a later‑dated proxy executed by the person executing the prior proxy; or (c) by attending the 2017 Annual Meeting and voting in person.
If you hold your shares in “street name” through a broker, bank or other nominee, you may change your vote by submitting new voting instructions to your broker, bank or other nominee. Please note that voting in person at the 2017 Annual Meeting will only act to revoke prior voting instructions if you have obtained and present a proxy card issued in your name from your broker, bank or other nominee.
ALL STOCKHOLDERS ARE URGED TO VOTE AS PROMPTLY AS POSSIBLE VIA (A) THE INTERNET OR TELEPHONE, IF AND AS INSTRUCTED BY YOUR BROKER OR OTHER NOMINEE, OR (B) IF THIS PROXY STATEMENT WAS MAILED TO YOU, BY COMPLETING, DATING AND SIGNING THE ENCLOSED PROXY CARD AND MAILING IT IN THE ACCOMPANYING POSTAGE PAID ENVELOPE.
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTER
S
Code of Ethic
s
LTC is committed to having sound corporate governance principles. To that end, we have adopted a Code of Business Conduct and Ethics applicable to the members of the Board of Directors and all of the company’s employees, including the principal executive officer, principal financial officer, principal accounting officer or controller, and persons providing similar functions. Our Code of Business Conduct and Ethics is available on our website at www.LTCreit.com. If we amend or waive the Code of Business Conduct and Ethics with respect to any of our directors or executive officers, we will post the amendment or waiver on our website.
Corporate Governance Guideline
s
To guide us in director independence and other governance matters, we have adopted Corporate Governance Guidelines as required by the NYSE listing standards. The matters addressed in our Corporate Governance Guidelines include Board composition, Board meetings, Board committees, management responsibility, and stock ownership guidelines. A copy of our Corporate Governance Guidelines is available on our website at www.LTCreit.com.
Board Structure and Committee Compositio
n
The business of LTC is conducted under the direction of the Board of Directors, which is elected by our stockholders. The basic responsibility of the Board is to lead our company by exercising its business judgment to act in what each director reasonably believes to be the best interests of our company and its stockholders. Leadership is important to facilitate the Board acting effectively as a working group so that our company and its performance may benefit. Our Corporate Governance Guidelines contemplate that the Chief Executive Officer shall be nominated annually to serve on the Board.
Our company currently combines the positions of Chairman of the Board and Chief Executive Officer. Separation of the positions of Chairman and Chief Executive Officer is not mandated by our company’s Articles, Bylaws, or Corporate Governance Guidelines. The Board believes that the advisability of having a separate or combined Chairman and Chief Executive Officer is dependent upon the strengths of the individual(s) holding these positions. Wendy L. Simpson, Chairman and Chief Executive Officer, has served as a senior executive and director of our company for more than a decade. She has a deep understanding of our company’s historical and current business and financial operations and is able to lead the Board in anticipating and responding to key company developments, challenges, and opportunities. The Board believes that combining the Chairman and Chief Executive Officer positions provides our company with the right foundation to pursue strategic and operational objectives, while maintaining effective oversight and objective evaluation of the performance of our company. Ms. Simpson does not serve on any outside boards of directors other than LTC, so that she is able to devote her full attention to our company.
Aside from Ms. Simpson, all members of the Board are independent directors. Our Corporate Governance Guidelines provide that one independent director may be appointed lead independent director. Currently, Boyd W. Hendrickson is the lead independent director. Particularly given that our company combines the positions of Chairman and Chief Executive Officer, the lead independent director serves an important role in our leadership structure. The Board has adopted a Lead Independent Director Charter governing the responsibilities and duties of the lead independent director. A copy of our Lead Independent Director Charter is available on our website at www.LTCreit.com. As set forth in the Lead Independent Director Charter, the lead independent director position serves to enhance Board effectiveness,
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee is responsible for (i) identifying, screening and reviewing individuals qualified to serve as directors and recommending to the Board candidates for nomination for election at our Annual Meeting of Stockholders or to fill Board vacancies; (ii) overseeing our policies and procedures for the receipt of stockholder suggestions regarding Board composition and recommendations of candidates for nomination by the Board; (iii) developing, recommending to the Board and overseeing implementation of our Corporate Governance Guidelines and our Code of Business Conduct and Ethics; and (iv) reviewing on a regular basis our overall corporate governance and recommending improvements when necessary. The Nominating and Corporate Governance Committee Charter is available on our website at www.LTCreit.com. The Nominating and Corporate Governance Committee met three times in 2016.
