Filed by the
Registrant ☒ Filed by a Party other than the
Registrant ☐
You are cordially invited to attend Group 1 Automotives 2017 Annual Meeting of Stockholders to be held at the Companys
Sterling McCall Lexus dealership, 10025 Southwest Freeway, Houston, Texas 77074, on Friday, May 12, 2017, at 10:00 a.m. Central Daylight Time.
2016
delivered record revenue of $10.9 billion, diluted earnings per share of $6.67 and record adjusted diluted earnings per share of $7.42. As the Company celebrates its 20
th
anniversary in
business and as a leader in the industry in 2017, the Company remains focused on delivering stockholder value by leveraging revenue growth, optimizing brand diversity, strategically expanding presence while continuing to manage capital deployment,
and capitalizing on the experience and expertise within our overall management team.
This years meeting agenda includes a vote to: (i) approve
the nominees for our board of directors named in the proxy statement; (ii) approve, on a
non-binding
advisory basis, our executive compensation; (iii) approve, on a
non-binding
advisory basis, the frequency of our executive compensation vote; and, (iv) approve Ernst & Young LLP as our independent registered public accountants for 2017. Management will also
review the Companys business and financial performance.
Regardless of the number of shares you own, your vote matters. We hope you are able to join
us at the Annual Meeting, but if you cannot, we look forward to hearing your voice via your participation in voting on the business items set forth in the attached notice. We encourage you to sign and return your proxy card, or use telephone or
internet voting prior to the meeting, to assure that your shares are represented and voted at the meeting.
Thank you for your continued dedication of
time and interest in Group 1. Our core values of integrity, transparency, professionalism, and teamwork promote success amongst our team, which includes our customers, our 13,000 employees worldwide, and you, our stockholders.
Proxy
Statement
This proxy statement is being furnished to you in connection with the solicitation of proxies by the Board of Directors (the Board) of
Group 1 Automotive, Inc. (Group 1 or the Company) for use at our 2017 Annual Meeting of Stockholders (the Annual Meeting) and at any adjournment or postponement thereof. Proxy materials were first
sent to stockholders on or about April 10, 2017.
2017 Annual Meeting Date and Location
Our Annual Meeting will be held at Sterling McCall Lexus, 10025 Southwest Freeway, Houston, TX 77074, on
Wednesday, May 12, 2017, at 10:00 a.m., Central Daylight Time, or at such other time and place to which the meeting may be adjourned.
References in this proxy statement to the Annual Meeting also refer to any adjournments, postponements or
changes in location of the meeting, to the extent applicable.
Delivery of
Proxy Materials
The proxy materials, including this proxy statement, the Notice of Annual Meeting, a proxy card, and our Annual
Report to Stockholders on Form
10-K
for the fiscal year ended December 31, 2016 are being distributed and made available to stockholders beginning on April 10, 2017.
The proxy card provides instructions on how to inform us to send future proxy materials to you electronically by email. If you choose to receive future proxy
materials by email, you will receive an email next year
with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by email or printed form will remain in effect until you
terminate it.
Choosing to receive future proxy materials by email will allow us to provide you with the information you need in a timelier manner, save
us the cost of printing and mailing documents to you, and conserve natural resources.
Questions and
Answers about the Annual Meeting
What is the purpose of the meeting?
At our Annual Meeting, stockholders will act upon the matters outlined in the notice of meeting, including the
election of nine director nominees, the advisory vote to approve executive compensation, advisory vote to approve the frequency of executive compensation advisory votes, the ratification of Ernst & Young LLP as
our independent registered public accounting firm for the fiscal year ending December 31, 2017, and the consideration of any other matters properly presented at the meeting. In addition,
senior management will report on our business and financial performance during fiscal year 2016 and respond to your questions.
Who is entitled to vote at the meeting?
Only our stockholders as of 5:00 p.m., Central Daylight Time, on March 15, 2017 (the record date) are
entitled to receive notice of the Annual Meeting and to vote at
the meeting. On March 15, 2017, there were 21,473,563 shares of Group 1 common stock issued and outstanding and entitled to vote at the meeting.
Questions and Answers about the Annual Meeting
How many votes may I cast?
You are entitled to one vote for each share of Group 1 common stock you owned at 5:00 p.m., Central
Daylight Time, on March 15, 2017, on all matters presented at the meeting.
What is the difference between a
stockholder of record and a beneficial owner or street name holder?
If your shares are registered directly in your name with our registrar and transfer agent, American Stock
Transfer & Trust Company, LLC, you are considered a stockholder of record with respect to those shares.
If your shares are held in a
brokerage account or by a bank or other nominee, you are considered the
beneficial owner of those shares, and your shares are held in street name.
If you hold common stock in
BOTH
street name and as a stockholder of record,
YOU MUST VOTE SEPARATELY
for each position of common stock.
How do I vote my shares?
If you are a stockholder of record on the record date, you may vote in person at the Annual Meeting or by proxy
using any of the following methods:
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Online
visit the website shown on the proxy card
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(www.proxyvote.com) and follow the instructions at
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that website at any time prior to 11:59 p.m., Eastern
Daylight
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Time, on May 11, 2017;
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Telephone
within the United States (U.S.) or
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Canada, call the
toll-free
telephone number shown on
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the proxy card and follow the instructions at any time prior
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to 11:59 p.m., Eastern Daylight Time, on May 11, 2017; or
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Mail
if you receive a paper copy of the proxy
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materials, complete, sign and date the proxy card and
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return the proxy card in the prepaid envelope. Your proxy card
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must be received by the Company before the voting polls
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close at the Annual Meeting.
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If you vote by internet or telephone, do not return your proxy card. The telephone and internet voting
procedures are designed to authenticate stockholders identities, to allow stockholders to give their voting instructions and to confirm that stockholders instructions have been
recorded properly.
Submitting your proxy by internet or telephone will not affect your right to vote in person should you decide to attend the Annual
Meeting.
If you want to vote in person at the meeting, you must request a ballot. For directions to the Annual Meeting
visit
www.sterlingmccalllexus.com
and click on the Map and Directions box.
If you hold your shares in street name, you will receive
instructions from your broker, bank or other nominee describing how to vote your shares. Beneficial owners voting by telephone or internet are subject to the same deadlines as described above for holders of record. If you want to vote in person, you
must obtain a legal proxy from your broker, bank or other nominee and bring it to the meeting.
Can I change my vote or revoke my
proxy?
If you are a stockholder of record on the record date, you can revoke your proxy prior to the completion of
voting at the Annual Meeting by:
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delivering an executed,
later-dated
proxy that is received by the Corporate Secretary of the Company before the voting polls close at the Annual Meeting;
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resubmitting your proxy by internet or telephone at any time prior to 11:59 p.m., Eastern Daylight Time, on May 11, 2017;
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delivering a written notice of revocation of the proxy to Beth Sibley, Corporate Secretary, Group 1 Automotive, Inc., 800 Gessner, Suite 500, Houston, Texas 77024 no later than May 11, 2017; or
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voting in person at the Annual Meeting.
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Only your latest dated proxy that we receive prior to the Annual
Meeting will be counted. Further, your attendance at the Annual Meeting will not automatically revoke your proxy.
2
Questions and Answers about the Annual Meeting
If you are a street name stockholder you must follow the instructions of your broker, bank or other nominee to
revoke your voting instructions. You may also vote in
person at the Annual Meeting if you obtain a legal proxy from your broker, bank or other nominee.
What is the effect of broker
non-votes
and abstentions and what vote is required to approve each proposal?
If you hold your shares in street name, you will receive instructions from your broker, bank or
other nominee describing how to vote your shares. If you do not instruct your broker, bank or other nominee how to vote your shares, they may vote your shares as they decide as to each routine matter under the rules of the New York Stock Exchange.
Only Proposal No. 4 is considered a routine matter.
If you do not provide specific voting instructions to your broker on
non-routine
matters, your broker may not cast a vote on the proposal, resulting in a broker
non-vote.
Although any broker
non-vote
would be
counted as present at the meeting for purposes of determining a quorum, it would be treated as not entitled to vote with respect to
non-routine
matters. If you are a beneficial owner holding shares through a broker, bank or other nominee and you do not provide voting instructions on certain matters, your broker may cast a vote on your behalf for Proposal No. 4, but may not cast a vote
on Proposals No. 1, 2 or 3. Abstentions occur when stockholders are present at the Annual Meeting but fail to vote or voluntarily withhold their vote for any of the matters upon which the stockholders are voting.
The table below describes the vote
required for approval of each matter to be brought before the meeting, as well as the treatment of abstentions and broker
non-votes
as to each matter.
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Proposal
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Vote Required
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Treatment of
Abstentions
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Treatment
of
Broker
Non-Votes
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1
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Each nominee must receive the affirmative vote of a majority of votes cast by stockholders entitled to vote in the election of directors. Nominees who receive more for votes than against votes are elected,
subject to our director resignation policy described below
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Not applicable
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Not taken into account
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2
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The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote on the matter
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Count as a vote against
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Not taken into account
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3
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The frequency receiving the greatest number of for votes will be the frequency approved by stockholders
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Not applicable
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Not taken into account
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4
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The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote on the matter
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Count as a vote against
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Brokers have discretion
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The Companys director resignation policy requires any director nominee in an uncontested election who
receives a greater number of votes against than votes for his or her election to tender his or her resignation promptly following the certification of the election results. The Nominating/Governance Committee of the Board
will consider all of the relevant facts and circumstances and make a recommendation to the Board with respect to whether to accept the resignation. Within 90 days, the Board is required to take action with respect to the recommendation and to
promptly disclose its decision. The director resignation policy is more fully described in Information about Our
Board of Directors and Its Committees Director Resignation Policy.
Our Board has
appointed Earl J. Hesterberg, our President and Chief Executive Officer, and John C. Rickel, our Senior Vice President and Chief Financial Officer, as the management proxy holders for the Annual Meeting. If you are a stockholder of record, your
shares will be voted by the management proxy holders in accordance with the instructions on the proxy card you submit by mail, or the instructions provided for any proxy submitted by telephone or internet, as applicable. For stockholders who have
their
3
Questions and Answers about the Annual Meeting
shares voted by duly submitting a proxy by mail, telephone or internet, unless the stockholder appropriately
specifies otherwise, the management
proxy holders will vote all shares represented by such valid proxies as our Board recommends.
How does the Board recommend I vote?
Our Board of Directors recommends that you vote your shares
FOR
each of the director
nominees;
FOR
the approval, on a
non-binding
advisory basis, of our executive compensation; for
ONE YEAR
for the
frequency of executive compensation advisory votes; and
FOR
the ratification of the appointment of Ernst & Young LLP as our independent registered public
accounting firm for 2017.
What is a quorum?
We need a quorum with respect to each proposal being submitted for stockholder vote. A quorum will be present
for purposes of proposals 1, 2, 3, and 4, if the holders of a majority of the shares of common stock entitled to vote are present in person or represented by proxy at the Annual Meeting. Our independent inspector of election, Broadridge
Financial Solutions will determine whether or not a quorum is present. There must be a quorum for the Annual Meeting to be held. Proxies received but marked as abstentions or broker
non-votes
will be included
in the calculation of votes considered to be present at the Annual Meeting.
If less than a quorum is represented at the meeting, a majority of the shares
so represented may adjourn the meeting from time to time without further notice, and the persons named as proxies will vote the proxies they have been authorized at the Annual Meeting in favor of such an adjournment.
In the event a quorum is present at the Annual Meeting but sufficient votes to approve any of the items proposed
by our Board have not been received, the persons named as proxies may propose one or more adjournments of the meeting to permit further solicitation of proxies. A stockholder vote may be taken on one or more of the proposals in this proxy statement
prior to such adjournment if sufficient proxies have been received and it is otherwise appropriate. Any adjournment will require the affirmative vote of the holders of a majority of those shares of common stock represented at the meeting in person
or by proxy. If a quorum is present, the persons named as proxies will vote the proxies they have been authorized to vote on any other business properly before the meeting in favor of such an adjournment.
Who will bear the cost of soliciting
votes for the Annual Meeting?
We have engaged Alliance Advisors to assist with the solicitation of proxies for a fee not to exceed $5,000,
plus reimbursement for reasonable
out-of-pocket
expenses. We will bear all expenses of soliciting proxies. We may reimburse brokerage firms, custodians, nominees,
fiduciaries and other persons representing beneficial owners of our common stock for their reasonable
expenses in forwarding solicitation material to such beneficial owners. Directors, officers and employees of Group 1 may also solicit proxies in person or by other means of communication.
Such directors, officers and employees will not be additionally compensated but may be reimbursed for reasonable
out-of-pocket
expenses in connection with such
solicitation.
Who will count the votes?
We have engaged Broadridge Financial Solutions to tabulate the votes and to serve as inspector of election at
the Annual Meeting for a fee of approximately $3,500. Broadridge will separately tabulate For,
Against and Withhold votes, abstentions and broker
non-votes.
Broadridge will also certify the election results and perform any other acts required by the
Delaware General Corporation Law.
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Questions and Answers about the Annual Meeting
May I propose actions for consideration at next years Annual Meeting of Stockholders or nominate
individuals to serve as directors?
You may submit proposals for consideration at future stockholder meetings, including director nominations.
Please read Stockholder Proposals for 2018 Annual
Meeting for information regarding the submission of stockholder proposals and director nominations for consideration at next years Annual Meeting.
Information
about our Board of Directors and its Committees
Meetings of the Board of Directors and its Committees
In 2016, the Board held six meetings and acted by unanimous written consent six times. Committees of the Board
held a combined total of 21 meetings. Each incumbent director attended 95% or more of the aggregate of all meetings of the Board and the committees on which he or she served during the periods in which he or she served during fiscal 2016, and,
except for one director who was unable to attend one Compensation Committee meeting, attendance at such meetings was 100% for all directors then currently serving. Under our Corporate Governance Guidelines, our directors are encouraged to attend the
Annual Meeting of our stockholders. All of our then-current directors attended our 2016 Annual Meeting of Stockholders. We currently expect all of our directors standing for election to be
present at the 2017 Annual Meeting.
Our Board and each of its committees annually conduct a
self-evaluation
to
assess, and identify opportunities to improve, their respective performance. The Nominating/Governance Committee leads our Board in its annual
self-evaluation.
Corporate Governance
We are committed to good corporate governance which includes the highest standards of professional and personal
conduct. Our Board has adopted several governance documents to guide the operation and direction of our Board and its committees, which include our Corporate Governance Guidelines, Code of Ethics, Code of Conduct and charters for the Audit
Committee, Compensation Committee,
Nominating/Governance Committee and Finance/Risk Management Committee. Each of these documents is available on our website at
www.group1auto.com
and stockholders may obtain a
printed copy, free of charge, by sending a written request to Group 1 Automotive, Inc., 800 Gessner, Suite 500, Houston, TX 77024, Attn: Corporate Secretary.
Board Leadership Structure
The Nominating/Governance Committees charter provides that the committee will annually assess the
leadership structure of the Board and recommend a structure to the Board for approval. In 2016, the Nominating/Governance Committee conducted that assessment, and determined that having an independent director serve as
non-executive
Chairman of the Board continues to be in the best interest of our stockholders at this time. Our Chief Executive Officer is responsible for setting our strategic direction and providing
day-to-day
leadership, while the Chairman of the Board
sets the agenda for Board meetings, presides over meetings of the full Board and provides guidance to our Chief Executive Officer. We believe this structure ensures a greater role for the
independent directors in the oversight of our Company and active participation of the independent directors in setting agendas and establishing priorities and procedures for the work of our Board. We discuss our directors qualifications and
characteristics under Proposal 1 Election of Directors.
Board Diversity
Our Nominating/Governance Committee is responsible for identifying and recommending to our Board
qualified individuals to be nominated to serve on our Board. Our Boards objective is to select individuals
5
Information about our Board of Directors and its Committees
that have a demonstrated record of integrity, sound business judgment, leadership, objectivity, independence of
mind, and commitment. In selecting potential Board candidates, our Board seeks independent directors who represent a mix of backgrounds and experiences that will enhance the quality of our Boards deliberations and decisions. Board membership
should reflect diversity in its
broadest sense, including persons diverse in perspectives, personal and professional experiences, geography, gender, and ethnicity. This process has resulted in a Board that is comprised of
highly qualified directors that reflect diversity as we define it. The Nominating/Governance Committee assesses the effectiveness of this approach as part of our Boards annual self-evaluation process.
Independence of the Members of our
Board
The Board has analyzed the independence of each director. It has affirmatively determined that Mses. Barth
and Wright and Messrs. Adams, Arnold, Quinn, Strange, Szews and Watson (all of our
non-employee
directors) are independent directors under the New York Stock Exchanges listing standards. As part of
its analysis, the Board determined that none of these directors has a material
relationship with our Company. Mr. Hesterberg was determined not to be independent because he is our President and Chief Executive Officer, and Mr. Pereira, who was appointed to the
Board following our acquisition of UAB Motors Participações, S.A. (UAB), was determined not to be independent because he is our Regional Vice President, Brazil and the Chairman of UAB.
Charitable Contributions
We have in the past, and may, in the future, make donations to various charitable organizations. From time to
time, some of our directors, officers and employees have been, and in the future may be,
affiliated with such charities. During the annual independence review, our Nominating/Governance Committee determined that any such affiliations did not impact the independence of our directors.
Director Resignation Policy
Under our director resignation policy, in an uncontested election of directors, any nominee who receives a
greater number of votes against than votes for his or her election will, promptly following the certification of the stockholder vote, tender his or her written resignation to the Board for consideration by the
Nominating/Governance Committee. The Nominating/Governance Committee will consider the resignation and will make a recommendation to the Board concerning whether to accept or reject it.
In determining its recommendation to the Board, the Nominating/Governance Committee will consider all factors it considers relevant, which may include:
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the stated reason or reasons why stockholders who cast withhold votes for the director did so;
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the qualifications of the director; and
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the results of the most recent evaluation of the tendering directors performance by the Nominating/Governance Committee and other members of the Board.
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Under our director resignation policy, the Board will take formal action on the recommendation no later than 90 days following the certification of the
results of the stockholders meeting. In considering the recommendation, the Board will consider the information, factors and alternatives considered by the Nominating and Governance Committee and any additional information that the Board
considers relevant. The Company will promptly disclose the Boards decision whether to accept or reject the directors tendered resignation. If applicable, the Board will also disclose the reason or reasons for rejecting the tendered
resignation.
