes cast in favor. Given the high level of stockholder support, the
Compensation Committee did not make any changes to the Company's executive compensation philosophy, principles, and elements in response to the vote.
The
Compensation Committee reviews survey information of executive compensation payable by a designated peer group, both with respect to target and actual compensation data
available. The purpose of this review is to evaluate whether the Company's total executive compensation levels (including base salaries, annual cash awards, and equity awards) is viewed by the
Compensation Committee to be reasonable, competitive, and appropriate. One of the Company's objectives is to deliver compensation within the median market range. The Company considers compensation to
be within median market range with respect to salary if it is within 10% of the median, with respect to bonus if it is within 15% of the median, and with respect to long term incentive and total
compensation if it is within 20% of the median. The Compensation Committee considers executive compensation paid at the peer companies when setting executive compensation levels at the Company, but
the Compensation Committee does not attempt to maintain a specified target percentile within this peer group to determine executive compensation. In light of the request by Mr. Stone that he
and Mr. Kaplan receive the same level of compensation, the Compensation Committee compared the aggregate compensation for Messrs. Stone and Kaplan against the aggregate compensation for
the chief executive officers and chief operating officers of the peer group companies.
The
peer group of companies used to help determine 2016 compensation is comprised of eighteen firms that are similar to the Company in terms of business lines, market conditions, and size. The
Compensation Committee expects to reevaluate from time to time the composition of the designated peer group as the Company executes its strategy of organic and strategic growth. The comparison group
of eighteen companies has a median revenue of approximately $3.7 billion.
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2016 Peer Group
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Bemis Company, Inc.
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Myers Industries, Inc.
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Boise Cascade LLC
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Neenah Paper, Inc.
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Clearwater Paper Corp.
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Norbord Inc.
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Domtar Corporation
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Packaging Corporation of America
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P.H. Glatfelter Company
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Resolute Forest Products, Inc.
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Graphic Packaging Holding Company
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Schweitzer-Mauduit International, Inc.
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Greif, Inc.
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Silgan Holdings Inc.
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Louisiana-Pacific Corporation
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Sonoco Products Company
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Mercer International Inc.
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WestRock Company
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In
looking ahead, the Compensation Committee reviewed the peer group of comparison companies that would be used to assist with setting 2017 target compensation. The Compensation Committee discussed
what actions should be taken relative to the makeup of the comparison peer group given the Company's current financial position. The Compensation Committee agreed to maintain the current group of
eighteen companies as the Company continues to maintain its ranking near the median of the comparison companies in terms of size.
COMPONENTS OF EXECUTIVE COMPENSATION
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The
following provides an analysis of each element of compensation, what each is designed to reward, and why the Compensation Committee chose to include it as an element of the
Company's executive compensation.
Base Salary
Base salaries are reviewed annually in the context of the Compensation Committee's consideration of the effect of base compensation on
recruiting and retaining executive talent. Accordingly, the Compensation's Committee considers the executive compensation of the peer group. In establishing each Named Executive Officer's base salary,
the Compensation Committee considers several factors, including individual job performance, salary history, competitive external market conditions for recruiting and retaining executive talent, the
scope of the executive's position and level of experience and changes in responsibilities.
In
March 2016, the base salaries of Named Executive Officers were established in accordance with the foregoing practices. Salaries for the Named Executive Officers were reviewed at that time when it
was determined that no changes to such salaries would be made in 2016. 2016 annual base salaries for Mr. Kaplan and Mr. Stone remained at $700,000, and annual base salaries for
Mr. Keneally, Mr. Nebel, and Ms. Tarbox remained at $430,000. The salaries for the Named Executive Officers reflect the performance of the Company in 2015, including net sales;
earnings per share; and earnings before interest, income taxes, depreciation and amortization ("EBITDA").
Eligibility to Receive Annual Performance-Based Cash Awards
The objective of the annual performance-based cash award element of compensation is to align the interests of the Named Executive Officers
with the Company's financial goals for the year. In setting financial and operating targets, which are established in the first calendar quarter, the Compensation Committee considers the Company's
annual budget and certain short-term operating and financial objectives.
With
respect to the Company's EBITDA goal for 2016, the Committee established the following target payout levels:
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40% Payout
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100% Payout
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200% Payout
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EBITDA
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$400,000,000
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$440,000,000
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$480,000,000
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EBITDA
is defined as net earnings excluding interest, income taxes, depreciation and amortization, extraordinary items and the cumulative effect of accounting changes. This non-GAAP measure is the
same measure management uses internally to manage and to evaluate the business and performance of the Company. At the time it set the Target EBITDA for the year and these target payout levels, the
Compensation Committee believed that, based on
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the
Company's budget, it would be difficult for executives to achieve payouts towards the high end of the target payout levels. In 2016, Mr. Stone and Mr. Kaplan had an approved target
of 100% of their respective salary, or $700,000, and a maximum of 200% of their salary, or $1,400,000, and Mr. Keneally, Mr. Nebel, and Ms. Tarbox had an approved target of 65% of
their respective salary, or $279,500, and a maximum of 130% of their salary, or $559,000. All such potential cash awards were weighted 100% on the achievement of the Company's EBITDA goal. For 2016,
the Company did not achieve the threshold EBITDA of $400,000,000 for the year, resulting in no payments to the Named Executive Officers under the foregoing arrangements.