The Board has determined that each member of the Nominating and Corporate Governance Committee is independent within the meaning of NYSE listing standards. Mr. Pieczynski serves as Chairman of the Nominating and Corporate Governance Committee and served in that role throughout 2016.
Communications with the Boar
d
Stockholders and all other parties interested in contacting the Board, its committees, the independent directors as a group, the lead independent director, or individual directors may send written correspondence to the Audit Committee Chairman of LTC Properties, Inc. at 2829 Townsgate Road, Suite 350, Westlake Village, California 91361. All such communications will be forwarded to the relevant director(s), except for solicitations or other matters unrelated to our company.
Consideration of Director Nominee
s
The Board is responsible for the selection of candidates for the nomination or appointment of all Board members. The Nominating and Corporate Governance Committee, in consultation with the Chief Executive Officer, recommends candidates for election to the Board and considers recommendations for Board candidates submitted by stockholders using the same criteria it applies to recommendations from Nominating and Corporate Governance Committee members, directors and members of management. The Nominating and Corporate Governance Committee will also consider whether to nominate any person nominated by a stockholder pursuant to the provisions of our company’s Bylaws relating to stockholder nominations as described below. Since 2016, there have been no material changes to the procedures by which stockholders may recommend nominees. Stockholders may submit recommendations in writing addressed to the Nominating and Corporate Governance Committee, LTC Properties, Inc., 2829 Townsgate Road, Suite 350, Westlake Village, CA 91361.
Stockholders may directly nominate persons for director only by complying with the procedure set forth in our company’s Bylaws, which in summary requires that the stockholder submit the names of such persons in writing to our Corporate Secretary not less than 60 days nor more than 150 days prior to the first anniversary of the date of the preceding year’s Annual Meeting. The nominations must set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director and as to the stockholder giving the notice (a) the name, age, business address and residence address of such person, (b) the principal occupation or employment of such person, (c) the class and number of shares of our capital stock which are beneficially owned by such person on the date of such stockholder notice, (d) such nominee’s consent to serve as a director if elected and (ii) as to the stockholder giving the notice (a) the name and address, as they appear on our books, of such stockholder to be supporting such nominees and (b) the class and number of shares of our capital stock which are beneficially owned by such stockholder on the date of such stockholder notice and by any other stockholders known by such stockholder to be supporting such nominees on the date of such stockholder notice.
Once a prospective nominee has been identified, by either the Nominating and Corporate Governance Committee or proposed by a stockholder, the Nominating and Corporate Governance Committee makes an initial determination as to whether to conduct a full evaluation of the prospective candidate. This initial determination would include whatever information is provided with the recommendation of the prospective candidate and the Nominating and Corporate Governance Committee’s own knowledge of the prospective candidate. The Nominating and Corporate Governance Committee may make inquiries of the person making the recommendation or of others regarding the qualifications of the prospective candidate. The preliminary determination is based primarily on the need for additional
PROPOSAL 4
ADVISORY VOTE ON FREQUENCY OF ADVISORY VOTE ON EXECUTIVE COMPENSATION
The Dodd-Frank Act also requires that we provide our stockholders with the opportunity to vote, on a non-binding, advisory basis, for their preference as to how frequently we should seek future advisory votes on the compensation of our named executive officers as disclosed pursuant to the compensation disclosure rules of the SEC, such as Proposal 3 included in this proxy statement. By voting with respect to this Proposal 4, which we refer to as the advisory vote on executive compensation, stockholders may indicate whether they would prefer that we conduct future advisory votes on executive compensation once every one, two, or three years. Stockholders also may abstain from casting a vote on this proposal.
As previously reported in the Current Report on Form 8‑K that we filed with the SEC on June 3, 2011, the Board of Directors has determined that an advisory vote on executive compensation that occurs every year is the most appropriate alternative for our company and therefore our Board recommends that stockholders vote for a one-year interval for the advisory vote on executive compensation. In determining to recommend a vote for a frequency of every year, the Board considered that a one-year frequency has become the standard frequency for public companies and that an annual vote affords our stockholder greater opportunity to provide feedback to the management team of our company and the Board.