Executive Sessions of our Board
The independent directors meet in executive session at each regularly scheduled meeting of our Board.
Mr. Adams, our
non-executive
Chairman of the Board,
presides over these meetings and is responsible for preparing an agenda for the meetings of the independent directors in executive session.
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Information about our Board of Directors and its Committees
Risk Oversight
Our Board, as a whole and through its committees, has broad responsibility for the oversight of risk management
with a focus on the most significant risks facing the Company, including strategic, operational, financial and legal and compliance risk. In its risk management role, our Board has the responsibility to satisfy itself that our risk management
processes and systems that have been put in place to identify and manage risks are reasonable and functioning as designed. Our Board also has specific risk management accountability for governance, executive compensation and Chief Executive Officer
succession planning.
Much of our Boards oversight work is delegated to various committees, which meet regularly and report back to the full Board.
All committees have significant roles in carrying out the risk oversight function. Each committee is comprised entirely of independent directors, except the Finance/Risk Management Committee, and is responsible for overseeing risks associated with
its respective area of responsibility as further detailed below.
The Finance/Risk Management Committee is charged with oversight of our risk exposure
related to our operations, including, among other things, cyber security and data protection and litigation management, enterprise risk management strategies, strategies for our insurance programs and our compliance with covenants of material debt
instruments. The Finance/Risk Management Committee monitors our
finance-related
activities and provides guidance to management and the Board concerning our
long-range
financial policies and objectives.
The Audit Committee is responsible for oversight of Company risks relating to accounting matters, financial reporting
(primarily internal control risks) and legal and regulatory compliance. In fulfilling these oversight responsibilities, the Audit Committee meets with our management and independent registered public accounting firm regarding the adequacy of our
financial controls and our compliance with legal, tax and regulatory matters, as well as our significant financial and accounting policies. The Audit Committee also separately meets with our director of internal audit on a regular basis, and with
other members of management, as deemed appropriate, to review, among other things, the identified risk areas and scope of the internal audit approach. The Audit Committee receives regular reports regarding the status and findings of audits being
conducted by the internal auditors and independent registered public accounting firm, accounting changes that could affect our financial statements and proposed audit adjustments. Further, the Audit Committee chair routinely meets between formal
Audit Committee meetings
with our chief financial officer, corporate controller, director of internal audit and our independent registered public accounting firm.
The Compensation Committee is responsible for overseeing risks relating to employment policies, our compensation policies and programs and our benefits
systems. To assist it in satisfying these oversight responsibilities, from time to time the Compensation Committee has retained its own compensation consultant and meets regularly with management to understand the financial, human resources and
stockholder implications of compensation decisions being made. A separate discussion regarding the risk considerations in our compensation programs, including the processes that are put in place by the Compensation Committee and management to
identify, manage and mitigate potential risks in compensation, can be found beginning on page 39 of this proxy statement.
The Nominating/Governance
Committee is responsible for oversight of risks relating to succession planning for our Chief Executive Officer and other key officers, our corporate governance guidelines and practices and our corporate compliance program. To satisfy these
oversight responsibilities, the Committee receives regular reports from our officers that are responsible for each of these areas on matters such as progress against succession planning programs and goals that could affect our operations. In
addition, on an annual basis, the Nominating/Governance Committee conducts a review of the performance of the Board and its committees and reviews and reassesses the adequacy of the corporate governance guidelines and recommends any proposed changes
to the Board.
In addition to reports from its committees, our Board receives regular reports directly from the officers responsible for oversight of
particular risks within our Company. Specifically, our officers report to our Board regarding the Enterprise Risk Management Program that management has implemented to assess, manage and monitor areas of risk that are significant to our business,
including safety and risk, strategic planning and operational risk, financial and accounting risk, and governance, regulatory and legislative risk. Risk profiles are updated annually to ensure that all risks continue to be identified. Our officers
also report to our Board on which risks management has assessed as the most significant, together with managements plans to mitigate those risks. Further, outside counsel reports in person to our Board periodically on an
as-needed
basis to keep our directors informed concerning legal risks and other legal matters involving our Company. Finally, we have robust internal audit systems in place
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Information about our Board of Directors and its Committees
to review adherence to policies and procedures, which are supported by a separate internal audit department.
Committees of our Board
Our Board has established four standing committees to
assist it in discharging its responsibilities: the Audit Committee, the Compensation Committee, the Nominating/Governance Committee and the Finance/Risk Management Committee. The following chart reflects the current membership of each committee:
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Name
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Audit
Committee
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Compensation
Committee
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Nominating/
Governance
Committee
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Finance/Risk
Management
Committee
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John L. Adams
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M
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C
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Doyle L. Arnold
(1)
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M
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M
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Carin M. Barth
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M
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Earl J. Hesterberg
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M
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Lincoln Pereira
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M
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Stephen D. Quinn
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M
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M
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C
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J. Terry Strange
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C
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M
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Max P. Watson, Jr.
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C
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M
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Charles L. Szews
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M
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M
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MaryAnn Wright
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M
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M
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(1)
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Mr. Arnold is not standing for
re-election.
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M Member
C Chairman
Each of the committee
charters is available on our website at
www.group1auto.com
and stockholders may obtain printed copies, free of charge, by sending a written request to Group 1 Automotive, Inc., 800 Gessner, Suite 500, Houston, TX 77024,
Attn: Corporate Secretary.
Audit Committee
Pursuant to its charter, the purposes and responsibilities of our Audit Committee are to:
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oversee the quality, integrity and reliability of the financial statements and other financial information we provide to any governmental body or the public;
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oversee our compliance with legal and regulatory requirements;
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oversee the qualifications, performance and independence of our independent registered public accounting firm;
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oversee the performance of our internal audit function;
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oversee our systems of internal controls regarding finance, accounting, legal compliance and ethics that our management and our Board have established;
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provide an open avenue of communication among our independent registered public accounting firm, financial and senior management, the internal auditing department, and our Board, always emphasizing that the independent
registered public accounting firm is accountable to the Audit Committee; and
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perform such other functions as our Board may assign to the Audit Committee from time to time.
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Information about our Board of Directors and its Committees
In addition to, and in connection with, the purposes and responsibilities described above, the Audit Committee
is directly responsible for the appointment, compensation, retention and oversight of the work of our independent registered public accounting firm. The Audit Committee also reviews our annual and quarterly financial statements and confirms the
independence of our independent registered public accounting firm.
While the Audit Committee has the responsibilities and powers set forth in its
charter, it is not the duty of the Audit Committee to plan or conduct audits, to determine that our financial statements are complete and accurate, or to determine that such statements are in accordance with accounting principles generally accepted
in the United States and other applicable rules and regulations. Our management is responsible for the preparation of our financial statements in accordance with accounting principles generally accepted in the United States and our internal
controls. Our independent registered public accounting firm is responsible for the audit work on our financial statements. It is also not the duty of the Audit Committee to conduct investigations or to assure compliance with laws and regulations and
our policies and procedures. Our management is responsible for compliance with laws and regulations and compliance with our policies and procedures.
All
members of the Audit Committee are independent as that term is defined in the New York Stock
Exchanges (the NYSE) listing standards and by
Rule 10A-3
promulgated under the Securities Exchange Act of 1934 (the Exchange
Act). Our Board has determined that each member of the Audit Committee is financially literate and that Mr. Strange has the necessary accounting and financial expertise to serve as Chairman. Mr. Strange also serves on the Audit
Committees of New Jersey Resources Corporation, Newfield Exploration Company and BBVA Compass. Our Board has determined that Mr. Stranges simultaneous service on these other Audit Committees and our Audit Committee does not impair his
ability to serve effectively on our Audit Committee.
Our Board has also determined that each of Ms. Barth and Messrs. Arnold, Quinn, Strange
and Szews is an audit committee financial expert following a determination that Ms. Barth and Messrs. Arnold, Quinn, Strange and Szews met the criteria for such designation under SEC rules and regulations. For information
regarding the business experience for Ms. Barth and Messrs. Quinn, Strange and Szews, please read Proposal 1 Election of Directors. The Audit Committee held eight meetings during 2016, with all individuals who
were members of the committee at such time attending each meeting.
The Report of the Audit Committee is set forth on page 25 of this proxy
statement.
Compensation Committee
Pursuant to its charter, the purposes and responsibilities of our Compensation Committee are to:
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review, evaluate, and approve our agreements, plans, policies, and programs to compensate our senior corporate officers;
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review and discuss with our management the Compensation Discussion and Analysis to be included in our proxy statement for the Annual Meeting of Stockholders and to determine whether to recommend to our Board that the
Compensation Discussion and Analysis be included in the proxy statement, in accordance with applicable rules and regulations;
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produce the Compensation Committee Report for inclusion in the proxy statement, in accordance with applicable rules and regulations;
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otherwise discharge our Boards responsibility relating to compensation of our senior corporate officers; and
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perform such other functions as our Board may assign to the Compensation Committee from time to time.
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In
connection with these purposes, our Board has entrusted the Compensation Committee with the overall responsibility for establishing, implementing and monitoring the compensation for our senior corporate officers (our executive officers and officers
that report directly to our Chief Executive Officer). The Compensation Committee reviews and approves the compensation of our senior corporate officers and makes appropriate adjustments based on Company performance, achievement of predetermined
goals and changes in an officers duties and responsibilities. The Compensation Committee also approves all employment agreements related to the senior corporate officers and approves recommendations regarding equity awards for all employees.
Together with management, and any counsel or other advisors deemed appropriate by the Compensation Committee, the Compensation Committee typically reviews and discusses the particular executive compensation matter presented and makes a final
determination, with the exception of compensation
9
Information about our Board of Directors and its Committees
matters relating to our Chief Executive Officer. In the case of our Chief Executive Officer, the Compensation Committee reviews and discusses the particular compensation matter (together with our
management and any counsel or other advisors deemed appropriate) and formulates a recommendation. The Compensation Committees Chairman then generally reports the Compensation Committees recommendation for approval by the full Board or,
in certain cases, by the independent directors.
In general, executive compensation matters are presented to the Compensation Committee or raised with the
Compensation Committee in one of the following ways: (1) at the request of the Compensation Committee Chairman or another Compensation Committee member or member of our Board, (2) in accordance with the Compensation Committees
agenda, which is reviewed by the Compensation Committee members and other directors on an annual basis, (3) by our Chief Executive Officer or Senior Vice President, Human Resources, Training and Operations Support, or (4) by the
Compensation Committees outside compensation consultant.
The Compensation Committee works with the management team, our Chief Executive Officer and
our Senior Vice President, Human Resources, Training and Operations Support, to implement and promote our executive compensation strategy. The most significant aspects of managements involvement in this process are:
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preparing materials in advance of Compensation Committee meetings for review by the Compensation Committee members;
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evaluating executive performance;
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recommending our business goals; and
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recommending the compensation arrangements and components for our executives.
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Our Chief Executive Officer is
instrumental to this process. Specifically, the Chief Executive Officer assists the Compensation Committee by:
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evaluating senior corporate officer performance (other than his own);
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providing background information regarding our business goals; and
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recommending compensation arrangements and components for our senior corporate officers (other than himself).
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In addition, our Senior Vice President, Human Resources, Training and Operations Support is involved in the
executive compensation process by:
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providing the necessary compensation information to, and acting as our liaison with, the compensation consultant;
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updating and modifying compensation plan policies, guidelines and materials, as needed; and
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providing recommendations to the Compensation Committee and our Chief Executive Officer regarding compensation structure, awards and plan design changes.
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Under its charter, the Compensation Committee has the sole authority to retain and terminate any compensation consultant to be used to assist in the
evaluation of the compensation of our senior corporate officers and our directors and also has the sole authority to approve the consultants fees and other retention terms. To the extent permitted by applicable law, the Compensation Committee
may delegate some or all of its authority to subcommittees as it deems appropriate.
During 2016, the Compensation Committee engaged Pearl
Meyer & Partners (PM&P) to conduct a compensation analysis which involved the comparison of
long-term,
short-term
and total compensation of our
named executive officers with a selected group of peer companies. We generally compare compensation data at the 25th, 50th and 75th percentiles of the market and engage PM&P to review our analysis. While we do not think it is
appropriate to establish compensation based solely on market analysis, we believe that this practice is useful for two reasons.
First, our compensation
practices must be competitive in order to attract and retain executives with the ability and experience necessary to provide leadership and to deliver strong performance to our stockholders. Second, reviewing market analysis allows us to assess the
reasonableness of our compensation practices. This process allows us to achieve one of our primary objectives of maintaining competitive compensation to ensure retention when justified and rewarding the achievement of Company objectives so as to
align with stockholder interest. PM&P is an independent compensation consulting firm and does not provide any other services to us outside of matters pertaining to executive officer and director compensation. PM&P reports directly to the
Compensation Committee, which is the sole party responsible for determining the scope of services performed by PM&P and the directions given to PM&P regarding the performance of such services.
10
Information about our Board of Directors and its Committees
In February 2017, the Compensation Committee considered the independence of PM&P in light of SEC rules and
listing standards of the NYSE. The Compensation Committee requested and received a letter from PM&P addressing the consulting firms independence, including the following factors: (1) other services provided to us by the consultant;
(2) fees paid by us as a percentage of the consulting firms total revenue; (3) policies or procedures maintained by the consulting firm that are designed to prevent a conflict of interest; (4) any business or personal
relationships between the individual consultants involved in the engagement and a member of the Compensation Committee; (5) any company stock owned by the individual consultants involved in the engagement; and (6) any business or personal
relationships between our executive officers and the consulting firm or the individual consultants involved in the engagement. The letter highlighted three additional factors that supported their independence: (1) PM&P has regular
discussions with only the Compensation Committee (or select members of the Compensation Committee) present and where PM&P interacts with management, it is at
the Compensation Committee Chairs request and/or with the Chairs knowledge and approval, (2) PM&P has not provided any gifts, benefits or donations to our Company or received
any gifts, benefits, or donations from our Company and (3) PM&P is bound by strict confidentiality and information sharing protocols. The Compensation Committee discussed these considerations, among other things, and concluded that the work
of PM&P did not raise any conflict of interest.
All members of the Compensation Committee are independent as that term is defined in the NYSEs
listing standards. The Compensation Committee held five meetings during 2016 and acted by unanimous written consent once. All individuals who were members of the Compensation Committee at such time attended each meeting of the Compensation
Committee, except for one director who was unable to attend one Compensation Committee meeting.
The Report of the Compensation Committee is set forth on
page 41 of this proxy statement.
Nominating/Governance Committee
Pursuant to its charter, the purposes and responsibilities of our Nominating/Governance Committee are to:
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assist our Board by identifying individuals qualified to become members of our Board and recommend director nominees to our Board for election at the Annual Meetings of stockholders or for appointment to fill vacancies;
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recommend to our Board the appropriate composition of our Board and its committees and Board committee membership and leadership;
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advise our Board about and recommend to our Board appropriate corporate governance guidelines and practices and assist our Board in implementing those guidelines and practices;
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lead our Board in its annual review of the performance of our Board and its committees;
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direct all matters relating to the succession of our Chief Executive Officer and other key officers of the Company; and
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perform such other functions as our Board may assign to the Nominating/Governance Committee from time to time.
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In connection with these purposes, the Nominating/Governance Committee actively seeks
individuals qualified to become members of our Board, seeks to implement the independence standards required by law, applicable listing standards, our Amended and Restated Certificate of
Incorporation, our Seconded Amended and Restated Bylaws and our Corporate Governance Guidelines, and identifies the qualities and characteristics necessary for an effective Chief Executive Officer.
In considering candidates for our Board, the Nominating/ Governance Committee will consider the entirety of each candidates credentials. There is
currently no set of specific minimum qualifications that must be met by a nominee recommended by the Nominating/Governance Committee, as different factors may assume greater or lesser significance at particular times and the needs of our Board may
vary in light of its composition and the Nominating/Governance Committees perceptions about future issues and needs. However, while the Nominating/Governance Committee does not maintain a formal list of qualifications, in making its evaluation
and recommendation of candidates, the Nominating/Governance Committee may consider, among other factors, diversity, age, skill, experience in the context of the needs of our Board, independence qualifications, moral character and whether prospective
nominees have relevant business and financial experience or have industry or other specialized expertise.
11
Information about our Board of Directors and its Committees
The Nominating/Governance Committee may consider candidates for our Board from any reasonable source, including
from a search firm engaged by the Nominating/Governance Committee or stockholder recommendations, provided that the procedures set forth below are followed. The Nominating/Governance Committee does not intend to alter the manner in which it
evaluates candidates based on whether the candidate is recommended by a stockholder or not. However, in evaluating a candidates relevant business experience, the Nominating/Governance Committee may consider previous experience as a member of
our Board. Any invitation to join our Board must be extended by our Board as a whole, by the Chairman of the Nominating/Governance Committee and by the Chairman of the Board.
Stockholders or a group of stockholders may recommend potential candidates for consideration by the Nominating/Governance Committee. For additional
information on such requests and the applicable timing, please see Stockholder Proposals for 2018 Annual Meeting.
In addition to the purposes
described above, our Board has entrusted the Nominating/Governance Committee
with the responsibility for establishing, implementing and monitoring the compensation for our directors. The Nominating/Governance Committee establishes, reviews and approves the compensation of
our directors and makes appropriate adjustments based on Company performance, duties and responsibilities of the directors and competitive environment. The Nominating/Governance Committees primary objectives in establishing and implementing
director compensation are to:
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ensure the ability to attract, motivate and retain the talent necessary to provide qualified Board leadership; and
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use the appropriate mix of
long-term
and
short-term
compensation to ensure high Board/committee performance.
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All members of the Nominating/Governance Committee are independent as defined under the NYSEs listing standards. The Nominating/Governance Committee
held four meetings during 2016, with all individuals who were members at such time attending each meeting.