Long-Term Incentive Compensation
The Compensation Committee determines the awards of long-term compensation through equity incentives (in the form of stock options and
restricted stock units) granted to Named Executive Officers as well as other eligible employees. The Compensation Committee believes that including an equity component in executive compensation
closely aligns the interests of the executives and the Company's stockholders and rewards executives in line with stockholder gains. The practice of the Compensation Committee is to consider annual
equity grants to key employees, including the Named Executive Officers, at its regularly scheduled meeting in March. Equity grants at other times depend upon extraordinary circumstances such as
promotions, new hires, acquisitions, or retention needs.
The
Company's long-term incentive compensation for 2016 consisted of stock options and restricted stock units. This equity award allocation reflected the desire to maintain a strong long-term equity
component in executive compensation, and to reduce the number of restricted stock units required to provide such component.
Equity
grants made during 2016 to executive officers and senior management, including the Named Executive Officers, were determined by the Compensation Committee based upon the compensation objectives
of the Compensation Committee, as discussed above, and were informed by the evolving nature of executive compensation practices. In determining the size of the equity grants for the Named Executive
Officers, the Compensation Committee made an evaluation of a number of factors, including: competitive market practices; the level of responsibility of the individual; the individual's job performance
and ability to influence corporate results; and the cost to the Company and the related effect of equity grants on earnings per share dilution. The Compensation Committee's intention was to deliver
approximately the same economic value through the restricted stock unit component of the award as the stock option component. Accordingly, during 2016, restricted stock units were awarded in a ratio
of about 1 restricted stock unit for about every 3.2 stock options awarded. This allocation reflects the relationship between the value of restricted stock units, which is based on the market value of
the underlying Common Stock on the date of grant, and the fair market value of stock options on the date of grant, which is determined by using the Black-Scholes option valuation method.
Stock
options produce value for executives and employees only if the Common Stock price increases over the exercise price, which is set at the closing price on the date of grant. Also, through vesting
and forfeiture provisions, stock options and restricted stock units create incentives for executive officers and senior management to remain with the Company.
Prohibition on Repricing of Options Without Stockholder Approval
The 2016 Incentive Plan prohibits the repricing of options and stock appreciation rights ("SARs"), the cancellation of options and SARs in
exchange for a new option or SAR with a lower purchase or base price, and the cancellation of an underwater option or SAR in exchange for cash or another award, without stockholder approval.
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2016 Awards
The Compensation Committee granted the following equity awards to the Named Executive Officers in 2016:
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Executive Officer
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Stock
Options
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Restricted
Stock Units
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Roger W. Stone
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96,524
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30,000
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Matthew Kaplan
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96,524
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30,000
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Timothy P. Keneally
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51,479
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16,000
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Randy J. Nebel
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51,479
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16,000
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Andrea K. Tarbox
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51,479
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16,000
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Each
of the stock options was granted by the Compensation Committee on March 18, 2016 with an exercise price of $12.72 per share. Consistent with the methodology used to determine equity awards
to directors described elsewhere in this Proxy Statement, the number of stock options and restricted stock units awarded to the Company's Named Executive Officers was determined based on the aggregate
grant date value proposed by the Compensation Committee and a hypothetical share price of $15/share.
All
stock options that were granted vest 50% on the second anniversary of the grant date and the remaining 50% on the third anniversary of the grant date, subject to the executive's continued
employment through the vesting dates. Restricted stock units granted will vest 100% on the third anniversary of the grant date, subject to the executive's continued employment through the vesting
date. All stock options and restricted stock units vest immediately upon the death, disability or retirement of a recipient who has attained the age of 65.
Clawback of Compensation
Clawback provisions are included in all awards under the 2006 Incentive Plan, the 2014 Incentive Plan and the 2016 Incentive Plan
(collectively, the "Incentive Plans"). Pursuant to those provisions, the Board may require an employee, executive officer, or director who engaged in fraud or misconduct to immediately repay annual
performance-based cash awards and long-term incentive awards. In addition, the Board may terminate all vested and unvested options in the event that the grantee engages in fraud or misconduct.
No Pledging of Stock
The Company's Insider Trading Policy prohibits its executive officers, employees and directors from pledging Company securities as collateral
for a loan or holding Company securities in a margin account. The 2014 Incentive Plan and the 2016 Incentive Plan allow the Company to terminate any long-term incentive award issued under such
Incentive Plans that is pledged and repurchase any pledged restricted stock units upon notice to the grantee.
No Hedging Transactions
The Company has enacted an anti-hedging policy regarding Company securities applicable to all executive officers and directors. The Company's
Insider Trading Policy prohibits all directors, employees, and officers from (i) engaging in short sales in Company securities (including "sales against the box"); (ii) engaging in any
zero-cost collars and forward sale contracts with respect to Company equity securities; or (iii) engaging in any transactions in puts, calls or other derivative securities, on an exchange or in
any other organized market with respect to Company equity securities.