Vote and Recommendation
The proxy card provides stockholders with the opportunity to choose among four options (every three, two, or one years, or abstaining) as to the frequency of the advisory vote on executive compensation. Stockholders therefore will not be voting to approve or disapprove the recommendation of the Board of Directors.
Because the vote is advisory, it is not binding on our company, our Board of Directors, or the Compensation Committee of our Board of Directors. Our Board of Directors and the Compensation Committee will take into account the outcome of the vote, however, when considering the frequency of future advisory votes on executive compensation. Our Board may decide that it is in the best interests of our stockholders and our company to hold an advisory vote on executive compensation more or less frequently than the frequency chosen by our stockholders.
For purposes of the vote on Proposal 4, abstentions and broker non-votes will not be counted as votes cast and this will have no effect on the result of the vote although they will count towards the presence of a quorum for Proposal 4. Properly executed, unrevoked proxies will be voted FOR one year unless a vote for one of the other two options or abstention is specifically indicated in the proxy.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE OPTION OF EVERY
ONE YEAR AS THE PREFERRED FREQUENCY FOR THE ADVISORY VOTE ON
EXECUTIVE COMPENSATION.
EXECUTIVE OFFICER
S
The Board of Directors has determined that Wendy L. Simpson, Pamela J. Shelley-Kessler, and Clint B. Malin are our company’s “executive officers” as that term is defined in Rule 3b-7 under the Exchange Act. The biographies of our three current executive officers are as follows:
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Wendy L. Simpson
Chief Executive Officer and
President
Age 68
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Wendy L. Simpson has been a director of our company since 1995, Vice Chairman from April 2000 through October 2005, Chief Financial Officer from July 2000 through March 2007, Treasurer from January 2005 through March 2007, President and Chief Operating Officer from October 2005 through March 2007 and Chief Executive Officer and President from March 2007 through August 2013. In August 2013, Ms. Simpson was appointed Chairman of the Board of Directors.
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Pamela J. Shelley‑Kessler
Executive Vice President, Chief
Financial Officer and Corporate Secretary
Age 51
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Pamela J. Shelley‑Kessler joined our company as Vice President and Controller in July 2000. In March 2007 she was appointed Senior Vice President and Chief Financial Officer. In December 2010 she was promoted to Executive Vice President. Prior to joining our company Ms. Shelley‑Kessler was the Corporate Controller for a privately held commercial and multifamily real estate developer and the Director of Financial Reporting for a Southern California apartment REIT. Formerly she was with Ernst &Young LLP.
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Clint B. Malin
Executive Vice President and
Chief Investment Officer
Age 45
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Clint B. Malin joined our company as Vice President and Chief Investment Officer in May 2004. In December 2010 he was promoted to Senior Vice President. In June 2012 he was promoted to Executive Vice President. Prior to joining our company, Mr. Malin was employed by Sun Healthcare Group, Inc. (“Sun”), a nationwide owner and operator of post-acute care and skilled nursing centers from 1997 through 2004. Mr. Malin’s last position held at Sun was Vice President of Corporate Real Estate. Genesis Healthcare, Inc. acquired Sun in December 2012. Mr. Malin began his career in public accounting, initially practicing at KPMG Peat Marwick LLP and then Arthur Andersen LLP.
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EXECUTIVE COMPENSATION DISCUSSION AND ANALYSI
S
Executive Summar
y
2016 Business Highlights
In 2016 we focused on capturing long-term growth opportunities for our company and stockholders. We adhere to a disciplined investment underwriting policy and do not make investments in assets that management believes may be mispriced relative to the value of the assets to our operator and to the company. This disciplined investment policy has allowed us to weather challenging economic environments and positioned us to take advantage of new investment opportunities. In addition to real estate acquisitions, mortgage originations, mezzanine loan originations and joint venture investments, in certain circumstances, we have focused on developing new properties at costs significantly below current per unit/bed market values.