Finance/Risk Management Committee
Pursuant to its charter, the purposes of our Finance/Risk Management Committee are to:
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review, oversee and report to our Board regarding our financial status and capital structure, debt and equity financings, cash management and other banking activities, compliance with covenants of material debt
instruments, investor/stockholder relations, relationships with various financial constituents and securities repurchase activities, and authorize transactions related thereto within limits prescribed by our Board;
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review return on investment for our stockholders through dividend and stock repurchase programs;
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review and assess risk exposure, including cybersecurity, and insurance related to our operations and authorize transactions within limits prescribed by our Board; and
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review capital expenditures and other capital spending plans, including significant acquisitions and dispositions of business or assets, and authorize transactions within limits prescribed by our Board.
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In connection with these purposes, the Finance/Risk Management Committee reviews periodically our financial
status and capital structure and can authorize
finance-related
activities within limits prescribed by our Board. The Finance/Risk Management Committee reviews with management the status of current litigation
matters and regularly reports to our Board on litigation and contingent liabilities. The Finance/Risk Management Committee also consults with management on matters that could have a significant financial impact on our Company and reviews our
financial policies and procedures, our compliance with material debt instruments and our significant banking relationships. In addition, the Finance/Risk Management Committee reviews and assesses periodically the risk exposure of our operations,
including cybersecurity, and plans and strategies for insurance programs, and authorizes risk
management-related
activities within limits prescribed by our Board. The Finance/Risk Management Committee also
provides direction for the assessment of future capital spending and acquisition opportunities and reviews capital expenditure plans, including significant acquisitions and dispositions of businesses and assets and other specific capital projects.
12
Information about our Board of Directors and its Committees
At the request of the Finance/Risk Management Committee, management developed and presented to the Board a
robust Enterprise Risk Management Program, concentrating primarily in four principal areas that are significant to our business: (1) safety and risk; (2) strategic planning and operational risk; (3) financial and accounting risk; and
(4) governance, regulatory and legislative risk. Risk profiles are updated annually to ensure that all risks continue to be identified. Management updates the Finance/Risk Management Committee as new risks are identified, and the steps taken to
mitigate such risks. On an annual basis, management reviews results from tests of key risks with the full Board and the steps taken to mitigate new risks which have been identified.
All members of the Finance/Risk Management Committee, except for Mr. Hesterberg, our President and Chief
Executive Officer and Mr. Pereira, our Regional Vice President, Brazil, are independent as defined under the NYSEs listing standards. The Finance/Risk Management Committee held four meetings during 2016, and all members were in
attendance.
Communications with Directors
Our Board welcomes communications from our
stockholders and other interested parties. Stockholders and any other interested parties may send communications to our Board, to any committee of our Board, to the
non-executive
Chairman of the Board (who
presides over the executive sessions of our independent and
non-management
directors), or to any director in particular, to:
c/o Group 1 Automotive, Inc.
800 Gessner, Suite 500
Houston, Texas 77024
Attn:
Chairman of the Board
Any correspondence addressed to our Board, to any committee of our Board, to the
non-executive
Chairman of the Board, or to any one of the directors in care of our offices is required to be forwarded to the addressee or addressees without review by any person to whom such correspondence is
not addressed.
Investor Outreach
We often attend investor conferences, and when requested, meet with investors on corporate governance matters. This ensures that management and the Board
understand and consider the issues that matter most to our stockholders and enables the Company to address them effectively.
13
Proposal 1 Election of Directors
At our 2015 Annual Meeting of Stockholders, we asked our stockholders to approve our Amended and Restated
Certificate of Incorporation (Restated Certificate) and Second Amended and Restated Bylaws (Bylaws), which, among other things, declassified our Board of Directors. Our Restated Certificate and Bylaws currently provide for
annual elections of directors.
Our Board of Directors has nominated nine directors for election at this Annual Meeting to hold office until the next
annual meeting and the election of their successors. All of the nominees are currently directors. Charles L. Szews was appointed to our Board in November 2016, and Carin M. Barth was appointed to
the Board in February 2017. Mr. Arnold is not standing for
re-election
at the 2017 Annual Meeting. All of the other nominees were elected directors by a vote of the stockholders at the last annual meeting of stockholders which was held on May 18, 2016. Each
nominee agreed to be named in this Proxy Statement and to serve if elected. All of the nominees are expected to attend the 2017 Annual Meeting. All eight directors, then serving on the Board, attended the 2016 Annual Meeting.
The following table sets forth certain information, as of the date of this proxy statement, regarding our director nominees.
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Director
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Position and Offices with Group 1
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Director Since
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Age
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John L. Adams
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Director, Chairman of the Board
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1999
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72
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Carin M. Barth
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Director
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2017
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54
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Earl J. Hesterberg
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Director, President and Chief Executive Officer
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2005
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63
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Lincoln Pereira
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Director, Regional Vice President, Brazil
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2013
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57
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Stephen D. Quinn
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Director
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2002
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61
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J. Terry Strange
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Director
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2003
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73
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Charles L. Szews
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Director
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2016
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60
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Max P. Watson, Jr.
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Director
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2001
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71
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MaryAnn Wright
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Director
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2014
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55
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We have no reason to believe that any of the nominees will be unable or unwilling for good cause to serve if
elected. However, if any nominee should become unable for any reason or unwilling for good cause to serve, proxies may be voted for another person nominated as a substitute by the Board, or the Board may reduce the number of directors.
The number of directors on our Board is reviewed annually and fixed by our Board from time to time. In November 2016, the Board approved the number of
directors serving on the Board to be nine members, and in February 2017, the Board expanded the number of directors serving on the Board to ten members. The Board will continue to evaluate the size of the Board and make adjustments as needed to meet
the current and future needs of the Company.
Stockholders may not cumulate their votes in the election of our directors. Under Delaware law and our
Bylaws, a majority of votes cast by stockholders entitled to vote in the election of directors, is required
for the election of directors. This means that director nominees who receive more for votes than against will be elected for that position. You may vote for or
against with respect to the election of directors. Only votes for or against are counted in determining whether a majority has been cast in favor of a director. Abstentions are not counted for purposes of the
election of directors.
Our director resignation policy requires, in an uncontested election, any nominee for director who receives a greater number of
votes against his or her election than votes for to promptly tender his or her resignation following certification of the election results. The Nominating/Governance Committee will promptly consider the resignation and a
range of possible responses based on the circumstances that led stockholders to withhold votes, if known, and make a recommendation to the Board. The Board will act on the committees recommendation within 90 days following certification
of the results of the election.
14
Proposal 1 Election of Directors
Our Board of Directors
Our Board believes that each of our directors is highly qualified to serve as a member of our Board. Each of our
directors has contributed to the mix of skills, core competencies and qualifications of our Board. Our directors are highly educated and have diverse backgrounds and talents and extensive track records of success in what we believe are highly
relevant positions with some of the most reputable organizations in the world. Our Board has also considered the fact that all of our directors have worked for, or served on the boards of directors of, a variety of companies in a wide range of
industries. Many of our directors also have served as directors of Group 1 for many years and
benefit from an intimate knowledge of our operations and corporate philosophy. Our Board believes that through their varying backgrounds, our directors bring a wealth of experiences and new ideas
to our Board.
Described on the following pages are the principal occupations, positions and directorships for at least the past five years of our
director nominees, as well as certain information regarding their individual experience, qualifications, attributes and skills that led our Board to conclude that they should serve on our Board. There are no family relationships among any of our
directors or executive officers.
Skills and Qualifications of our Board
of Directors
The following table includes the
breadth and variety of business experience that each of our director nominees brings to our Board.
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Experience/Knowledge
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Expertise
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Attributes
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Board Member
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# of Other Public Company
Boards
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President or Former CEO
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Public Company Executive
Position
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Automotive
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Retail
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Engineering/Product
Development
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International
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Finance
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Human Resources/Cultural
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|
Legal
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Mergers & Acquisitions
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Accounting
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P&L/Income Statement
Responsibility
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SOX Financial Expert
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Technology
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Independent
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Diversity
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John L. Adams
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1
|
|
✓
|
|
✓
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|
|
|
✓
|
|
|
|
|
|
✓
|
|
✓
|
|
✓
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|
✓
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✓
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|
|
|
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✓
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|
Carin M. Barth
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2
|
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✓
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|
|
|
|
|
✓
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|
S
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|
|
|
✓
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|
|
|
|
|
✓
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|
✓
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|
✓
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|
✓
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|
|
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✓
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✓
|
Earl J. Hesterberg
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1
|
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✓
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|
✓
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|
✓
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|
✓
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|
✓
|
|
✓
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|
|
|
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|
✓
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✓
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|
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Lincoln Pereira
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|
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✓
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|
|
✓
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✓
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|
✓
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|
|
|
|
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✓
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✓
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|
|
|
|
|
|
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✓
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Stephen D. Quinn
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1
|
|
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IB
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IB
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IB
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✓
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|
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✓
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IB
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|
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✓
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✓
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J. Terry Strange
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3
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|
✓
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|
|
|
|
|
|
|
|
|
✓
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✓
|
|
|
|
|
|
✓
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|
✓
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|
✓
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|
✓
|
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|
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✓
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Charles L. Szews
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2
|
|
✓
|
|
✓
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|
✓
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|
✓
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|
✓
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|
✓
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|
✓
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|
✓
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|
|
|
✓
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✓
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✓
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|
✓
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✓
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✓
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Max P. Watson, Jr.
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|
|
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✓
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✓
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|
|
|
|
|
|
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✓
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|
|
|
✓
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|
|
|
|
|
|
|
|
|
|
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✓
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|
✓
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|
MaryAnn Wright
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1
|
|
✓
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|
✓
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✓
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|
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✓
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|
✓
|
|
|
|
|
|
|
|
|
|
|
|
✓
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|
|
|
✓
|
|
✓
|
|
✓
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The lack of a
✓
for a particular item does not mean that the director does not possess
that qualification, characteristic, skill or experience. We look to each director to be knowledgeable in these areas; however, the
✓
indicates that the item is a specific qualification, characteristic, skill or
experience that the director brings to the Board.
IB
covered industry as Investment Banker
S
some experience
15
Proposal 1 Election of Directors
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John L. Adams
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John L. Adams has served as
non-executive
Chairman of the Board since April 2005 and as one of our
directors since November 1999. Mr. Adams served as Executive Vice President of Trinity Industries, Inc., one of North Americas largest manufacturers of transportation, construction and industrial products, from January 1999 through
June 2005, and as Vice Chairman from July 2005 through March 2007. Before joining Trinity Industries, Mr. Adams spent 25 years in various positions with Texas Commerce Bank N.A. and its successor, Chase Bank of Texas, National Association.
From 1997 to 1998, Mr. Adams was Chairman, President and Chief Executive Officer of Chase Bank of Texas. Mr. Adams serves on the Board of Directors, the Corporate Governance and Directors Nominating Committee and is Chairman of the Finance
and Risk Management Committee of Trinity Industries, Inc. Mr. Adams also serves on the Board of Directors of the University of Texas Chancellors Council, and the McCombs School of Business Advisory Board and Presidents
Development Board. Mr. Adams recently retired from the Board of Directors and Audit Committee of Dr Pepper Snapple Group, Inc., a refreshment beverage business. Mr. Adams received his B.B.A. and J.D. from the University of
Texas.
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The Board believes Mr. Adams extensive financial, strategic planning, capital allocation and executive management
experience provides him with the necessary skills to be Chairman of our Board. His service on other public company boards has also provided exposure to various approaches to risk management, corporate governance and other key issues. Through his
years of service on our Board, he has developed
in-depth
knowledge of the retail automotive industry generally and our Company in particular. The Board believes his experience and expertise in these matters
makes him well qualified to serve as a member of the Board.
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Carin M. Barth
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Carin M. Barth has served as one of our directors since February 2017. She is
co-founder
and
President of LB Capital, Inc., a private equity investment firm established in 1988. Since 2015, Ms. Barth has served on the Board of Directors of Enterprise Holdings, LLC, the General Partner of Enterprise Product Partners, L.P., one of the
largest publicly traded partnerships and a leading North American provider of midstream energy services to producers and consumers of natural gas, and Black Stone Minerals, L.P., one of the largest oil and gas mineral and royalty companies in the
United States, where she serves as Chair of the Audit Committee. Ms. Barth also serves as Chair of the Investment Advisory Committee for Texas Tech University, as a Trustee of the Welch Foundation, and as a Board member of the Ronald McDonald
House in Houston, Texas. From 2008 to 2014, she served as a Commissioner for the Texas Department of Public Safety. Ms. Barth previously served on the Board of Directors of Bill Barrett Corporation where she served on the Compensation Committee
and on the Nominating and Corporate Governance Committee from 2012 through 2016. Additional past board service includes Western Refining, Inc. from 2006 through 2016, where she served as Audit Committee Chair, Methodist Hospital Research Institute
from 2007 through 2012, Encore Bancshares, Inc. from 2009 through 2012, Amegy Bancorporation, Inc. from 2006 through 2009, Texas Public Finance Authority from 2006 through 2008, and the Texas Tech University System Board of Regents from 1999 through
2005. Ms. Barth was also appointed by President George W. Bush to serve as Chief Financial Officer of the U.S. Department of Housing and Urban Development from 2004 to 2005. Ms. Barth received a B.S. from the University of Alabama and an
M.B.A. from Vanderbilt Universitys Owen Graduate School of Management. Ms. Barth was identified as a potential Board candidate by one of our independent directors.
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Ms. Barth has extensive experience in a variety of financial matters, including as chief financial officer for several entities. She also has a history of corporate and civic governance which provides additional
depth and financial expertise to our Board. Her experience with mergers and acquisitions, in operating a private equity company, her previous and currently held board positions on other publicly traded companies and her audit committee experience
are key attributes, among others, that make her well qualified to serve on our Board. Ms. Barth qualifies as an audit committee financial expert.
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16
Proposal 1 Election of Directors
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Earl J. Hesterberg
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Earl J. Hesterberg has served as our President and Chief Executive Officer and as a director since April 2005. Prior to joining us,
Mr. Hesterberg had served as Group Vice President, North America Marketing, Sales and Service for Ford Motor Company, a global manufacturer and distributor of cars, trucks and automotive parts, since October 2004. From July 1999 to September
2004, he served as Vice President, Marketing, Sales and Service for Ford of Europe, and from 1999 until 2005, he served on the supervisory board of Ford Werke AG. Mr. Hesterberg has also served as President and Chief Executive Officer of Gulf
States Toyota, an independent regional distributor of new Toyota vehicles, parts and accessories. He has also held various senior sales, marketing, general management, and parts and service positions with Nissan Motor Corporation in U.S.A. and
Nissan Europe, both of which are
wholly-owned
by Nissan Motor Co., Ltd., a global provider of automotive products and services. Mr. Hesterberg serves on the Board of Directors of Stage
Stores, Inc., a national retail clothing chain with over 800 stores located in 39 states where he is a member of the Corporate Governance and Nominating Committee and Chairman of the Compensation Committee. He also is a past member of the Board
of Trustees of Davidson College. Mr. Hesterberg also serves on the Board of Directors of the Greater Houston Partnership, where he serves on the Executive Committee and is Chairman of the Business Issues Committee. Mr. Hesterberg received
his B.A. in Psychology at Davidson College and his M.B.A. from Xavier University in 1978.
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As our President and Chief Executive Officer, Mr. Hesterberg sets the strategic direction of our Company under the guidance of our Board. He has extensive senior executive management experience in the automotive
industry. His successful leadership of our Company, and extensive knowledge of the automotive industry provides our Board with a unique perspective on the opportunities and challenges we face, and makes him
well-qualified
to serve on the Board.
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Lincoln Pereira
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Lincoln Pereira has served as one of our directors since February 2013. Mr. Pereira has served as our Regional Vice President, Brazil
since March 2013 and has served as chairman of our subsidiary, UAB Motors Participações Ltda. (which we acquired in February 2013), since 2007. From 1999 to 2005, Mr. Pereira served as a legal representative of United Auto do
Brasil Ltda, a public auto group operating in São Paulo and controlled by United Auto Group. From 1995 through 2005, Mr. Pereira practiced law with Cunha Pereira Advogados, representing professional athletes and international race
car drivers. He was also
co-founder
and a major stockholder in Cunha Pereira Negócios Imobiliários, a local Brazilian real estate company, and in 1999, he founded Atrium
Telecomunicações Ltda, a provider of local exchange telecommunication services. Atrium was sold to Telefonica of Spain in December 2004, and Mr. Pereira founded
E-Vertical
Tecnologia, a
leading provider of high tech facilities management services to commercial properties. From 1978 through 1995, Mr. Pereira held numerous positions with various banks, both in Brazil and abroad. Mr. Pereira serves on the Board of Boa Vista
Servicos S.A.-SCPC,
the second largest credit bureau in Brazil, is Vice Chairman of the Board of the São Paulo Chamber of Commerce (ACSP), serves as a member of the Board of the Associação
Brasileira dos Concessionários Nissan (ABCN), and serves as a Director of the Associação Brasileira dos Concessionários BMW and Associação Brasileira do Distribuidores Toyota. He is also a Chapter
Sponsorship Officer of
YPO-WPO
São Paulo, a
not-for-profit,
global network of young chief executives connected around the
shared mission of becoming Better Leaders Through Education and Idea Exchange.
TM
Mr. Pereira received his LL.B. from Faculdade de Direito do Largo de São Francisco.
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Mr. Pereira has extensive automotive retailing and manufacturer relations experience, as well as legal, finance, business and management expertise. He also has a deep understanding of the Brazilian finance, trade
and legal sectors. Mr. Pereiras experience and expertise in the automotive industry make him well qualified to serve as a member of the Board.
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17
Proposal 1 Election of Directors
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Stephen D. Quinn
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Stephen D. Quinn has served as one of our directors since May 2002. Mr. Quinn joined Goldman, Sachs & Co., a
full-service
global investment banking and securities firm, in August 1981 where he specialized in corporate finance. From 1990 until his retirement in 2001, Mr. Quinn served as a General Partner and Managing
Director of Goldman, Sachs. Mr. Quinn also serves on the Board of Directors, the Audit Committee and the Risk Oversight Committee of Zions Bancorporation, a large
publicly-traded
bank holding company.
Mr. Quinn holds degrees from Brigham Young University and Harvard University Graduate School of Business.