Severance and Change-in-Control Benefits
The Company does not agree in advance to provide post-termination or change-in-control benefits to Named Executive Officers in the event that
they terminate employment with the Company. The Company reserves the right to provide severance benefits to executives when they terminate employment with the Company. None of the Named Executive
Officers has an employment agreement that provides for termination, severance or change-in-control benefits.
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Perquisites and Personal Benefits
In general, the Company does not provide perquisites or personal benefits to the Named Executive Officers that are not available to other
employees.
Pension Benefits or Supplemental Retirement Benefits
In 2016, the Company provided retirement benefits to the Named Executive Officers consisting of the 401(k) plan with company matching
contributions and retirement savings account contributions. Due to economic factors affecting the Company at such time, the Company 401(k) matching contribution was suspended for payroll periods paid
on and after March 11, 2016. Pursuant to the 401(k) plan, for payroll periods paid prior to March 11, 2016, the Company made a matching contribution equal to 100% of the first 4% of the
employee's pay contributed to the plan plus 50% of the next 4% of pay contributed. Historically, at the end of the 401(k) plan year, the Company made an additional retirement savings account
contribution based upon total earnings for the year subject to a maximum amount of $265,000 in accordance with Internal Revenue Service regulations. At the same time as the Company 401(k) matching
contribution was suspended, the retirement savings account contribution was suspended, which resulted in no contribution for the 2016 plan year. Effective as of January 1, 2017, the
Company's 401(k) matching and retirement savings account contributions were reinstated.
Health and Welfare Benefits
All full-time employees, including our Named Executive Officers, may participate in our health and welfare benefit programs, including
medical, dental and vision care coverage, disability insurance and life insurance.
In
keeping with the Company's compensation policies and objectives described above, and giving due consideration to the fact that certain elements of 2016 Named Executive Officer
compensation either remained static or decreased since 2015, the Compensation Committee established the following 2017 compensation for the Company's Named Executive Officers, giving consideration to
the changes in officer positions described elsewhere in this Proxy Statement: (a) base salary for Messrs. Kaplan, Stone and Nebel and Ms. Tarbox were set at $925,000, $780,000,
$550,000 and $500,000, respectively, effective as of January 1, 2017; (b) each of Messrs. Kaplan and Stone has a target bonus equal to 100% of his respective salary and a range of
possible payment from 0-200% of target; (c) Mr. Nebel and Ms. Tarbox each has a target bonus of 65% of his/her respective salary and a range of possible payment from 0-200% of
target; and (d) Messrs. Kaplan, Stone and Nebel and Ms. Tarbox are eligible to receive $2,400,000, $2,000,000, $700,000 and $650,000 in long-term incentive compensation,
respectively. Mr. Keneally is no longer an executive officer of the Company, effective as of January 1, 2017.
For
retention purposes, the Compensation Committee also granted restricted stock unit awards in April 2017 to certain Company employees. Mr. Nebel and Ms. Tarbox received awards of 3,104
and 2,822 restricted stock units, respectively, at such time. Messrs. Stone and Kaplan did not receive an award at such time.
REGULATORY CONSIDERATIONS
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Section 162(m)
of the Internal Revenue Code generally denies a publicly traded company a Federal income tax deduction for compensation in excess of $1.0 million paid to
certain of its Named Executive Officers. Performance-based compensation is exempt from the deduction limit, however, if certain requirements are met. The Compensation Committee structures compensation
to take advantage of this exemption under Section 162(m) to the extent practicable, while satisfying the Company's compensation policies and objectives.
Because the Compensation Committee also recognizes the need to retain flexibility to make compensation decisions that may not meet the standards of Section 162(m) when deemed necessary to
enable the Company to continue to attract, retain,
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and
motivate highly-qualified executives, it reserves the authority to approve potentially non-deductible compensation.
NAMED EXECUTIVE OFFICER STOCK OWNERSHIP REQUIREMENTS
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Our
Board has stock ownership requirements applicable to the Named Executive Officers based on a multiple of annual base salary. The Board created these requirements to further align
the interests of our Named Executive Officers with those of the Company's stockholders and encourage long-term stockholder value by requiring our Named Executive Officers to hold a significant equity
stake in the Company. The following table illustrates the current stock ownership requirements:
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Position
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Ownership
requirement
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Named Executive Officers Serving on the Company's Board
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6x base salary
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Other Named Executive Officers
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2x base salary
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Named
Executive Officers may aggregate their shareholdings to accomplish their ownership requirement, and restricted stock units and vested options count toward the ownership requirements. Shares that
are hedged or pledged, if any, would not count toward satisfaction of the minimum ownership requirements. Newly appointed Named Executive Officers have four years from their appointment to comply with
the requirements. The Board may, in its discretion, make exceptions to the policy in periods of volatile markets. As of the Record Date, all Named Executive Officers had achieved the required level of
ownership.