We also conduct marketing activities to enhance awareness of our company among local and regional operators of skilled nursing, assisted living, independent living and memory care properties, particularly in certain states. The marketing campaign highlights our support and commitment to provide financing to operators in these property classes, our strong balance sheet, our access to capital, our focus on smaller size off-market transactions, our strong management team and many years in the industry.
As a result of these efforts, in 2016, we underwrote $141.7 million in new investments consisting of $69.6 million in real estate acquisitions, $16.2 million in mortgage loan originations, $17.1 million in mezzanine loan originations, and $38.8 million in development commitments, including the purchase of land. Also in 2016, we completed and opened four memory care communities, one independent living community and one combination assisted living and memory care community and we completed the renovation of a skilled nursing center. We believe new investments are important for our continued growth and future profitability.
During 2016, we sold $40.0 million and $37.5 million of 10-year senior unsecured notes at fixed rates of 3.99% and 4.15%, respectively. Additionally, we sold 1,643,017 shares of common stock under our equity distribution agreements resulting in net proceeds of $78.6 million. At December 31, 2016, we had cash on hand of $8.0 million, $492.9 million available for borrowing under our unsecured revolving line of credit, $22.5 million available under our shelf agreement with Prudential Investment Management, Inc. and $200.0 million available under our equity distribution agreement.
Our 2016 year-over-year revenue growth was 18.6% and our year-over-year normalized funds from operations growth was 15.3%. Funds from operations (“FFO”) is used by the company as a supplemental measure of operating performance and normalized FFO allows our management to compare the company’s operating performance against other REITs and across time periods on a consistent basis. We also continue to maintain a conservative capital structure with low debt evidenced by our debt to enterprise value of 24.9% and debt to annualized normalized EBITDA of 4.1x at December 31, 2016. Additionally, as an added measure of conservatism, we seek to match our debt maturities to our annual projected free cash flow thereby minimizing our exposure to refinancing risk. We believe our low debt levels and ample liquidity provides us with financing flexibility and allows us to opportunistically access the capital markets at favorable rates. For more information about normalized FFO, debt to enterprise value, and annualized normalized EBITDA, refer to the non-GAAP reconciliation in the Appendix to this proxy statement.
Finally, as the stock performance graph in our 2016 Annual Report on Form 10-K shows, $100 invested in LTC common stock on December 31, 2011 would be worth $195.28 on December 31, 2016, as compared to $176.30 from a like investment in the NAREIT Equity REIT Index.
2016 Compensation Highlights
We seek to closely align the interests of our executive officers with those of our stockholders. We have structured our executive compensation program to support this alignment, with relatively modest base salaries and a greater proportion of total compensation delivered through annual bonus, long-term equity incentive opportunities and equity participation.
In 2016, the Compensation Committee introduced performance contingent equity in the form of performance-based stock units (“PSUs”) as a key form of long-term equity incentive awards for our executive officers to balance our historical practice of granting restricted common stock awards (“RSAs”). As a result of the introduction of PSUs, approximately 50% of the equity awards granted to our executive officers in 2016 was performance contingent.
In view of their accomplishments and our financial performance during 2016, the Compensation Committee and the Board approved:
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Base salary increases for executives and other members of the management team; and
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Annual bonuses and equity grants for the named executive officers.
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2016 “Say‑On‑Pay” Vote
At LTC’s 2016 Annual Meeting of Stockholders, approximately 95% of the votes cast in the advisory “say‑on‑pay” vote were for approval of named executive officer compensation. The Board of Directors and Compensation Committee have considered the results of the 2016 “say‑on‑pay” vote and believe that it indicates that stockholders are supportive of the executive compensation program. The Board and Compensation Committee will continue to consider “say‑on‑pay” votes in formulating future executive compensation policies and decisions.
Corporate Governance Highlights
We seek to maintain good governance standards, including with respect to the oversight of our compensation policies and practices. Highlights of the policies and practices in effect during 2016 are as follows:
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Our Insider Trading Policy, which covers all employees and directors, includes prohibitions on hedging and pledging of our common stock;
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We have a cash incentive compensation Clawback Policy in the event of an accounting restatement;
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We maintain a separate “lead independent director” role in our leadership structure for the Board;
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Each committee of the Board is comprised solely of independent directors; and
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We have stock ownership guidelines in place for our executives and independent directors, and all executives and directors are in compliance.