Mr. Quinn was selected to serve as a director on our Board due to his valuable financial expertise and extensive experience with capital markets
transactions. His judgment in assessing business strategies and the accompanying risks is an invaluable resource for our business model. Mr. Quinn also has significant historical knowledge of our Company as a result of his role at Goldman
Sachs, an underwriter for our initial public offering. The Board believes his experience and expertise in these matters make him well qualified to serve as a member of the Board. Mr. Quinn qualifies as an audit committee financial
expert.
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J. Terry
Strange
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J. Terry Strange has served as one of our directors since October 2003. In 2002, Mr. Strange retired from KPMG, LLP, an
independent accounting firm, where he served from 1996 to 2002 as Vice Chairman, Managing Partner of U.S. Audit Practice and head of KPMGs internal risk management program. He served as Global Managing Partner of Audit Business and a member of
KPMGs International Executive Committee from 1998 to 2002. During his
34-year
career at KPMG, his work included interaction with the Financial Accounting Standards Board and the SEC, testifying before
both bodies on issues impacting the auditing profession and SEC registrants. Mr. Strange serves on the Board of Directors and as chair of the Audit Committee of New Jersey Resources Corporation, a retail and wholesale energy service provider.
He also serves on the Board of Directors, of Newfield Exploration Company, an oil and gas exploration and production company, where he also serves on the Audit Committee and as Chairman of the Compensation and Management Development Committee, and
previously served as Chairman of the Nominating and Governance Committee. In addition, Mr. Strange serves on the Board of Directors, Risk Committee and as Chairman of the Audit and Compliance Committee of BBVA Compass, a banking institution.
Mr. Strange received his B.A. and M.B.A. in Accounting from the University of North Texas.
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Mr. Strange was selected to serve on our Board due to his extensive background in public accounting, auditing, and risk management. His previous and current board positions on other
publicly-traded
companies have provided extensive years of audit committee experience, including as chair. His knowledge and experience with accounting practices, policies and rulemaking from his
34-year
career at KPMG LLP, is especially important in his role as Chairman of the Audit Committee. The Board believes his experience and expertise in these matters make him well qualified to serve as a member
of the Board. Mr. Strange qualifies as an audit committee financial expert.
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18
Proposal 1 Election of Directors
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Charles L. Szews
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Charles L. Szews has served as one of our directors since November 2016. Effective January 1, 2016, Mr. Szews retired from
Oshkosh Corporation, a leading global manufacturer of specialty vehicles and vehicle bodies serving access equipment, defense, fire and emergency, and commercial markets. He joined Oshkosh in 1996 as Vice President and CFO, was appointed Executive
Vice President in October 1997, and President and Chief Operating Officer in October 2007. Mr. Szews was appointed Chief Executive Officer in January 2011. Prior to joining Oshkosh, he began his career with Ernst & Young, and was Vice
President and Controller at Fort Howard Corporation during its leveraged buyout. From November 2006 through July 2013, Mr. Szews served as a director of Gardner Denver, Inc., a worldwide provider of industrial equipment technologies and related
parts and services, where he also served as Chairman of the Audit Committee and on the Nominating and Corporate Governance Committee. Since 2014, Mr. Szews has served as a director and on the Audit and Finance Committees for Commercial Metals
Company, an operator of micro-steel mills located in the Southern United States. In August 2016, he was appointed to the board of directors of Rowan Companies plc, a global provider of contract drilling services, where he also serves on the Audit
Committee. Mr. Szews holds a degree in Business Administration from the University of Wisconsin Eau Claire. Mr. Szews was identified as a potential Board candidate by a third-party search firm.
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Mr. Szews was selected to serve on our Board due to his extensive operational and financial experience and his background in public accounting, auditing and risk management. His previous and current board positions
on other
publicly-traded
companies have provided many years of audit committee experience, including as chair. Mr. Szews extensive financial and audit experience in a variety of senior management
positions, combined with his operational experience, have provided him with a wealth of knowledge in dealing with complex financial and accounting matters and will be a complementary asset to our Board. Mr. Szews qualifies as an audit
committee financial expert.
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Max P. Watson,
Jr.
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Max P. Watson, Jr. has served as one of our directors since May 2001. Mr. Watson served as President and Chief Executive Officer of
BMC Software, Inc., a provider of enterprise management solutions, from April 1990 to January 2001. He served as Chairman of the Board of Directors of BMC from January 1992 until his retirement in April 2001. Mr. Watson serves on the Board
of Trustees of Texas Childrens Hospital and as Chairman of the Quality and Safety Committee. From January 2007 through December 2008, Mr. Watson served as Chairman of the Board of Trustees of Texas Childrens Hospital. He also serves
on the Board of Directors of Scenic Houston, an organization dedicated to preserving and enhancing the visual character of Houston. Mr. Watson received his degree from Louisiana Tech University.
Mr. Watsons extensive business and management expertise from his position with
a large global
publicly-traded
company makes him well qualified to serve as a member of our Board. As a former chairman, president and chief executive officer, Mr. Watson is familiar with many of the
business issues we face today, including financial and strategic planning, technology, compensation, management development, international acquisitions, capital allocation, and stockholder relations.
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19
Proposal 1 Election of Directors
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MaryAnn Wright
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MaryAnn Wright has served as one of our directors since August 2014. Ms. Wright has been employed by Johnson Controls Power
Solutions, the global leader in
lead-acid
automotive and advanced batteries, serving as Group Vice President of Engineering & Product Development since 2013, and Vice President of Technology and
Innovation from 2009 to 2013. She served as Vice President and General Manager for Johnson Controls Hybrid Systems business and as CEO of Johnson
Controls-Saft
from
2007-2009.
Prior to joining Johnson Controls, Ms. Wright served as Executive Vice President Engineering, Product Development, Commercial and Program Management for Collins & Aikman Corporation.
From
1988-2005,
Ms. Wright served as Director, Sustainable Mobility Technologies and Hybrid Vehicle Programs at Ford Motor Company, and was the Chief Engineer of the 2005 Ford Escape Hybrid, the
industrys first full hybrid SUV and also led the launch of Fords first
hydrogen-powered
fuel cell fleet program. Ms. Wright serves on the Board of Directors and the Nominating and Governance
Committee of Maxim Integrated Products, Inc., a developer of innovative analog and mixed-signal products and technologies. She also serves as a director on the Board of Governors at Argonne National Laboratory, the Technical Advisory Board of
Fallbrook Technology Incorporated, the Foundation Board of the University of
Wisconsin-Milwaukee,
the Board of Trustees of Lawrence Technological University, and the Advisory Board for the University of
Chicagos Energy Policy Institute, and as Chairman of Friends for the Dearborn Animal Shelter. Ms. Wright received a B.A. in Economics and International Business and a Master of Science in Engineering from the University of Michigan and an
M.B.A. from Wayne State University.
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Ms. Wright was selected to serve on our Board because of her extensive experience and her knowledge of the automotive industry, having been named one of the Leading 100 Women in the Automotive Industry
by Automotive News. She is currently working in the area of energy storage solutions and a variety of advanced powertrain technologies. Ms. Wrights unique business, manufacturing, engineering and technology background and her extensive
global automotive experience make her well qualified to serve as a member of the Board.
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Our Board of Directors Recommends a Vote
FOR
the Election of each of the Nominees for
Director.
20
Report of the Audit Committee
The Audit Committee (the Committee) is appointed by the Board of Directors to assist the Board in fulfilling its oversight responsibilities
relating to our accounting policies, reporting policies, internal controls, compliance with legal and regulatory requirements, and the integrity of Group 1s financial reports. The Board of Directors, upon the recommendation of its
Nominating/Governance Committee, has determined that each member of the Audit Committee has the requisite independence and other qualifications for audit committee membership under New York Stock Exchange corporate governance listing standards, the
Sarbanes-Oxley
Act of 2002, the Audit Committee Charter and the Group 1 Automotive, Inc. Corporate Governance Guidelines.
The Committee acts under a written charter adopted and approved by the Board of Directors. The Committee reviews and reassesses the adequacy of the charter on
an annual basis. Based on the recommendation of the Committee, the Board approved the Committee charter at a regularly scheduled meeting in February 2017. The Committee charter is posted on our website,
www.group1auto.com
, and you may
obtain a printed copy of the Committee charter by sending a written request to Group 1 Automotive, Inc., 800 Gessner, Suite 500, Houston, TX 77024, Attn: Corporate Secretary.
The Committee assists the Boards oversight and monitoring of the Companys system of internal controls, including the internal audit function. The
Committee discussed with our internal auditors the overall scope and plans for the 2016 audit. At each Committee meeting, the Committee is provided the opportunity to meet with the internal auditor with, and without, management present. During 2016,
management made any necessary updates to its internal control documentation for changes in internal control and completed its testing and evaluation of the Companys system of internal control over financial reporting in response to the
requirements set forth in Section 404 of the Sarbanes Oxley Act of 2002 and related regulations. The Committee has kept apprised of the progress of the evaluation and provided oversight and advice to management during the process. In connection
with this oversight, the Committee received updates provided by management and the independent auditor at each regularly scheduled Committee meeting and met in executive session separately with the internal and the independent auditor to discuss the
results of their examinations, observations and recommendations regarding internal control over financial reporting.
The independent registered public
accounting firm is accountable to the Committee, and the Committee has the ultimate authority and responsibility to select, evaluate and, where appropriate, replace the independent registered public accounting firm. The Committee engages in an
annual evaluation of the independent public accounting firms qualifications, assessing the firms quality of service, the firms sufficiency of resources, the quality of the communication and interaction with the firm, and the
firms independence. The Committee makes its selection based on the best interests of the Company and its stockholders. The Committee participates in the selection of the lead Audit Partner (the Lead Partner) of the independent
registered public accounting firm through its review of the Lead Partners professional qualifications, experience, and prior performance on the Companys audit (if any); through
in-person
meetings
with the Lead Partner, and through discussion between the Committee and Management regarding the selection of the Lead Partner.
The Committee has
reviewed and discussed with management and Ernst & Young LLP, our independent registered public accounting firm, our audited financial statements as of and for the year ended December 31, 2016. The Committee has also discussed
with Ernst & Young LLP the matters required to be discussed by Statement on Auditing Standard No. 1301
Communications with Audit Committees,
issued by the Public Company Accounting Oversight Board.
Ernst & Young LLP submitted to the Committee the written disclosures and the letter required by Rule 3526 of the Public Company Accounting
Oversight Board,
Communication with Audit Committees Concerning Independence
. The Committee discussed with Ernst & Young LLP such firms independence. The Committee has also considered whether the provision of
non-audit
services to our Company by Ernst & Young LLP is compatible with maintaining their independence.
Based on the review and discussions referred to above, the Committee recommended to the Board of Directors that the audited financial statements referred to
above be included in our Annual Report on
Form 10-K
for the year ended December 31, 2016, for filing with the SEC.
Respectfully submitted by the Audit Committee of the Board of Directors of Group 1,
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J. Terry Strange (Chairman)
John L. Adams
Doyle L. Arnold
Carin M. Barth
Stephen D. Quinn
Charles L. Szews
MaryAnn Wright
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25
Executive Officers
Except as described under the heading Executive Compensation Narrative Disclosure to Summary Compensation Table and Grants of
Plan-Based
Awards Table, our executive officers serve at the discretion of our Board. The following table sets forth certain information as of the date of this proxy statement regarding our executive officers:
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Name
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Age
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Position
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Earl J. Hesterberg
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63
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President and Chief Executive Officer
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John C. Rickel
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55
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Senior Vice President and Chief Financial Officer
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Frank Grese, Jr.
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65
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Senior Vice President, Human Resources, Training and Operations Support
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Darryl M. Burman
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58
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Vice President and General Counsel
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Peter C. DeLongchamps
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56
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Vice President, Manufacturer Relations, Financial Services & Public Affairs
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Mr. Hesterbergs biographical information may be found on page 17 of this proxy statement.
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John C. Rickel
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John C. Rickel was appointed Senior Vice President and Chief Financial Officer in December 2005. From 1984 until joining Group 1, Mr. Rickel held a number of executive and managerial positions of increasing responsibility with
Ford Motor Company, a global manufacturer and distributor of cars, trucks and automotive parts. He most recently served as Controller, Ford Americas, where he was responsible for the financial management of Fords western hemisphere automotive
operations. Immediately prior to that, he was Chief Financial Officer of Ford Europe, where he oversaw all accounting, financial planning, information services, tax and investor relations activities. From 2002 to 2004, Mr. Rickel was Chairman
of the Board of Directors of Ford Russia, and a member of the Board of Directors and the Audit Committee of Ford Otosan, a publicly traded automotive company located in Turkey and owned 41% by Ford. Mr. Rickel received his B.S.B.A. and M.B.A.
from The Ohio State University.
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Frank Grese, Jr.
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Frank Grese, Jr. was appointed Senior Vice President of Human Resources, Training and Operations Support effective February 1, 2016. Prior to that appointment, Mr. Grese served as Regional Vice President of
the West Region from January 2006 to January 2016, and served as the Platform President of Group 1 Atlanta from December 2004 to December 2005. Mr. Grese began his automotive career in the Ford Management Training Program in 1974 where he
progressed through various assignments in district offices as well as Ford headquarters in Detroit. He joined Nissan in 1982 where he ultimately held the position of National Dealer Advertising Manager. In 1986, Mr. Grese left the
manufacturer side of the business and began working in various executive positions, including chief operating officer and district president, with large public and private dealer groups. He last served as Director of Dealership Operations, working
extensively with underperforming stores, for a large private dealer group. Mr. Grese currently serves on the Board of Directors of the American Heart Association, Houston Division. Mr. Grese graduated from the University of Georgia
with a degree in journalism.
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26
Executive Officers
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Darryl M. Burman
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Darryl M. Burman has served as Vice President and General Counsel since December 2006. From September 2005 to December 2006, Mr. Burman was a partner and head of the corporate and securities practice in the Houston office of
Epstein Becker Green Wickliff & Hall, P.C. From September 1995 until September 2005, Mr. Burman served as the head of the corporate and securities practice of Fant & Burman, L.L.P. in Houston, Texas. Mr. Burman
currently serves as a Director of the Texas General Counsel Forum Houston Chapter, on the Board of Directors of the University of South Florida Foundation and on the Board of Directors of South Texas College of Law. Mr. Burman holds
a degree from the University of South Florida and a J.D. from South Texas College of Law.
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Peter C. DeLongchamps
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Peter C. DeLongchamps has served as Vice President, Financial Services, Manufacturer Relations and Public Affairs, since January 2012. He previously served as Vice President, Manufacturer Relations and Public Affairs from January
2006 through December 2011, and as Vice President, Manufacturer Relations from July 2004 through December 2005. Mr. DeLongchamps began his automotive retailing career in 1980, having worked for General Motors Corporation and BMW of North
America, and holding various management positions in the automotive industry. Immediately prior to joining the Company in 2004, Mr. DeLongchamps was President of Advantage BMW, a
Houston-based
automotive
retailer. Mr. DeLongchamps also serves on the Board of Directors of Junior Achievement of Southeast Texas. Mr. DeLongchamps received his B.B.A. from Baylor University.
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27
2016 Compensation Discussion and Analysis
This Compensation Discussion and Analysis provides a detailed description of our executive compensation
philosophy and programs, the compensation decisions the Compensation Committee has made under those programs and the factors considered in making those decisions. As discussed in greater detail below, our compensation plans are designed to reward
our named executive officers for the achievement of these results for our Company and our stockholders. The Compensation Discussion and Analysis focuses on the compensation of our named executive officers as of December 31, 2016, who were:
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Earl J. Hesterberg President and Chief Executive Officer;
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John C. Rickel Senior Vice President and Chief Financial Officer;
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Frank Grese, Jr. Senior Vice President, Human Resources, Training and Operations Support;
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Darryl M. Burman Vice President and General Counsel; and
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Peter C. DeLongchamps Vice President, Financial Services, Manufacturer Relations and Public Affairs.
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Business and
Financial Highlights
In 2016, Group 1 continued to deliver record setting financial results and increased operational
effectiveness. Our results included:
✓
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2.4% increase in total revenue to a record $10.9 billion;
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✓
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4.0% increase in total gross profit to a record $1.6 billion;
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✓
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Diluted EPS of $6.67, an increase of 71.0% and record adjusted diluted EPS of $7.42, an increase of 8.0%;
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✓
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U.K. revenues of $1.7 billion, an increase of 41.2%;
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✓
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Achieved
all-time
U.S. Finance and Insurance (F&I) performance record of $1,599 per retail unit;
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✓
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Increased U.S. new vehicle gross profit per unit by $170, or 10.1%, to $1,861;
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✓
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4.8% U.S. same store parts and service revenue growth;
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✓
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Record sales of 301,184 new and used retail vehicles;
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✓
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SG&A as a % of gross profit of 73.4% and U.S. adjusted SG&A as a % of gross profit of 71.7%;
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✓
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Repurchased approximately 2.3 million shares of common stock, or roughly 10% of our outstanding shares;
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✓
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Issued dividends of $0.91 per share; and
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✓
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Acquired 21 franchises with estimated annual revenues of $660.0 million.
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See Exhibit 99.1 to
our Current Report on
Form 8-K
(File
No. 001-13461)
filed February 2, 2017
for a reconciliation of the
non-GAAP
measures to the comparable GAAP measures.
28
2016 Compensation Discussion and Analysis
Compensation and Corporate Governance
The Committee continuously reviews best practices in executive compensation and has made several adjustments to
elements of our compensation programs over the past several years to further align
our executive compensation structure with our stockholders interests and current governance practices, including:
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Compensation and Corporate Governance Highlights
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✓
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Non-Executive
Chairman of the Board
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✓
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Clawback Provisions for Certain Restatements
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✓
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No Excise Tax
Gross-Ups
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✓
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Average Board Attendance of 95% during 2016
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✓
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Say on Pay Advisory Vote Conducted Annually
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✓
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No Stockholder Rights Plan (Poison Pill)
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✓
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Robust Stock Ownership Guidelines for our Officers and Directors
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✓
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Company Policy Prohibits Pledging and Hedging of Group 1 Common Stock
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✓
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Annual Board and Committee
Self-Evaluations
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✓
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Annual Election of our Board of Directors
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✓
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Director Resignation Policy for Directors who do not receive a Majority Vote in an uncontested Director Election
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✓
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Independent Compensation Consultant
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Role of the Compensation Committee, its Consultant and Management
Our Board has entrusted the Committee with overall responsibility for establishing, implementing and monitoring
our executive compensation program. Our Chief Executive Officer and Senior Vice President of Human Resources, Training and Operations Support, also play a role in the implementation of the executive compensation process, by overseeing the
performance and dynamics of the executive team and generally keeping the Committee informed. All final decisions regarding our named executive officers compensation remain with the Committee, except in the case of our Chief Executive Officer
where the independent members of the Board make all decisions with the benefit of recommendations from the Committee.