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Executive Compensation Program
Philosophy and Objectives
We endeavor to ensure that the compensation programs for our executives are effective at attracting and retaining the key executives responsible for our success and are administered to support the long‑term interests of our company and our stockholders. Through the oversight of the Compensation Committee, we seek to align total compensation for executive management with our overall performance as well as the individual performance and role of each executive.
Our executive compensation program may be summarized as follows:
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An executive’s salary, bonuses, incentive compensation and other benefit programs should reflect their role, our company’s performance, and the executive’s individual performance and effort; and
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Compensation should provide a financial interest in our company that parallels the financial interests of our stockholders.
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We encourage you to read this Executive Compensation Discussion and Analysis (“CD&A”) for further details about of our executive compensation program, including information about the 2016 compensation of the named executive officers.
Executive Compensation Program Element
s
We seek to achieve our compensation program objectives through the following key compensation elements: base salary, annual bonus opportunity, long‑term equity incentive opportunity and severance upon termination of employment under certain conditions or change in control of our company. We believe that each element of our executive compensation program helps us to achieve one or more of our compensation objectives as follows:
Base salary—
attract, motivate, and retain qualified key executives. We believe the base salary should reflect job responsibilities, value to our company, individual performance/expertise and competitiveness of the market for the executive’s services/salary norms for persons in comparable positions at comparable companies. We believe that it is important to provide executives with predictable benefit amounts that reward the executive’s continued service.
Annual bonuses—
reward company performance and individual performance and effort. We believe the annual bonus should be linked to individual performance and to our company’s performance as a whole, and where practicable, should be related to variables under our management’s control.
Long‑term equity incentives—
align executives’ financial interests with those of our stockholders. We believe that long‑term compensation should motivate and reward the creation and preservation of long‑term stockholder value through both price increases and dividends. Long‑term equity incentives typically vest over multiple years to reward performance over one or more years or based on achieving certain performance targets.
Severance—
attract, motivate and retain qualified key executives. We believe that providing our executives with severance and other benefits upon termination of employment or change in control is consistent with the severance protections offered by similar companies and is an integral part of total executive compensation.
Compensation Committe
e
The Compensation Committee reviews and approves the compensation of our executive officers and determines our general compensation policy. The Compensation Committee considers whether compensation decisions create incentives to take risks that could materially harm our company and does not believe that such incentives exist.
The Compensation Committee is also responsible for the administration of our equity compensation plans. Under the 2015 Equity Participation Plan of LTC Properties, Inc. (“2015 Equity Participation Plan” or “2015 Plan”), 1,400,000 shares of common stock have been reserved for awards, including nonqualified stock options grants and equity grants to officers, employees, non-employee directors and consultants. The Compensation Committee is authorized to determine the options and equity awards to be granted under equity compensation plans and the terms and provisions of such options and equity awards. The Compensation Committee determines the base salary, annual bonus and long-term equity incentives of our Chief Executive Officer. Ms. Simpson, our Chief Executive Officer and President, recommends to the Compensation Committee the base salary, annual bonus and long-term compensation levels for all of our other officers. None of the other senior executives had any role in determining or recommending the form or amount of the compensation of the other senior executives.
Competitive Consideration
s
In determining the level and composition of compensation for our executive officers, the Compensation Committee considers various corporate performance measures, both in absolute terms and in relation to similar companies, and individual performance measures. The Compensation Committee establishes specific quantitative measurements and targets based upon our company’s FFO and new investments to determine the annual bonus awards for our senior executives as described under “Annual Cash Bonus Incentive Plan” below. The Compensation Committee also may evaluate the following factors in establishing executive compensation: (a) comparative compensation surveys and other material concerning compensation levels and stock grants at similar companies; (b) our historical compensation levels and stock awards; (c) overall competitive environment for executives and the level of compensation necessary to attract and retain executive talent; (d) financial performance of other real estate investment trusts relative to market condition; and (e) from time to time, the Compensation Committee may seek the advice of an independent compensation consultant in assessing its overall compensation philosophy. The Compensation Committee assigns no
specific weight to any of the factors described above in establishing executive compensation. In determining the appropriate levels of compensation to be paid to our executive officers, the Compensation Committee does not generally factor in amounts realized from prior compensation.
While the Compensation Committee may review competitive market data in determining the reasonableness of the compensation of our executive officers, compensation levels are not set by reference to any percentile or benchmark within any peer group of companies or otherwise. Consistent with our compensation philosophies described above, our goal is to provide each executive with a current compensation package that is at market based upon the Compensation Committee’s perception of comparable executives at comparable companies, including real estate investment trusts.
Compensation Consultant
Pursuant to its charter, the Compensation Committee has the authority to engage independent compensation consultants and other professionals to assist in the design, formulation, analysis, and implementation of compensation programs for our executive officers.
In September 2015, the Compensation Committee retained Frederic W. Cook & Co., Inc. (“Cook”), as its independent compensation consultant, to evaluate new programs and compensation methodologies for 2016. Cook conducted a comprehensive review of our company’s executive compensation programs and provided a report of its review to the Compensation Committee as described under “Executive Compensation Review” below. The Compensation Committee referenced the Cook report in making executive compensation decisions for 2016.
After review and consultation with Cook, the Compensation Committee determined that Cook is and was an independent advisor and there is and was no conflict of interest resulting from retaining Cook in 2016.
Executive Compensation Review
As described above, Cook was engaged by the Compensation Committee to conduct a comprehensive review of our executive compensation programs. The Cook review included:
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assisting with the development of a peer group for compensation comparisons; consisting of publicly-traded real estate investment trusts (“REITs”) with total assets, enterprise value, and funds from operations (“FFO”) generally similar to our company, and with a broad focus on healthcare REITs or REITs that have a triple-net business orientation and/or tenants that are commercial businesses;
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conducting a review of the competitiveness of current compensation levels, programs and arrangements provided to our executives, including the named executive officers; and
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conducting a competitive assessment of our non‑employee director compensation program.
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The Cook peer group included the following twenty REITs in 2015 and was updated again to add three additional peers in 2016:
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American Assets Trust, Inc.
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Cedar Realty Trust, Inc.
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Cousins Properties Incorporated
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EastGroup Properties, Inc.
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First Potomac Realty Trust
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Healthcare Realty Trust Incorporated
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Healthcare Trust of America, Inc.
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Hersha Hospitality Trust
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Hudson Pacific Properties, Inc.
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Medical Properties Trust Inc.
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National Health Investors Inc.
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Omega Healthcare Investors Inc.
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Parkway Properties, Inc.
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Physicians Realty Trust
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Retail Opportunity Investments Corp.
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Sabra Health Care REIT, Inc.
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Care Capital Properties (2016 addition)
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CareTrust (2016 addition)
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Seritage (2016 addition)
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Cook compared our company’s total direct compensation (base salary, annual and long‑term incentives) for each executive position against the market compensation levels for similar executives in the consultant’s respective peer group. The review by Cook showed that the target total direct compensation opportunity of the named executive officers was below the median in 2015, and that it was slightly above the median following the addition of the PSUs to the 2016 equity program. The Cook review of total compensation in 2016 showed that the base salary, target cash, target equity value, and target total compensation of our Chief Executive Officer was slightly below the median of the 2016 peer group.
Executive Compensation Practice
s
Base Salaries
The named executive officers each have an employment agreement granting them the contractual right to receive a fixed base salary as described under “Employment Agreements” on page 26 of this proxy statement.
Base salaries are reviewed and adjusted by the Compensation Committee on an annual basis. The Compensation Committee seeks to ensure that base salaries are established at levels considered appropriate in light of the responsibilities and duties of our executives as well as at levels which are competitive with amounts paid to executives of other real estate investment trusts, including our peer group companies. In determining an individual executive’s actual base salary, the Compensation Committee also considers other factors, which may include the executive’s past performance and contributions to our success.