The Committee has historically
engaged Pearl Meyer & Partners (PM&P), an executive compensation firm, to serve as its compensation consultant and to advise on
executive compensation matters. In 2016, PM&P was engaged to conduct a competitive compensation analysis for the named executive officers. During that time, PM&P reviewed compensation
data for our peer companies in comparison to our current compensation practices and made recommendations to the Committee. The Committee retains PM&P directly, although in carrying out assignments PM&P may interact with our management when
necessary and appropriate. PM&P does not provide any services to our Company other than its consulting services to the Committee, and the Committee determined that no conflict of interest exists between PM&P and our Company. Please see
Information About our Board of Directors and its Committees Compensation Committee for additional information on the role of the Committee, its consultant and management in setting executive compensation.
Objectives
of Our Executive Compensation Program
Compensation Philosophy
The Committee believes that the most effective executive compensation program is one designed to recruit, retain
and motivate capable leadership and reward those individuals upon the achievement of their
personal and departmental objectives, as well as upon our Companys achievement of specific annual,
long-term
and strategic goals. The Committee
evaluates both market competitiveness, as well as
29
2016 Compensation Discussion and Analysis
individual and Company performance, to ensure that we maintain our ability to attract, retain and motivate
talented employees in key positions. By maintaining competitive compensation and rewarding for performance, the Committee strives to support our overall business objectives and provide our stockholders with a superior rate of return over time.
Our strategic business focus during the fiscal year ended December 31, 2016 consisted of the following objectives:
✓
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increasing total same store gross profit through efforts in the new vehicle, used vehicle, finance and insurance, parts, service and collision departments;
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✓
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continuing to consolidate key operating processes and systems to improve our customer responsiveness and efficiencies and reduce expenses;
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✓
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maintaining a cost level that aligns with the anticipated level of business activity; and
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✓
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seeking strategic portfolio management opportunities within the automotive retail market so that we can continue to optimize our business operations both in the United States and abroad.
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Our named executive officers individual or departmental goals for the fiscal year ended December 31,
2016 generally consisted of one or more of the following criteria, which provide support for our business objectives:
✓
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sustain sales momentum;
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✓
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maximize integration strategies of recently acquired dealership operations;
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✓
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continue to strengthen our processes and management for improved operating effectiveness and efficiency;
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✓
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control costs and expenses as sales levels fluctuate to maximize and leverage our scale;
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✓
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dispose of underperforming dealerships and deploy the proceeds into other capital appreciation opportunities with better return potential; and
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✓
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drive the capital allocation process, which seeks investments that maximize return to our stockholders.
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Stockholder Input on Executive
Compensation Matters
In accordance with applicable law and as described in more detail in Proposal 2 above, our stockholders
have the right to vote, on an advisory
non-binding
basis, on the approval of the compensation of our named executive officers at specified intervals (the
say-on-pay
vote). Stockholders last voted on this matter at the 2016 Annual Meeting of Stockholders, and in accordance with a vote at the 2011 Annual Meeting of Stockholders on the frequency of
say-on-pay
votes, stockholders currently will vote on such compensation every year.
The Compensation Committee will continue to consider on an annual basis the vote results for
say-on-pay
proposals when making compensation decisions for our named executive officers.
In addition to such
consideration given to the results of the
say-on-pay
vote, at various times throughout the year the Compensation Committee considers any input it may receive from
stockholders and other stakeholders, and more general developments in executive compensation principles, in the development and implementation of the Companys executive compensation philosophy, policies and programs. For additional information
on the
say-on-pay
vote with respect to the compensation paid to our executive officers in 2016, see Proposal 2 above.
Market Analysis
We again engaged PM&P to conduct an independent
market-based
analysis of our executive compensation program in 2016. The market analysis process involved the comparison of
long-term,
short-term
and total compensation with a
selected group of peer companies (Peer Companies). Compensation data was compared at the 25th, 50th and 75th percentiles of the market.
While we do not think it is appropriate to establish compensation based solely on market analysis, we believe
that the practice of comparing our compensation program to the programs of our peers can be useful for two reasons. First, our compensation practices must be competitive in order to attract and retain executives with the ability and experience
necessary to provide leadership and to deliver strong performance to our stockholders. Second, comparison analysis allows us to assess the reasonableness of our compensation
30
2016 Compensation Discussion and Analysis
practices. This process allows us to achieve one of our primary objectives of maintaining competitive compensation to ensure retention and assists in aligning compensation with stockholder
interests.
Our Peer Companies remained unchanged for 2016, and include all of the
publicly-traded
automotive
consolidators and specialty retailers associated with
automotive sales, and automotive parts and service against whom we most directly compete for executive talent.
The list of our Peer Companies is periodically reviewed and updated by the Committee. Our 2016 Peer Companies were:
|
|
|
Advance Auto Parts, Inc.
|
|
|
|
Asbury Automotive Group, Inc.
|
|
|
OReilly Automotive, Inc.
|
|
|
Penske Automotive Group, Inc.
|
|
|
The Pep Boys Manny, Moe & Jack
|
When evaluating the compensation data and making compensation decisions, the Committee has taken into
consideration the variance in revenue size among the entities comprising our Peer Companies. Additionally, the Committee has considered other differences between us and our Peer Companies such as corporate structure, tenure of officers, variance in
scope of duties for each officer and other factors when calculating a market value. This value is used as the basis of comparison of compensation provided by us and our
Peer Companies. However, any application of market analysis data is tempered by our basic staffing philosophy, which is to remain as lean as practical. This guiding principle results in certain
of our executive officers having a broad range of job responsibilities, which, at certain of our Peer Companies, may be divided among multiple executive officers. The Committees use of market analysis data for specific compensation components
is described in more detail below.
Tally Sheets
In 2016, compensation tally sheets for the named executive officers were prepared by our Compensation Manager
and reviewed by the Committee. This review consists of a twelve month summary of cash compensation earned, employee benefits provided, stock granted (with value at grant), and value of stock released (with value at release). Total shares and present
value of unvested restricted stock is also presented for review. In addition to the PM&P market analysis, information from these tally sheets was also considered by the Committee in making compensation decisions for the named executive officers,
as well as guiding the design of cash and
non-cash
compensation and benefit programs. The Committee specifically used tally sheets in the following contexts for each named executive officer:
|
|
To determine the historical value of compensation paid;
|
|
|
To determine the value of restricted stock awards forfeited in the event of a voluntary termination when making decisions regarding grants to encourage retention;
|
|
|
To understand total compensation potentially payable to the named executive officers under all possible scenarios, including death/disability, retirement, voluntary termination, termination with and without cause and
changes of control; and
|
|
|
To ensure that the structure of pay at different levels is fair and appropriate.
|
31
2016 Compensation Discussion and Analysis
Compensation Components
Our compensation program for executive officers includes annual cash compensation and
long-term
equity-based
compensation. Annual cash compensation consists of annual base salary and payments under our annual cash incentive plan. Our
long-term
equity-based
compensation consists of equity awards made under our long term incentive plan.
In addition, our named executive officers are eligible to (i) participate in our health and welfare plans,
our Employee Stock Purchase Plan and our retirement plans (401(k) Savings Plan and Deferred Compensation Plan), (ii) receive a vehicle allowance and/or demonstrator vehicle(s), depending on the position held, and (iii) receive perquisites
and other personal benefits as described under Other Benefits below.
Base Salary
Design
.
We provide our named executive officers with an annual base salary to compensate
them for services rendered during the year. Our goal is to set base salaries for our named executive officers at levels that are competitive with comparable companies for the skills, experience and requirements of similar positions, using market
analysis as previously discussed, in order to attract and retain top talent. In order to achieve this goal, we have generally sought to provide base salaries that fall near the 50th percentile of our Peer Companies. We believe that this range
supports competitive compensation and ensures retention. In order to ensure that each officer is appropriately compensated, the Committee, when setting base salaries, considers individual performance, tenure and experience and our financial
performance in addition to the compensation review of the Peer Companies. Individual base salary levels are generally reviewed each November and are adjusted as appropriate based on an analysis of current market salary levels at the Peer Companies,
individual performance and experience and our financial performance.
Results
.
In November 2015, the Committee elected to increase
the base salaries for our named executive officers by approximately 3.0%, to become effective January 1, 2016. In determining the base salaries for 2016, the Committee reviewed their salaries using the
criteria described above and determined to make the increases to position them closer to the 50
th
percentile of the named executive officers
of our Peer Companies. The base salaries at that time for Messrs. Rickel, Grese, Burman and DeLongchamps were $583,500, $540,000, $440,300 and $465,300, respectively. The 2016 base salaries of Messrs. Rickel, Grese, Burman and DeLongchamps
were scheduled to be increased by approximately 3.0% to $598,500, $453,300 and $469,300, respectively. However, in light of challenging economic conditions in some of the Companys key markets including Texas, Oklahoma and Brazil, the approved
2016 salary increases for the named executive officers were rescinded, and their base salaries for 2016 remained at the 2015 levels. Mr. Hesterbergs base salary also remained at the 2015 level of $1,100,000. Mr. Greses 2016
compensation was not considered for the 3.0% increase since he transitioned from business operations to the corporate office on January 1, 2016.
Compensation Changes for Fiscal 2017
.
In light of continuing challenging economic conditions in some of the Companys key markets
including Texas, Oklahoma and Brazil, the base salaries for 2017 for our named executive officers remain at the 2015 base compensation levels.
Annual
Incentive Compensation Plan
Annual cash incentive awards are intended to align our annual performance and results with the compensation paid
to persons who are most responsible for such performance, and to motivate and reward achievement of Company and individual or departmental performance objectives. Meaningful,
performance-related
goals are
established so that attaining or exceeding the performance targets is not assured, requires significant effort by each of our named executive officers, and if accomplished, contributes to the ongoing overall improvement and success of the Company.
For 2016, the annual incentive compensation plan was based upon achievement of financial and individual, or
departmental, goals approved at the beginning of the year by the Committee. The financial and
mission-based
portions of the annual incentive awards could be awarded independently so that achievement of one was
not predicated on the achievement of the other. There is, however, a minimum earnings per share goal established by the Committee at the beginning of each year which has to be achieved before any incentive award is paid. See page 33 for more
detail.
32
2016 Compensation Discussion and Analysis
The following is a description of the 2016 performance metrics under the plan:
Financial Goal
.
For 2016, the financial goal portion of our annual cash incentive plan was based on achievement of diluted earnings per
share (EPS). Diluted earnings per share is generally defined as our net income available to diluted common shares divided by the sum of the weighted average number of common shares outstanding during the period plus those that would have
been outstanding, assuming issuance for all dilutive potential common shares. Under the 2016 annual incentive compensation plan, the Committee may, in its sole discretion, adjust the Companys EPS when determining achievement of the financial
goal metric for extraordinary or unusual items that would be included in our annual operating results, but not typically considered at the time the targets were set, such as certain asset impairments or extraordinary dilutive events which materially
affect EPS.
The Committee believes that EPS is the best metric for our financial goal portion of the plan because it incentivizes our executive officers
to maximize stockholder
return and only rewards executive officers if our stockholders are rewarded. Further, no payments are made under the financial goal portion of the award unless a threshold level of EPS is
achieved. The threshold, target and maximum levels of performance for the EPS metric set by the Committee for 2016 were as follows: Threshold $7.21; Target $7.39; and Maximum $7.56.
Mission
-based
Goals
.
Mission-based
goals
typically include four to six specific goals that are normally related to the individuals functional area and are established at the beginning of each fiscal year jointly by the executive officer and our Chief Executive Officer and reviewed by
the Committee, or in the case of the Chief Executive Officer, by the Committee and the Board. These goals are integral toward achieving key business objectives, such as those listed on page 30 which help improve our financial performance,
promote corporate efficiencies and contribute to the growth of our Company. In 2016, the following
mission-based
goals were assigned to each of our named executive officers:
|
|
|
Name
|
|
Individual/Departmental Performance Targets
|
Earl J. Hesterberg
|
|
Improve new and used U.S. vehicle margins
Further strengthen Brazilian operations
Increase U.K. operating profit from integration and operation of
recently acquired Spire operations
Implement cybersecurity improvement actions
Develop succession planning options for key employees across the
Company
Achieve selling, general and administrative cost reduction
target
|
|
|
John C. Rickel
|
|
Integrate Spire stores into Companys
accounting and reporting system
Develop improved warranty submission plan and process
Develop monthly corporate expense reporting package with timely
delivery
Develop cybersecurity improvement plan
Eliminate Companys subprime financing operations
Achieve selling, general and administrative cost reduction target
Assume responsibility for U.S. payroll operations
(mid-year)
|
|
|
Frank Grese, Jr.
|
|
Implement applicant tracking system and
restructure human resources department
Achieve recruiting targets focusing on technicians and service
advisors
Improve and support service and sales call center activities
Design and implement recognition program for various operations
positions
Implement online training system for training and compliance
Achieve selling, general and administrative cost reduction
target
|
33
2016 Compensation Discussion and Analysis
|
|
|
Name
|
|
Individual/Departmental Performance Targets
|
Darryl M. Burman
|
|
Develop policies and procedures for vetting
construction department contractors and implementation of same
Legal department restructuring
Analyze and address legal needs in the U.K.
Analysis of loaner car program to ensure liability protections and
appropriate safeguards are in place
Achieve selling, general and administrative cost reduction
target
|
|
|
Peter C. DeLongchamps
|
|
Enhance relationships with key manufacturers and
members of the investment community
Maintain capital expenditure projects within budget while maintaining
positive relationships with manufacturers
Maintain minimum vehicle service contract penetration rate
Eliminate Companys subprime financing operations
Achieve selling, general and administrative cost reduction
target
|
For 2016, the Committee decided that at achievement of threshold or target performance for EPS, each of the
performance metrics financial and
mission-based
should be weighted 50%, with the award payout based on 100% of base salary for Messrs. Hesterberg, Rickel and Grese and 60% of base
salary for Messrs. Burman and DeLongchamps. The Committee also determined that: (i) if the threshold EPS goal was attained, the executive officers would receive
one-third
of the financial goal
portion of their award; and (ii) if the target EPS goal was attained, the executive officers would receive
two-thirds
of the financial goal portion of their award. In addition, the Committee decided that
for 2016 as long as earnings per share was at least $6.50, the
mission-based
portion of the award would be payable from 0% to 100% according to individual goal achievement levels.
The Committee also decided that at achievement of maximum level of performance for EPS, the total
possible cash incentive plan payout for each executive should be increased and such increase would be entirely
attributable to the financial performance metric. As such, the executive officers would be eligible to receive the same
mission-based
award discussed above, however Messrs. Hesterberg, Burman and DeLongchamps
would receive 150% of the financial portion of their awards as otherwise described above and Messrs. Rickel and Grese would receive 130% of the financial portion of their awards as otherwise described above. As a result, assuming all
mission-based
goals were attained, the following table sets forth the threshold, target and maximum annual incentive compensation plan potential payouts for 2016, as a percentage of base salary. The target
performance level was set such that, if attained, the total cash compensation paid to our executive officers would approximate the median paid to executive officers at our Peer Companies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Incentive Payout
as a % of Base Salary
|
|
Named Executive Officer
|
|
Threshold
Performance
|
|
|
Target
Performance
|
|
|
Maximum
Performance
|
|
Earl J. Hesterberg
|
|
|
67
|
%
|
|
|
83
|
%
|
|
|
125
|
%
|
John C. Rickel
|
|
|
67
|
%
|
|
|
83
|
%
|
|
|
115
|
%
|
Frank Grese, Jr.
|
|
|
67
|
%
|
|
|
83
|
%
|
|
|
115
|
%
|
Darryl M. Burman
|
|
|
40
|
%
|
|
|
50
|
%
|
|
|
75
|
%
|
Peter C. DeLongchamps
|
|
|
40
|
%
|
|
|
50
|
%
|
|
|
75
|
%
|
34
2016 Compensation Discussion and Analysis
Results
.
For 2016, we achieved the maximum level of our financial goal (EPS). The company
recognized an $11.7 million net settlement with Volkswagen (VW) for claims stemming from the diesel emissions scandal, associated with the Companys current and prior ownership of seven
VW-branded
dealerships in the U.S. After evaluating the nature of the VW settlement, the Committee exercised its authority to adjust actual performance criteria and elected to include the settlement with VW
into its evaluation of the financial goal (EPS), determining the inclusion of such adjustment to be appropriate. Such adjustment increased the adjusted EPS to $7.75, an increase of $0.33 per share, which resulted in the financial goal portion of the
annual incentive compensation being paid at the maximum level.
In connection with its review of the performance of our Chief Executive Officer, the Committee determined that
Mr. Hesterberg had achieved 70% of his 2016
mission-based
goals, resulting in a 70% payment of the mission based payout. Following extensive discussion with our Chief Executive Officer regarding his
evaluation of the performance of our named executive officers, the Committee determined that Messrs. Rickel, Grese, Burman and DeLongchamps met or surpassed their individual and departmental goals, resulting in 100% payout of the
mission-based
payout. In making these determinations, the Committee specifically considered each executives leadership in achieving each of the goals. Based on the Committees evaluation of the
performance of each of our named executive officers, it determined the degree to which each officer had achieved his goals and the following amounts of incentive compensation were paid:
|
|
|
|
|
|
|
|
|
Annual Incentive Compensation Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
2016
Mission
Based
Award
Earned
$
|
|
|
2016
Financial
Based
Award
Earned
$
|
|
|
2016
Incentive
Payout
as a
% of
Base
Salary
|
|
|
Amount
Paid
$
|
|
Earl J. Hesterberg
|
|
|
385,000
|
|
|
|
825,000
|
|
|
|
110
|
|
|
|
1,210,000
|
|
John C. Rickel
|
|
|
291,750
|
|
|
|
379,275
|
|
|
|
115
|
|
|
|
671,025
|
|
Frank Grese, Jr.
|
|
|
270,000
|
|
|
|
351,000
|
|
|
|
115
|
|
|
|
621,000
|
|
Darryl M. Burman
|
|
|
132,090
|
|
|
|
198,135
|
|
|
|
75
|
|
|
|
330,225
|
|
Peter C. DeLongchamps
|
|
|
136,890
|
|
|
|
205,335
|
|
|
|
75
|
|
|
|
342,225
|
|
35
2016 Compensation Discussion and Analysis
Long Term Equity Incentive Compensation
Design
.
To align the compensation of our corporate officers with the attainment of our
business goals and an increase in stockholder value, we award
long-term
equity incentive grants to our executive officers as part of our total compensation package. These awards have been made pursuant to the
Group 1 Automotive, Inc. 2014 Long Term Incentive Plan and the 2007 Long Term Incentive Plan.
We believe that restricted stock, subject to
time-based
vesting requirements, appropriately align managements interests with those of our Company and our stockholders, while helping to motivate and retain key members of our management team.
When determining the size of the awards, we typically consider amounts that would provide our executive officers with
long-term
incentive opportunities that, when combined with base salary and annual cash In addition, in the event of a qualified retirement, which is a retirement after a minimum of ten years of
service with our Company and the executive attaining the age of 63, upon satisfaction of a two year
non-compete
and certain
non-disclosure
covenants, all unvested shares
of restricted stock or restricted stock units (granted in prior years) held by the executive officer as of his retirement date will vest.
2016
Awards
.
In February 2016, the Committee reviewed the tally sheets and the competitive analysis prepared by PM&P to determine how each named executive officers base and total compensation compared to their peers and in order
to assess all elements of each executives pay relative to total compensation. The Committee also considered each executives current equity position for purposes of reward and retention and considered other factors, such as size of
previous awards, contribution to corporate results, leadership and Company performance during the year when
incentive opportunities, result in total direct compensation within the 50th to 75th percentile of our Peer
Companies. We then take into account individual performance, the position and value of the named executive officer to our Company, experience and length of service to us, our desire to incentivize the officer to remain with our Company, and the
amount of equity previously awarded to the officer.
Vesting of these awards is intended to facilitate retention, and the shares vest over a
five-year
period with the restrictions relating to the awards lapsing 40% after two years and 20% in each year thereafter. Since 2008, our vesting provisions have been based on the passage of time. Under the terms
of the current award agreements, in the event of death or disability of any employee with unvested awards, all granted but unvested awards will automatically vest.
making the decision as to the size of the equity award for each named executive officer. Based on the analysis and review described above, on
February 28, 2016, the Committee granted the following restricted stock awards to the named executive officers: Mr. Hesterberg (35,000 shares), Mr. Rickel (14,430 shares), Mr. Grese (8,000 shares), Mr. Burman
(9,140 shares) and Mr. DeLongchamps (10,000 shares).
For more information on the 2016 equity awards, please see the section entitled
Executive Compensation Grants of Plan Based Awards in 2016.
Compensation Changes for Fiscal 2017
.
The
Committee has made no material changes to our
long-term
incentive compensation strategy for fiscal 2017.
401(k) Plan
We maintain the Group 1 Automotive, Inc. 401(k) Savings Plan (the 401(k) Savings Plan) to
assist all employees in providing for their retirement. Matching contributions may be in the form of cash or shares of our common stock or a combination of both, as
determined by the Committee. All of our matches have been in cash for all employees. Amounts that we contributed
to each named executive officers 401(k) Savings Plan account are disclosed within the Summary Compensation Table.
Employee
Stock Purchase Plan
Generally, under the Group 1 Automotive, Inc. Employee Stock Purchase Plan, all employees, including
our named executive officers, are offered the opportunity to purchase up to $25,000 annually of our
common stock at a 15% discount to market, provided that the maximum number of shares that may be purchased by an
employee shall not exceed 3,000 shares of common stock per quarter. This is an
36
2016 Compensation Discussion and Analysis
additional equity incentive we offer to all of our employees to further promote their interest in enhancing stockholder value. These shares may not
be sold by the employee for a minimum of six months following purchase.
Deferred
Compensation Plan
The Group 1 Automotive, Inc. Deferred Compensation Plan (Deferred Compensation Plan) is
designed as a retention tool for our corporate and regional officers, dealership general managers, other key employees and
non-employee
directors. It allows participants the opportunity to accumulate
additional savings for retirement on a
tax-deferred
basis. Participants can choose from various defined investment options in which the deferred compensation is notionally
invested. Pursuant to the Deferred Compensation Plan, certain corporate officers, including our named executive officers, may defer up to 50% of their base salary and up to 100% of their
incentive compensation and we may make contributions to the participants accounts. For a more detailed discussion of the Deferred Compensation Plan, please see the section entitled Executive Compensation Nonqualified Deferred
Compensation.
Other
Benefits
Health and Welfare Benefits
.
Our named executive officers are eligible to participate in
our standard medical, dental, vision, disability insurance and life insurance plans to meet their health and welfare needs. These benefits are provided so as to assure that we are able to maintain a competitive position in terms of attracting and
retaining executive officers and other employees. This is a fixed component of compensation and the benefits are provided on a
non-discriminatory
basis to all of our
full-time
employees.
Vehicle Allowance
.
Our Chief Executive Officer, under his employment
agreement, is provided with two vehicles for his use. Our Senior Vice President and Chief Financial Officer and our Senior Vice President, Human Resources, Training and Operations Support receive a vehicle allowance of $15,000 per year and the use
of one vehicle. Vice Presidents are provided with a vehicle allowance of $11,300 per year, a vehicle, or in certain limited cases, both. We have not modified these amounts since 2005.
Other Perquisites and Personal Benefits
.
We provide certain named executive officers with
perquisites and other personal benefits that the Committee believes are reasonable and consistent with our overall compensation programs and philosophy. These benefits are provided in order to enable us to attract and retain these executives. For
example, we pay for club membership privileges that are used primarily for business but also for occasional personal purposes by our Chief Executive Officer, Mr. Hesterberg. In addition, we own a fractional interest in an aircraft which is
primarily used for business purposes. However, we make a portion of our time available to Mr. Hesterberg for personal use during the year. In 2016, Mr. Hesterberg was allowed a maximum of 40 flight hours for personal use; however, his
actual personal usage was 20.5 hours. Mr. Hesterberg reimburses us for his personal use based on the published standard industry fare level valuation method. We provide this benefit to Mr. Hesterberg because it optimizes the use of
his time and is consistent with similar benefits provided by our Peer Companies.
Employment
Agreements, Severance Benefits and Change in Control Provisions
We maintain employment and other compensatory agreements with certain named executive officers to ensure they
will perform their roles for an extended period of time. Certain provisions contained in these agreements, such as
non-competition
and
non-solicitation
provisions, as
well as change in control payments, are essential to retaining our talent and protecting our stockholders. We believe that it is appropriate to compensate individuals to refrain from working with competitors following termination, and that
compensation enhances the enforceability of such agreements. These agreements and our severance terminology are described in more detail elsewhere in
this proxy statement. Please read Executive Compensation Narrative Disclosure to Summary Compensation Table and Grants of
Plan-Based
Awards Table Employment, Incentive Compensation and
Non-Compete
Agreements. These agreements provide for severance compensation to be paid if the officers employment is terminated under
certain conditions, such as following a corporate change, involuntary termination, termination by us for cause, death or disability, each as defined in the applicable executives agreement. The employment and other compensatory
agreements between our Company and our named executive officers and the
37
2016 Compensation Discussion and Analysis
related severance provisions are designed to meet the following objectives:
Corporate Change
.
In certain limited scenarios, the potential for merger or being acquired may be in the best interests of our
stockholders. As a result, we provide severance compensation to certain named executive officers if the officers employment is terminated following a corporate change transaction. Our intent is to promote the ability of the officer to act in
the best interests of our stockholders even though his or her employment could be terminated as a result of the transaction. However, as previously discussed, we do not provide any excise tax
gross-ups
to any
of our named executive officers.
Termination without Cause
.
If we terminate the employment of certain corporate officers
without cause as defined in the applicable agreement, we are obligated to pay the officer certain compensation and other benefits as described in greater detail in Executive Compensation - Potential Payments Upon Termination or
Change in Control. We believe these payments are appropriate because the terminated officer is bound by confidentiality,
non-solicitation
and
non-compete
provisions ranging from one to two years after termination. Both parties have mutually agreed to a severance package that would be in place prior to any termination event. This provides us with more flexibility to make a change in senior management
if such a change is in the best interests of our Company and its stockholders.
Hedging and
Pledging Prohibitions
Our Directors and named executive officers are prohibited from engaging in short sales of our stock
or otherwise hedging the risk of ownership of our stock. We have also adopted a policy that prohibits our
directors and officers from pledging their Company stock, or engaging in any other transaction of a similar nature that has the effect of using Group 1 securities as collateral.
Policy on
Payment or Recoupment of
Performance-Based
Cash Bonuses and
Performance-Based
Stock Bonuses in the Event of Certain Restatements
The Committee has adopted a policy on payment or recoupment of
performance-based
cash bonuses and
performance-based
stock bonuses in the event of certain restatements, excluding those required by a change in generally accepted
accounting principles, which provides that we will require the payment or reimbursement (to the extent permitted by governing law) of all or a portion of any
performance-based
cash or
performance-based
stock bonus where: (a) the payment was predicated upon the achievement of certain financial results that were subsequently the subject of a material restatement and (b) a higher or lower
payment would have been made to the
employee based upon the restated financial results. In each of these instances, we will, to the extent practicable: (a) either make a payment of, or seek to recover, the cash amount by which
the individual employees annual
performance-based
bonus was recalculated based on the restated financial results; provided that we will not pay or seek to recover bonuses paid more than three years prior
to the date the applicable restatement is disclosed; (b) cause the award or cancellation of any
performance-based
stock awards; and (c) seek reimbursement of any unearned gains realized on the
vesting of
performance-based
stock attributable to such awards.
Stock Ownership Guidelines
Our Board has adopted Stock Ownership Guidelines that apply to our named executive officers, as well as other
officers within our Company. The guidelines require our named executive officers to maintain a minimum number of shares of our common stock while they are employed by us. The guidelines reinforce the importance of aligning the
longer-term
interests of
our executive officers with the interests of our stockholders and are expressed in terms of the dollar value of their equity holdings as a multiple of each named executive officers base
salary. In February 2014, the Board increased the Stock Ownership Guidelines, as follows:
38
2016 Compensation Discussion and Analysis
|
|
|
|
|
Name
|
|
Prior Stock
Ownership Guidelines
|
|
Current Stock
Ownership Guidelines
|
Earl J. Hesterberg
|
|
4×annual base salary
|
|
6×annual base salary
|
John C. Rickel
|
|
2×annual base salary
|
|
3×annual base salary
|
Frank Grese, Jr.
|
|
2×annual base salary
|
|
3×annual base salary
|
Darryl M. Burman
|
|
1×annual base salary
|
|
2×annual base salary
|
Peter C. DeLongchamps
|
|
1×annual base salary
|
|
2×annual base salary
|
The dollar value of stock ownership is based on base salary times a multiple divided by the previous
36-month
average stock price as calculated on December 31st of each year. Unvested restricted stock awards or restricted stock units are counted towards each named executive officers ownership
requirement.
Stock ownership levels should be achieved by each officer within five years of the adoption of these guidelines, or within five years of the individuals appointment as an officer. Each of
our named executive officers is in compliance with current guidelines.
Tax
Deductions for Compensation
In conducting our executive compensation programs, the Committee considers the effects of Section 162(m) of
the Internal Revenue Code, which denies publicly held companies a tax deduction for annual compensation in excess of $1 million paid to their chief executive officer or any of their three other most highly compensated corporate officers, other
than the chief financial officer, who are employed on the last day of a given year, unless their compensation is based on performance criteria that are established by a compensation committee which is made up of outside directors and approved, as to
their material terms, by
their stockholders. The Committee considers its primary goal to design compensation strategies that further the best interests of our stockholders. In certain cases, it may determine that the
amount of tax deductions lost is not significant when compared to the potential opportunity a compensation program provides for creating
long-term
stockholder value. The Committee therefore retains the ability
to evaluate the performance of our executive officers and to pay appropriate compensation, even if some of it may be
non-deductible,
to ensure competitive levels of total compensation is paid to certain
individuals.
Risk
Assessment
We have reviewed our compensation policies and practices for all employees, including executive officers, and
determined that our compensation programs are not reasonably likely to cause behaviors that would have a material adverse effect on our Company. Moreover, we believe that several design features of our compensation programs and policies reduce the
likelihood of excessive
risk-taking:
✓
|
The program design provides a balanced mix of cash and equity, annual and
longer-term
incentives, and performance metrics.
|
✓
|
We currently do not grant stock options.
|
✓
|
The Compensation Committee has discretion over incentive program payouts.
|
✓
|
The compensation recovery policy (which extends to all employees participating in the incentive plan) allows our Company to claw back payments made using materially inaccurate financial results.
|
✓
|
Executive officers are subject to robust stock ownership guidelines.
|
✓
|
Compliance and ethical behaviors are integral factors considered in all performance assessments.
|
✓
|
We set the proper ethical and moral expectations through our policies, values and procedures and provide various mechanisms for reporting issues.
|
✓
|
We maintain an evaluation program, utilizing internal and
third-party
resources, which enables us to verify that our compensation policies and
|
39
2016 Compensation Discussion and Analysis
|
practices are aligned with expectations, including periodic reviews and audits of our dealership sales and finance departments.
|
✓
|
A cap is placed on the number of shares of common stock that may be awarded to an individual in any calendar year.
|
We believe that, for all employees, our compensation programs do not encourage excessive risk and instead
encourage behaviors that support sustainable value creation.
40
Report of the Compensation Committee
During the last fiscal year, and this year in preparation for the filing of this proxy statement with the SEC, the Committee:
|
|
reviewed and discussed the disclosure set forth under the heading 2016 Compensation Discussion and Analysis with management; and
|
|
|
based on the reviews and discussions referred to above, recommended to the Board of Directors that the disclosure set forth under the heading 2016 Compensation Discussion and Analysis be included in this
proxy statement and incorporated by reference into Group 1 Automotive, Inc.s Annual Report on
Form 10-K
for the fiscal year ended December 31, 2016.
|
Respectfully submitted by the Compensation Committee of the Board of Directors,
Max P. Watson, Jr. (Chairman)
John L. Adams
Stephen D. Quinn
J. Terry Strange
Charles L. Szews
41
Executive Compensation
2016 Summary Compensation Table
The following table summarizes, with respect to our
named executive officers, information relating to the compensation earned for services rendered in all capacities during 2016. Our named executive officers consist of our five executive officers, including our Chief Executive Officer and our Chief
Financial Officer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal
Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
(1)
($)
|
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
|
Change in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
(2)
($)
|
|
|
All Other
Compensation
(3)
($)
|
|
|
Total
($)
|
|
Earl J. Hesterberg
|
|
2016
|
|
|
1,100,000
|
|
|
|
|
|
|
|
1,813,700
|
|
|
|
1,210,000
|
|
|
|
237,057
|
|
|
|
213,565
|
|
|
|
4,574,322
|
|
President and Chief
|
|
2015
|
|
|
1,100,000
|
|
|
|
|
|
|
|
2,911,125
|
|
|
|
1,320,000
|
|
|
|
170,001
|
|
|
|
179,746
|
|
|
|
5,680,872
|
|
Executive Officer
|
|
2014
|
|
|
1,000,000
|
|
|
|
|
|
|
|
2,881,350
|
|
|
|
1,250,000
|
|
|
|
119,519
|
|
|
|
553,792
|
|
|
|
5,804,661
|
|
John C. Rickel
|
|
2016
|
|
|
583,500
|
|
|
|
|
|
|
|
747,763
|
|
|
|
671,025
|
|
|
|
282,877
|
|
|
|
26,740
|
|
|
|
2,311,905
|
|
Senior Vice President
|
|
2015
|
|
|
583,500
|
|
|
|
|
|
|
|
1,200,215
|
|
|
|
671,025
|
|
|
|
224,771
|
|
|
|
25,585
|
|
|
|
2,705,097
|
|
and Chief Financial Officer
|
|
2014
|
|
|
566,500
|
|
|
|
|
|
|
|
992,465
|
|
|
|
651,475
|
|
|
|
155,433
|
|
|
|
24,550
|
|
|
|
2,390,423
|
|
Frank Grese, Jr.
|
|
2016
|
|
|
540,000
|
|
|
|
|
|
|
|
414,560
|
|
|
|
621,000
|
|
|
|
129,632
|
|
|
|
32,511
|
|
|
|
1,737,703
|
|
Senior Vice President, Human Resources, Training and Operations Support
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Darryl M. Burman
|
|
2016
|
|
|
440,300
|
|
|
|
|
|
|
|
473,635
|
|
|
|
330,225
|
|
|
|
26,253
|
|
|
|
30,770
|
|
|
|
1,301,182
|
|
Vice President and
|
|
2015
|
|
|
440,300
|
|
|
|
|
|
|
|
760,220
|
|
|
|
330,225
|
|
|
|
15,218
|
|
|
|
66,836
|
|
|
|
1,612,798
|
|
General Counsel
|
|
2014
|
|
|
427,500
|
|
|
|
|
|
|
|
640,300
|
|
|
|
320,625
|
|
|
|
11,147
|
|
|
|
28,586
|
|
|
|
1,428,158
|
|
Peter C. DeLongchamps
|
|
2016
|
|
|
456,300
|
|
|
|
|
|
|
|
518,200
|
|
|
|
342,225
|
|
|
|
66,367
|
|
|
|
18,759
|
|
|
|
1,401,851
|
|
Vice President, Mfr.