Based on the recommendations received from the Chief Executive Officer (except with respect to the Chief Executive Officer’s own salary) and taking into account our company’s performance as well as the findings from the Cook report, the Compensation Committee approved the following increases to base salaries for the named executive officers. Base salary increases were effective January 1, 2016. The following table summarizes salary adjustments approved by the Compensation Committee for 2016:
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2016 Base
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2015 Base
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Year over
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Named Executive Officer
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Salary
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Salary
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Year
Increase
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Wendy L. Simpson
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$
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655,000
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$
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635,000
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3.1
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%
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Pamela J. Shelley-Kessler
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390,000
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380,000
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2.6
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%
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Clint B. Malin
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390,000
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380,000
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2.6
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%
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Annual Cash Bonus Incentive Plan
Our Annual Cash Bonus Incentive Plan provides an annual incentive bonus for selected executives whereby each participating executive has a range of incentive opportunity (threshold, target and maximum) defined as a percentage of base salary. Annually, the Compensation Committee will select the participants in the plan and establish its performance goals.
For 2016, the Compensation Committee selected senior executives Ms. Simpson, Ms. Shelley‑Kessler and Mr. Malin as participants in the Annual Cash Bonus Incentive Plan, with the following range of bonus opportunities:
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Bonus Opportunity as a % of
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Base Salary
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Executive
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Threshold
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Target
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Maximum
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Wendy L. Simpson
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93.8
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125.0
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%
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218.8
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%
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Pamela J. Shelley-Kessler
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45.0
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%
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90.0
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%
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135.0
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%
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Clint B. Malin
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45.0
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%
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90.0
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%
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135.0
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%
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Bonuses under the 2016 bonus program were earned based 50% on the financial performance of our company and 50% on the Compensation Committee’s subjective evaluation of both individual and our company performance. Financial performance was measured using Diluted Normalized FFO per share and new investments, with 40% of the bonus plan tied to FFO per share and 10% tied to new investments. The subjective component in 2016 included factors such as individual performance, capital structure management, credit ratings, dividend growth and total stockholder return relative to peers. Performance achievement for the subjective component is determined at the discretion of the Compensation Committee. The factors used for qualitatively determining the score for the subjective factors are discussed below.
For purposes of the Annual Cash Bonus Incentive Plan, Diluted Normalized FFO, including the means of calculating it, is disclosed in our annual earnings release and in the Appendix to this proxy statement. The Board may adjust the Diluted Normalized FFO component to reflect the pro forma impact of changes to our company’s capital structure, strategic changes and other items, at the Board’s discretion, that were not contemplated at the time of adoption of the performance goals. New investments include acquisitions, loan originations, equity investments and total commitments underwritten for developments, redevelopments, expansions and renovations.
The following table summarizes each metric and its relative weighting, the approved 2016 performance goals at threshold, target and maximum levels, and actual performance achieved. For 2016, actual performance versus the Diluted Normalized FFO per share goal was achieved at 104% of the objective, and new investments was achieved at 95% of the performance objective. The subjective assessment was scored at the 150% maximum based on the factors described below. Based on the degree of goal achievement, the bonus formula for the year resulted in a payout of 167% of target for Ms. Simpson and 144% of target for Ms. Shelley-Kessler and Mr. Malin.
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|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
2016 Performance Goals
|
|
Performance
|
|
Target
|
|
Metric
|
|
Weight
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Achieved
|
|
Achieved
|
|
Diluted Normalized FFO per share
|
|
40
|
%
|
|
|
$
2.85
|
|
|
$
2.94
|
|
|
$
3.02
|
|
|
$
3.06
|
|
104
|
%
|
New Investments ($ in millions)
|
|
10
|
%
|
|
|
$
100
|
|
|
$
150
|
|
|
$
200
|
|
|
$
142
|
|
95
|
%
|
Subjective Performance
|
|
50
|
%
|
|
Compensation Committee Determination
|
|
|
Maximum
|
|
150
|
%
|
In determining the subjective component of the annual bonuses, the Compensation Committee evaluated the performance of our company for the year compared to other real estate investment trusts and the overall market. The maximum bonus allowed under the subjective component was awarded as a result of the following 2016 accomplishments:
|
·
|
|
Purchased three memory care communities, one combination assisted living and memory care community, and one skilled nursing center for a total of $69.6 million and committed a total of $38.8 million, including the purchase of land and bed rights, for the development a 66-unit memory care community and a 143-bed skilled nursing center;
|
|
·
|
|
Completed and opened four memory care communities, one combination assisted living and memory care community and one independent living community and completed the renovation of one skilled nursing center;
|
|
·
|
|
Originated $16.3 million under new and existing mortgage loans;
|
|
·
|
|
Entered into $17.3 million of mezzanine loan commitments on two skilled nursing centers, a portfolio of 64 skilled nursing centers and the development of a 127-unit senior housing community which will provide a combination of assisted living, memory care and independent living services;
|
|
·
|
|
Raised $40.0 million and $37.5 million through the sale of 10-year senior unsecured notes at fixed rates of 3.99% and 4.15%, respectively; and
|
|
·
|
|
Raised net proceeds of $78.6 million under our equity distribution agreement.