|
|
2015
|
|
|
456,300
|
|
|
|
|
|
|
|
800,144
|
|
|
|
342,225
|
|
|
|
55,765
|
|
|
|
61,899
|
|
|
|
1,716,333
|
|
Relations, Financial
|
|
2014
|
|
|
443,000
|
|
|
|
100,000
|
|
|
|
704,330
|
|
|
|
332,250
|
|
|
|
40,559
|
|
|
|
25,060
|
|
|
|
1,645,199
|
|
Services and Public Affairs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The amounts in the Stock Awards column reflect the required accounting expense for these awards and do not correspond to the actual value that may be recognized by our named executive officers. These amounts
represent the grant date fair value of awards computed in accordance with FASB ASC Topic 718 in connection with restricted stock awards granted under the Group 1 Automotive, Inc. 2014 Long Term Incentive Plan and the Group 1 Automotive, Inc. 2007
Long Term Incentive Plan. Assumptions made in the calculation of these amounts in fiscal years 2014, 2015 and 2016 are included in Note 5 to the audited financial statements included in our Annual Reports on Form
10-K
for the fiscal years ended December 31, 2014, December 31, 2015 and December 31, 2016, respectively. Certain of these awards have no intrinsic value to the recipient until the performance
or vesting schedule is met. For example: As of December 31, 2016, our named executive officers had not realized any value from their 2016 awards because vesting will not begin until 2018, when forfeiture restrictions will lapse as to 40% of the
awards. Forfeiture restrictions will lapse as to the remaining 60% of the 2016 awards in 20% increments in 2019, 2020 and 2021. Vesting schedules for equity awards can be found in the footnotes to the Outstanding Equity Awards as of
December 31, 2016 table.
|
(2)
|
Amounts reflect
above-market
earnings on the Deferred Compensation Plan. Amounts are reflective of earnings in excess of 120% of the applicable federal
long-term
rate, with compounding, of 3.09%. We do not offer a pension plan.
|
(3)
|
The following table contains a breakdown of the compensation and benefits included under All Other Compensation for 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Year
|
|
|
401(k)
SavingsPlan
Matching
Contribution
($)
|
|
|
Automobile
Allowance
($)
|
|
|
Use of
Demonstrator
Vehicle
(a)
($)
|
|
|
Airplane
Use
(b
)
($)
|
|
|
Club
Membership
and Dues
($)
|
|
|
Total
($)
|
|
Earl J. Hesterberg
|
|
|
2016
|
|
|
|
7,950
|
|
|
|
|
|
|
|
27,266
|
|
|
|
167,502
|
|
|
|
10,847
|
|
|
|
213,565
|
|
John C. Rickel
|
|
|
2016
|
|
|
|
7,950
|
|
|
|
15,000
|
|
|
|
3,790
|
|
|
|
|
|
|
|
|
|
|
|
26,740
|
|
Frank Grese, Jr.
|
|
|
2016
|
|
|
|
6,143
|
|
|
|
15,000
|
|
|
|
11,368
|
|
|
|
|
|
|
|
|
|
|
|
32,511
|
|
Darryl M. Burman
|
|
|
2016
|
|
|
|
7,899
|
|
|
|
11,300
|
|
|
|
11,571
|
|
|
|
|
|
|
|
|
|
|
|
30,770
|
|
Peter C. DeLongchamps
|
|
|
2016
|
|
|
|
1,107
|
|
|
|
11,300
|
|
|
|
6,352
|
|
|
|
|
|
|
|
|
|
|
|
18,759
|
|
(a)
|
Represents the incremental cost for personal use of one or more Company demonstrator vehicles. The incremental cost is determined by multiplying the annual lease value of the vehicle by the percentage of personal use,
which we track through travel logs.
|
(b)
|
Represents the difference between the amount paid by the executive for the use of our leased airplane under the standard industry fare level (SIFL) method and the lease cost to us for such use. The SIFL
method calculates the executives use by multiplying the SIFL
cents-per-mile
rates applicable for the period during which the flight was taken by the appropriate
aircraft multiple (a factor that is determined by using the weight of the aircraft being used, and is also dependent upon whether Mr. Hesterberg is considered a control employee, or an officer of our Company, which he is) and then
adding the applicable terminal charge. The SIFL
cents-per-mile
rates in the formula and the terminal charge are calculated by the Department of Transportation and are
revised
semi-annually.
|
42
Executive Compensation
Grants of Plan-Based Awards in 2016
The following table provides information concerning
each grant of an award made to our named executive officers under our annual incentive compensation plan and 2014 Long Term Incentive Plan during 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Possible Payouts Under
Non-Equity
Incentive Plan
Awards
(1)
|
|
|
All Other
Stock
Awards:
Number of
Shares of
|
|
|
Grant Date
Fair Value
of Stock
and Option
|
|
Name
|
|
Grant
Date
|
|
|
Threshold
($)
|
|
|
Target
($)
|
|
|
Maximum
($)
|
|
|
Stock or Units
(#)
|
|
|
Awards
($)
|
|
Earl J. Hesterberg
|
|
|
|
|
|
|
|
|
|
|
916,666
|
|
|
|
1,375,000
|
|
|
|
|
|
|
|
|
|
|
|
|
02/17/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,000
|
|
|
|
1,813,700
|
|
John C. Rickel
|
|
|
|
|
|
|
|
|
|
|
486,250
|
|
|
|
671,025
|
|
|
|
|
|
|
|
|
|
|
|
|
02/17/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,430
|
|
|
|
747,763
|
|
Frank Grese, Jr.
|
|
|
|
|
|
|
|
|
|
|
450,000
|
|
|
|
621,000
|
|
|
|
|
|
|
|
|
|
|
|
|
02/17/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
|
|
414,560
|
|
Darryl M. Burman
|
|
|
|
|
|
|
|
|
|
|
220,150
|
|
|
|
330,225
|
|
|
|
|
|
|
|
|
|
|
|
|
02/17/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,140
|
|
|
|
473,635
|
|
Peter C. DeLongchamps
|
|
|
|
|
|
|
|
|
|
|
228,150
|
|
|
|
342,225
|
|
|
|
|
|
|
|
|
|
|
|
|
02/17/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
518,200
|
|
(1)
|
Estimated possible payouts under the 2016 annual incentive compensation plan. The Threshold column shows dashes because the ultimate value of the annual incentive compensation payouts could be reduced to
effectively zero. The amounts shown in the Target and Maximum columns assume achievement of 100% of the
mission-based
goals for each named executive officer. See the
Non-Equity
Incentive Plan Compensation column of the 2016 Summary Compensation Table for actual amounts paid to named executive officers under the annual incentive compensation plan for 2016 and
2016 Compensation Discussion and Analysis Annual Incentive Compensation Plan beginning on page 32 of this proxy statement for a description of the annual incentive compensation plan and how the payouts were determined.
|
Narrative Disclosure to Summary Compensation Table and Grants of
Plan-Based
Awards Table
The following is a discussion of material factors we believe are necessary to an understanding of the information disclosed in the Summary Compensation Table
and the Grants of
Plan-Based
Awards Table for 2016.
Employment, Incentive Compensation and
Non-Compete
Agreements
Earl J. Hesterberg.
Effective May 19, 2015, we entered into an employment agreement with
Mr. Hesterberg. Mr. Hesterbergs annual base salary under the employment agreement is $1,100,000 (retroactive to January 1, 2015), subject to increase by the Compensation Committee from time to time.
Subject to the terms and conditions of the agreement, we have agreed to employ Mr. Hesterberg through May 18, 2018. At that time, the employment
agreement will automatically convert to a
month-to-month
relationship terminable at any time by either employer
or employee for any reason upon one year advance written notice.
John C. Rickel.
Effective January 1, 2009, we entered into an employment agreement with Mr. Rickel. Subject to the terms and conditions of the agreement, we agreed to employ Mr. Rickel through December 31, 2010. Mr. Rickels employment
agreement automatically renews for successive
one-year
periods unless either party prior to the expiration of the term provides 60 days prior written notice of termination to the other party. Provisions
of Mr. Rickels employment agreement related to termination and change in control are discussed in Potential Payments upon Termination or Change in Control beginning on page 47 of this proxy statement.
43
Executive Compensation
Darryl M. Burman.
Effective December 1, 2009, we entered into an employment agreement with
Mr. Burman. Subject to the terms and conditions of the agreement, we agreed to employ Mr. Burman through November 30, 2011. Mr. Burmans employment agreement automatically renews for successive
one-year
periods unless either party prior to the expiration of the term provides 60 days prior written notice of termination to the other party. Provisions of Mr. Burmans employment agreement
related to termination and change in control are discussed in Potential Payments upon Termination or Change in Control beginning on page 47 of this proxy statement.
Messrs. Hesterberg, Rickel, Grese, Burman and DeLongchamps are also entitled to participate, on the same basis generally as our other employees, in all
general employee benefit plans and programs that are made available to all or substantially all of our employees.
In addition, Mr. Hesterberg is entitled to the use of two demonstrator vehicles of his choice, Messrs. Rickel and Grese are each entitled to one demonstrator vehicle of their choice and
a vehicle allowance totaling $1,250 per month, and Messrs. Burman and DeLongchamps are each entitled to one demonstrator vehicle of their choice and a vehicle allowance totaling $941.66 per month.
All incentive compensation awards payable to Messrs. Hesterberg, Rickel and Burman will be determined by the Committee in its sole discretion in
accordance with the terms of our annual incentive compensation program, and all payments pursuant to this program shall be made on or before March 15th of the year following the year of service to which the incentive compensation relates.
We have not entered into an employment or
non-compete
agreement with Mr. Grese or Mr. DeLongchamps.
44
Executive Compensation
Outstanding Equity Awards at December 31, 2016
The following table provides information concerning
restricted stock awards for our named executive officers. As of December 31, 2016, none of our named executive officers had any stock options.
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
Name
|
|
Grant Date
(1)
|
|
Number of Shares or
Units of Stock That
Have Not Vested
(#)
|
|
|
Market Value of Shares
or Units of Stock That
Have Not Vested
(2)
($)
|
|
Earl J. Hesterberg
|
|
03/02/2012
|
|
|
9,000
|
|
|
|
701,460
|
|
|
|
02/27/2013
|
|
|
18,000
|
|
|
|
1,402,920
|
|
|
|
02/25/2014
|
|
|
27,000
|
|
|
|
2,104,380
|
|
|
|
02/24/2015
|
|
|
35,000
|
|
|
|
2,727,900
|
|
|
|
02/17/2016
|
|
|
35,000
|
|
|
|
2,727,900
|
|
John C. Rickel
|
|
03/02/2012
|
|
|
3,000
|
|
|
|
233,820
|
|
|
|
02/27/2013
|
|
|
6,000
|
|
|
|
467,640
|
|
|
|
02/25/2014
|
|
|
9,300
|
|
|
|
724,842
|
|
|
|
02/24/2015
|
|
|
14,430
|
|
|
|
1,124,674
|
|
|
|
02/17/2016
|
|
|
14,430
|
|
|
|
1,124,674
|
|
Frank Grese, Jr.
|
|
03/02/2012
|
|
|
2,000
|
|
|
|
155,880
|
|
|
|
02/27/2013
|
|
|
3,600
|
|
|
|
280,584
|
|
|
|
02/25/2014
|
|
|
4,800
|
|
|
|
374,112
|
|
|
|
02/24/2015
|
|
|
8,000
|
|
|
|
623,520
|
|
|
|
02/17/2016
|
|
|
8,000
|
|
|
|
623,520
|
|
Darryl M. Burman
|
|
03/02/2012
|
|
|
2,000
|
|
|
|
155,880
|
|
|
|
02/27/2013
|
|
|
4,000
|
|
|
|
311,760
|
|
|
|
02/25/2014
|
|
|
6,000
|
|
|
|
467,640
|
|
|
|
02/24/2015
|
|
|
9,140
|
|
|
|
712,372
|
|
|
|
02/17/2016
|
|
|
9,140
|
|
|
|
712,372
|
|
Peter C. DeLongchamps
|
|
03/02/2012
|
|
|
2,000
|
|
|
|
155,880
|
|
|
|
02/27/2013
|
|
|
4,400
|
|
|
|
342,936
|
|
|
|
02/25/2014
|
|
|
6,600
|
|
|
|
514,404
|
|
|
|
02/24/2015
|
|
|
9,620
|
|
|
|
749,783
|
|
|
|
02/17/2016
|
|
|
10,000
|
|
|
|
779,400
|
|
(1)
|
Forfeiture restrictions on our restricted stock awards lapse over a
five-year
period: 40% of the award on the second anniversary of the grant date, and 20% on the third, fourth
and fifth anniversaries of the grant date, respectively.
|
(2)
|
Calculated using value of our common stock at close of market on December 30, 2016 (the last trading day of the 2016 year) of $77.94.
|
45
Executive Compensation
2016 Restricted Stock Vested
The following table provides information relating to
the vesting of restricted stock during 2016 on an aggregated basis for each of our named executive officers. Our named executive officers currently do not have stock options.
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
Name
|
|
Number of Shares
Acquired on Vesting
(1)
(#)
|
|
|
Value Realized
on Vesting
(2)
($)
|
|
Earl J. Hesterberg
|
|
|
46,000
|
|
|
|
2,586,820
|
|
John C. Rickel
|
|
|
15,000
|
|
|
|
842,436
|
|
Frank Grese, Jr.
|
|
|
8,800
|
|
|
|
494,858
|
|
Darryl M. Burman
|
|
|
9,800
|
|
|
|
550,360
|
|
Peter C. DeLongchamps
|
|
|
10,400
|
|
|
|
583,670
|
|
(1)
|
Represents the gross number of shares acquired upon vesting of restricted stock, without taking into account any shares withheld to satisfy applicable tax obligations.
|
(2)
|
Represents the value of the vested restricted stock, calculated by multiplying (a) the number of vested shares of restricted stock by (b) the average of the high and low sales prices of our common stock on the
vesting date, which is how we calculate market value for purposes of this table.
|
Nonqualified Deferred
Compensation
The following table sets forth
our named executive officers information regarding the Deferred Compensation Plan, including, with respect to each officer: (1) the aggregate contributions made by the officer, (2) the employer contribution, (3) the aggregate
interest or other earnings accrued, and (4) the total balance of the officers account.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Executive
Contributions
in Last FY
(1)
($)
|
|
|
Employer Match
Contributions
in Last FYE
(2)
($)
|
|
|
Aggregate
Earnings
in Last FY
(3)
($)
|
|
|
Aggregate
Balance
at Last FYE
(4)
($)
|
|
Earl J. Hesterberg
|
|
|
847,000
|
|
|
|
806
|
|
|
|
371,915
|
|
|
|
5,012,707
|
|
John C. Rickel
|
|
|
904,425
|
|
|
|
806
|
|
|
|
455,022
|
|
|
|
6,116,958
|
|
Frank Grese, Jr.
|
|
|
321,300
|
|
|
|
|
|
|
|
211,248
|
|
|
|
2,821,787
|
|
Darryl M. Burman
|
|
|
108,974
|
|
|
|
798
|
|
|
|
40,719
|
|
|
|
543,411
|
|
Peter C. DeLongchamps
|
|
|
82,134
|
|
|
|
802
|
|
|
|
107,241
|
|
|
|
1,417,879
|
|
(1)
|
Reported as compensation to the named executive officer in the Summary Compensation Table for 2016, (including any
non-equity
incentive plan compensation earned during 2016, but
paid in 2017).
|
(2)
|
Represents portion of Company 401(k) savings plan matching contributions that could not be contributed into the 401(k) savings plan for the individuals due to Code restrictions. The 401(k) Savings Plan matching
contributions are reported as All Other Compensation in the Summary Compensation Table for 2016.
|
(3)
|
The following portions of the aggregate earnings in the last fiscal year were reported in the 2016 Change in Pension Value and Nonqualified Deferred Compensation Earnings column of the 2016 Summary
Compensation Table because they were
above-market
earnings: Mr. Hesterberg ($237,057), Mr. Rickel ($282,877), Mr. Grese ($129,632), Mr. Burman ($26,253) and Mr. DeLongchamps ($66,367).
|
(4)
|
The following portions of the aggregate balance amounts for each of the following named executive officers were reported as compensation to the officer in the Summary Compensation Table in previous years:
Mr. Hesterberg $375,000 for 2014 and $924,000 for 2015; Mr. Rickel $560,835 for 2014 and $636,015 for 2015; Mr. Burman $105,806 for 2014 and $108,974 for 2015; and Mr. DeLongchamps $86,450 for 2014 and
$82,134 for 2015.
|
46
Executive Compensation
Pursuant to the Deferred Compensation Plan, certain corporate officers, including named executive officers, may
defer up to 50% of their base salary and up to 100% of their incentive compensation. Deferral elections are to be made no later than the last day of the calendar year immediately preceding the calendar year in which such compensation is earned. At
the plan administrative committees discretion, deferral elections with respect to certain
performance-based
compensation may be made not later than six months prior to the end of the performance period
in which such compensation is earned. In addition, for each calendar year, we contribute an amount on behalf of each executive equal to the amount of the employer match the executive forfeited under the 401(k) Savings Plan in order for the 401(k)
Savings Plan to comply with the nondiscrimination requirements of the Internal Revenue Code. Currently, 100% of each named executive officers account is vested. We may also make discretionary credits to an officers account from time to
time, which credits will be subject to a vesting schedule established by us at the time of such credit. We did not make any discretionary contribution credits during the 2015 or 2016 year. If no vesting schedule is established, the officer will be
vested in a percentage of the discretionary employer deferral equal to the officers vested interest in his employer contribution account under the 401(k) Savings Plan. If we undergo a corporate change, the officer will become fully
vested in his account under the Deferred Compensation Plan.
Benefits under the Deferred Compensation Plan will be paid no earlier than upon the
executives termination of
service, or, upon a certain date elected by the officer. Benefits will be paid, at the participants election, in a lump sum or in annual installments, although all distributions will be
paid in cash. Payments upon an executives termination of service may be delayed for six months to the extent necessary to comply with the requirements of Section 409A of the Internal Revenue Code. Except in the event of unforeseeable
financial emergencies,
in-service
withdrawals are generally not permitted in the Deferred Compensation Plan, although the necessary portion of a participants vested account balance may be distributed in
order to satisfy certain employment, federal or state taxes. An unforeseeable financial emergency shall allow a participant to access vested funds in his accounts upon the occurrence of: (1) a severe financial hardship of the participant that
results from an illness or accident of the participant, or the participants beneficiary, spouse or dependent; (2) loss of the participants or the beneficiarys property due to casualty; or (3) a similar extraordinary and
unforeseeable circumstance as described in Section 409A of the Internal Revenue Code arising as a result of events beyond the participants control.
Deferred amounts will be deemed to be notionally invested in such fund as the participants shall designate. Most of the funds are also available in the Group
1 401(k) Savings Plan except for the Group 1 Guaranteed Crediting Rate investment option which is the default investment option. The Group 1 Guaranteed Crediting Rate investment option is a declared interest rate, which was set by the Committee
at 8% for 2016.
Potential
Payments upon Termination or Change in Control
We believe providing certain executive officers with severance payments and accelerated vesting of equity awards
in certain circumstances are important retention tools. In addition, we believe that providing for
double-trigger
payments and equity award vesting to certain key executives in connection with a change in
corporate control helps maximize stockholder value by encouraging our executives to objectively review any proposed transaction, whether or not that executive will continue to be employed. Executive officers at other companies in the general market
against which we compete for executive talent commonly have equity compensation plans that provide for accelerated vesting upon a corporate change and
post-termination
payments, and we have consistently
provided this benefit to certain executive officers in order to remain competitive in attracting and retaining skilled professionals.
The discussion
below discloses the amount of compensation and/or other benefits that would be
payable to each of our named executive officers in the event of termination of their employment under the following scenarios: death, disability, with and without cause, for certain constructive
termination events, and following a corporate change. All potential payments to the executive officers upon termination of their employment or upon a corporate change that could have occurred on December 31, 2016 are governed by the 2014 Long
Term Incentive Plan and the 2007 Long Term Incentive Plan pursuant to which various equity incentive awards were issued and, with respect to Messrs. Hesterberg, Rickel and Burman, the terms of employment agreements as described below. None of
our named executive officers is entitled to an excise tax
gross-up
payment. For additional information regarding the employment agreements, see 2016 Compensation Discussion and Analysis
Employment Agreements, Severance Benefits and Change in Control Provisions.
47
Executive Compensation
Employment Agreements
We maintained employment agreements with Messrs. Hesterberg, Rickel and Burman during 2016. Each agreement
provides that in the event the executive is terminated due to an Involuntary Termination or the executive terminates his employment following a Constructive Termination Event, the executive will be entitled to the following:
|
|
a lump sum payment equal to the executives base salary divided by 12 and multiplied by a severance multiplier. The severance multiplier in the case of Mr. Hesterberg, Mr. Rickel or
Mr. Burman, is the greater of 12 months or the remaining months in the term of the employment agreement. The payment will be made on the first day of the seventh month following the termination of employment;
|
|
|
a pro rata bonus calculated in accordance with our Annual Incentive Compensation Plan, paid in a single lump sum payment at the later of (1) the first day of the seventh month following the executives
separation from service, or (2) March 15th of the year following the release of earnings for the year in which the separation of service occurred;
|
|
|
immediate vesting of all unvested restricted stock awards or stock options, which will be exercisable as if the executive had continued to be employed by us for the full term of his employment agreement;
|
|
|
the use of a demonstrator vehicle for a period of six months; and
|
|
|
in the case of Mr. Hesterberg, medical coverage for Mr. Hesterberg and his spouse until (1) Mr. Hesterberg receives comparable coverage at a new employer, (2) Mr. Hesterbergs death,
or (3) a period of 36 months has passed, beginning on July 1, 2015. Mr. Hesterberg currently has coverage through another medical plan, and is not participating in the Companys medical coverage plan at this time.
|
In the event that the executive terminates employment following an involuntary reduction of his salary or incentive compensation targets
within six months after a Corporate Change, the executive will be entitled to the same payments and benefits as described in the first three bullets above, except the severance multiplier will be 30 months for Messrs. Hesterberg and Rickel
and 15 months for Mr. Burman. Each agreement further provides that if the executives employment is terminated due to death or Disability, then the executive is entitled to:
|
|
his pro rata salary through the date of such termination and a pro rata bonus (based on his
|
|
|
termination date), calculated in accordance with our Annual Incentive Compensation Plan, paid in a single lump sum payment at the later of (1) the first day of the seventh month following
the executives separation from service, or (2) March 15th of the year following the release of earnings for the year in which the separation of service occurred;
|
|
|
immediate vesting of all unvested restricted stock awards or stock options, which will be exercisable as if the executive had continued to be employed by us for the full term of his employment agreement;
|
|
|
in the case of Disability, the use of a demonstrator vehicle for a period of six months, or in the event of the executives Death, for Messrs. Hesterberg and Rickel, the use of the vehicle would go to the
surviving spouse, if any, for a period of twelve months; and
|
|
|
in the case of Mr. Hesterberg, medical coverage for Mr. Hesterberg and his spouse until (1) Mr. Hesterberg receives comparable coverage at a new employer, (2) Mr. Hesterbergs death,
or (3) a period of 36 months has passed, beginning on July 1, 2015. Mr. Hesterberg currently has coverage through another medical plan, and is not participating in the Companys medical coverage plan at this time.
|
Mr. Hesterbergs agreement also provides that if he resigns at any time after May 18, 2018, all unvested equity awards held
by Mr. Hesterberg will vest upon satisfaction of certain
post-termination
employment obligations set forth in his
non-compete
agreement (discussed below). In
addition, if Mr. Hesterbergs employment is terminated for any reason after May 18, 2018, he will receive his pro rata bonus through the date of his termination, calculated in accordance with the annual incentive compensation plan and
paid in a single lump sum payment.
In the event of a termination by the Company for Cause or a Voluntary Termination by the executive, all compensation
and benefits will cease as of the respective date of termination. In these circumstances, the executive officers would only receive base salary earned but not yet paid.
The employment agreements contain a covenant that the executives will not sue or lodge any claim against us based upon an Involuntary Termination for any
payments in addition to those described above. In the event that the executive breaches this covenant, we will be entitled to recover from that executive all sums we or any of our subsidiaries or affiliates have expended in relation to such action.
We will also be
48
Executive Compensation
entitled to offset any amounts expended in relation to defending such claim against any amounts owed to the
executive prior to a final determination of the arbitration provisions provided for in the employment agreement.
The executives have agreed not to
disclose, during or at any time after their employment with us, any of our confidential information or trade secrets. The executives will return all proprietary materials, and all copies thereof, to us upon a termination of employment for any
reason, and all copyrighted works that the executive may have created during his employment relating to us or our business in any manner shall remain our property.
These agreements generally contain the following terms, except where noted otherwise below, and the following provisions that could impact the amount of
compensation that the executives receive at or following their separation from service from us:
|
|
Cause shall mean any of the following: (1) conviction or plea of nolo contendere to a felony or a crime involving moral turpitude; (2) breach of any material provision of either an agreement with
us or our Code of Conduct; (3) the use, for his own benefit, of any confidential or proprietary information of ours, or willfully divulging for his benefit such information; (4) fraud or misappropriation or theft of any of our funds or
property; (5) willful refusal to perform his duties or (6) gross negligence; provided, however, that we, before terminating the executive under (2) or (5), must first give written notice to him of the nature of the alleged breach or
refusal and must provide him with a minimum of fifteen days to correct the problem. Before terminating him for purported gross negligence we must give written notice that explains the alleged gross negligence in detail and must provide him with a
minimum of 20 days to correct the problem, unless correction is inherently impossible.
|
|
|
Corporate Change shall mean the first to occur of any of the following events: (1) any person acquires 50% or more of our common stock or voting securities, other than (a) any acquisition directly
from or resulting from an acquisition of our shares by us, (b) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by us or any entity controlled by us, or (c) any acquisition by any entity pursuant to a
transaction which complies with clauses (a) or (b); (2) the occurrence of a merger, reorganization, consolidation or disposition of all or
|
|
substantially all of our assets, unless our stockholders prior to such transaction hold more than 50% of the equity and voting power of the resulting entity or entity holding such assets, no
person (other than benefit plans of such entity) holds 50% or more of the equity or voting power of such entity and at least a majority of the board of directors of such entity were members of the Incumbent Board; or (3) our stockholders
approve our complete liquidation or dissolution.
|
|
|
Constructive Termination Event shall occur upon: (1) the failure by us to pay the executives compensation as provided in the applicable agreement; (2) relocation without his consent of his
primary employment location of more than 50 miles; (3) our request that the executive perform any illegal activity or
sign-off
on any inappropriate financial statement or acknowledgement; (4) a
material diminution in the executives position, duties, responsibilities, reporting status, or authority; or (5) a material negative reduction in base salary or incentive compensation targets within six months after a Corporate Change,
except that before exercising his right to terminate the employment relationship pursuant to any of the previous provisions, he must first give written notice to our Board of the circumstances purportedly giving rise to his right to terminate and
must provide us with a minimum of thirty days to correct the problem, unless correction is inherently impossible.
|
|
|
Disability shall mean the executives becoming incapacitated by accident, sickness or other circumstance that in the reasonable opinion of a qualified doctor approved by our Board, renders him mentally
or physically incapable of performing the essential functions of the executives position, with or without reasonable accommodation, and that will continue, in the reasonable opinion of the doctor, for a period of no less than 180 days.
|
|
|
Involuntary Termination shall mean a termination by the executive due to a Constructive Termination Event by itself or in relation to a Corporate Change, or by us for any reason without Cause, at the
discretion of our Board; an Involuntary Termination also includes the nonrenewal of the executives employment agreement by the Board.
|
|
|
Voluntary Termination shall mean a termination by the executive other than for a Constructive Termination Event.
|
Group 1 Automotive 2014 Long Term
Incentive Plan
The 2014 Long Term Incentive Plan provides that, upon the occurrence of a Corporate Change, the
Compensation Committee may fully vest any restricted stock awards then outstanding and, upon such vesting,
49
Executive Compensation
all restrictions applicable to the restricted stock will terminate. Further, if the Corporate Change constitutes
a change in the ownership or effective control of us or of a substantial portion of our assets, within the meaning of Section 409A of the Code, the Committee may require the mandatory surrender of phantom stock awards upon payment of the
maximum value of such awards to their holders.
The 2014 Long Term Incentive Plan provides that a Corporate Change occurs if (1) we are dissolved and
liquidated; (2) if we are not the surviving entity in any merger or consolidation (or we survive only as a subsidiary of an entity); (3) if we sell, lease or exchange all or substantially all of our assets to any other person or entity;
(4) any person, entity or group acquires or gains ownership or control of more than 50% of the outstanding shares of our voting stock; or (5) after a contested election of directors, the persons who were directors before such election
cease to constitute a majority of our Board of Directors.
Our named executive officers do not currently, and at December 31, 2016 did not, hold any
unvested stock
options or phantom stock awards, and therefore there are no amounts to report with respect to acceleration of stock option awards or payment of phantom stock awards by the Compensation Committee
in connection with a Corporate Change.
The award agreements for restricted stock under the Companys 2014 Long Term Incentive Plan also establish
vesting provisions applicable to termination of employment. The award agreement for all grants of restricted stock to our executive officers, provides for accelerated vesting if the executive officers employment is terminated due to death or
disability. The award agreements also provide for accelerated vesting in the case of death or disability and in the case of a qualified retirement. A qualified retirement is the termination of employment on a date that is on or after the
employees attainment of age 63 and following the employees completion of a least ten years of service with the Company and upon satisfaction of a two year
non-compete
and certain
non-disclosure
covenants.
Non-Competition
Agreements
Along with their respective employment agreements, Mr. Hesterberg has entered into a
non-compete
and Messrs. Rickel and Burman have entered into Incentive Compensation and
Non-Compete
agreements with us, each of which provide that for a period of two
years with respect to Messrs. Hesterberg and Rickel, and one year with respect to Mr. Burman following the executives termination of employment, the executive will not compete with us or induce any of our employees to leave his or
her employment with us or hire any of our employees. However, upon such termination, Mr. Burman shall not be prohibited from immediately engaging in the practice of law, independently or with a law firm, or from performing legal services on our
behalf or any business competitive with any line of business conducted by us or any of our subsidiaries or affiliates (including, without limitation, any public or private auto retailer), regardless of termination for Cause, Voluntary
Termination, Involuntary Termination, or expiration of his agreement.
If Mr. Hesterberg
violates this agreement, he will also forfeit his rights to any restricted stock and stock options granted pursuant to his employment agreement, and we will have the right to refrain from making any further payments under that agreement, as well as
to receive back from Mr. Hesterberg the full value of any payments which were made to him in the previous twelve months as well as the value of any restricted stock or stock options that may have vested during the past twelve months from the
date of Mr. Hesterbergs termination. If Messrs. Rickel or Burman violate their respective agreements, we will have the right to demand forfeiture of any cash or equity award realized during the twelve months prior to the violation.
Termination and Change in Control
Tables for 2016
The following tables summarize the compensation and other benefits that would have become payable to each named
executive officer assuming his employment had terminated for the reasons specified below on December 31, 2016, given, if applicable, the named executive officers base salary as of that date and the closing price of the Companys
common stock on
December 30, 2016, which was $77.94. In addition, the following tables summarize the compensation that
would become payable to Messrs. Hesterberg, Rickel and Burman assuming that a Corporate Change of the Company coupled with an involuntary reduction of his salary or incentive compensation target had occurred on December 31, 2016.
50
Executive Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earl J. Hesterberg
|
|
Involuntary
Termination
($)
|
|
|
Constructive
Termination
($)
|
|
|
Corporate
Change
($)
|
|
|
Death and
Disability
($)
|
|
Salary and Bonus
|
|
|
2,768,333
|
|
|
|
2,768,333
|
|
|
|
3,960,000
|
|
|
|
1,210,000
|
|
Equity Compensation
(1)
|
|
|
9,664,560
|
|
|
|
9,664,560
|
|
|
|
9,664,560
|
|
|
|
9,664,560
|
|
Use of Vehicle
|
|
|
13,633
|
|
|
|
13,633
|
|
|
|
13,633
|
|
|
|
20,383
|
|
Continued Medical
(2)
|
|
|
23,005
|
|
|
|
23,005
|
|
|
|
23,005
|
|
|
|
23,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12,469,531
|
|
|
|
12,469,531
|
|
|
|
13,661,198
|
|
|
|
10,917,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The amount in the table was calculated by multiplying $77.94 by the 124,000 unvested shares of restricted stock Mr. Hesterberg held on December 31, 2016 that we assume for purposes of this calculation would be
subject to accelerated vesting, to equal $9,664,560.
|
(2)
|
Amounts shown here are calculated using the COBRA costs for continued coverage as of December 31, 2016. Pursuant to the terms of Mr. Hesterbergs employment agreement, this benefit is only available to
him and his spouse to the extent they were covered under the Companys group medical benefits program for active employees at the date of termination. As of December 31, 2016, the actual amount for the table would be 0 since
Mr. Hesterberg was not covered under the Companys group medical benefits program at that time.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John C. Rickel
|
|
Involuntary
Termination
($)
|
|
|
Constructive
Termination
($)
|
|
|
Corporate
Change
($)
|
|
|
Death and
Disability
($)
|
|
Salary and Bonus
|
|
|
1,254,525
|
|
|
|
1,254,525
|
|
|
|
2,129,775
|
|
|
|
671,025
|
|
Equity Compensation
(1)
|
|
|
3,675,650
|
|
|
|
3,675,650
|
|
|
|
3,675,650
|
|
|
|
3,675,650
|
|
Use of Vehicle
|
|
|
1,895
|
|
|
|
1,895
|
|
|
|
1,895
|
|
|
|
3,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,932,070
|
|
|
|
4,932,070
|
|
|
|
5,807,320
|
|
|
|
4,350,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The amount in the table was calculated by multiplying $77.94 by the 47,160 unvested shares of restricted stock Mr. Rickel held on December 31, 2016 that we assume for purposes of this calculation would be
subject to accelerated vesting, to equal $3,675,650.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank Grese, Jr.
|
|
Involuntary
Termination
($)
|
|
|
Constructive
Termination
($)
|
|
|
Corporate
Change
(2)
($)
|
|
|
Death and
Disability
($)
|
|
Equity Compensation
(1)
|
|
|
|
|
|
|
|
|
|
|
2,057,616
|
|
|
|
2,057,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
2,057,616
|
|
|
|
2,057,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The amount in the table was calculated by multiplying $77.94 by the 26,400 unvested shares of restricted stock Mr. Grese held on December 31, 2016 that we assume for purposes of this calculation would be
subject to accelerated vesting, to equal $2,057,616.
|
(2)
|
Assumes Compensation Committee determines to accelerate vesting in connection with a Corporate Change.
|
51
Executive Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Darryl M. Burman
|
|
Involuntary
Termination
($)
|
|
|
Constructive
Termination
($)
|
|
|
Corporate
Change
($)
|
|
|
Death and
Disability
($)
|
|
Salary and Bonus
|
|
|
770,525
|
|
|
|
770,525
|
|
|
|
880,600
|
|
|
|
330,225
|
|
Equity Compensation
(1)
|
|
|
2,360,023
|
|
|
|
2,360,023
|
|
|
|
2,360,023
|
|
|
|
2,360,023
|
|
Use of Vehicle
|
|
|
5,785
|
|
|
|
5,785
|
|
|
|
5,785
|
|
|
|
5,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,136,333
|
|
|
|
3,136,333
|
|
|
|
3,246,408
|
|
|
|
2,696,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The amount in the table was calculated by multiplying $77.94 by the 30,280 unvested shares of restricted stock Mr. Burman held on December 31, 2016 that we assume for purposes of this calculation would be
subject to accelerated vesting, to equal $2,360,023.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter C. DeLongchamps
|
|
Involuntary
Termination
($)
|
|
|
Constructive
Termination
($)
|
|
|
Corporate
Change
(2)
($)
|
|
|
Death and
Disability
($)
|
|
Equity Compensation
(1)
|
|
|
|
|
|
|
|
|
|
|
2,542,403
|
|
|
|
2,542,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
2,542,403
|
|
|
|
2,542,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The amount in the table was calculated by multiplying $77.94 by the 32,620 unvested shares of restricted stock Mr. DeLongchamps held on December 31, 2016 that we assume for purposes of this calculation would
be subject to accelerated vesting, to equal $2,542,403.
|
(2)
|
Assumes Compensation Committee determines to accelerate vesting in connection with a Corporate Change.
|
52