|
Based on the performance achieved, the Compensation Committee approved the following payouts under the Annual Cash Bonus Incentive Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
Wendy L.
|
|
Pamela J. Shelley-
|
|
Clint B.
|
|
Metric
|
|
Simpson
|
|
Kessler
|
|
Malin
|
|
Diluted Normalized FFO per share
|
|
$
|
573,125
|
|
$
|
210,600
|
|
$
|
210,600
|
|
New Investments ($ in millions)
|
|
|
78,600
|
|
|
32,292
|
|
|
32,292
|
|
Subjective Performance
|
|
|
716,406
|
|
|
263,250
|
|
|
263,250
|
|
Total Bonus Earned
|
|
$
|
1,368,131
|
|
$
|
506,142
|
|
$
|
506,142
|
|
|
|
|
|
|
|
|
|
|
|
|
Long‑Term Equity Incentives
Long‑term incentives are granted to align the executives’ financial interests with those of our stockholders and are historically in the form of RSAs, and stock options. Awards are made on an individual basis and are not granted at any pre‑determined time during the year. In 2016, the Compensation Committee used the new addition of performance-contingent equity in the form of PSU as the key form of long-term equity incentive awards provided to our executive officers.
RSAs typically vest ratably over a three- to five‑year period and are generally subject to the individual executive officer’s continued employment. The PSU awards are earned over a four-year performance period, subject to the ability to accelerate earnout if three-year performance is high enough, with the number of shares earned dependent on our total stockholder return (“TSR”) over the applicable performance period. The level of long‑term incentive compensation is determined by the Compensation Committee based on an evaluation of competitive factors in conjunction with total compensation provided to each individual executive officer. The relevant weight given to each of these factors varies from individual to individual. We do not have an exact formula for allocating between cash and non‑cash compensation, nor do we have a policy for allocating between long‑term and currently paid out compensation.
The grant date of an equity award is typically the date the Compensation Committee approves the equity award. The grant date may also be a future date from the date of approval as specified by the board resolution. In no instances has the grant date been retroactive or prior to the date the Compensation Committee approved the equity award. For long‑term incentive awards in the form of stock options, the exercise price is the closing price of our company’s stock as reported by the NYSE on the grant date. The Compensation Committee has not and does not time the granting of equity awards with any favorable or unfavorable news released by us.
Under the 2015 Equity Participation Plan, awards that may be granted include stock options (incentive or non‑qualified), stock appreciation rights, RSAs, PSUs, deferred stock and dividend equivalents. The 2015 Plan is administered by the Compensation Committee which sets the terms and provisions of the awards granted under the plan. Incentive stock options, stock appreciation rights, RSAs, PSUs, deferred stock and dividend equivalents may only be awarded to officers and other full‑time employees to promote our long‑term performance and specifically, to retain and motivate management to achieve a sustained increase in stockholder value. Non‑qualified stock options, stock appreciation rights, RSAs, PSUs deferred stock and dividend equivalents may be awarded to non‑employee directors, officers, employees, consultants and other key persons who provide services to us.
The Compensation Committee approved equity awards to the Chief Executive Officer and the Chief Executive Officer recommended and the Compensation Committee approved equity awards to Ms. Shelley‑Kessler and Mr. Malin for their service in 2016. In approving the equity awards, the Compensation Committee took into consideration the executive’s historical performance and contributions, total ownership levels and the value of equity delivered historically, the market positioning of the executives’ pay and our company’s desire to retain the executives by providing
a meaningful long‑term incentive award to each executive which is aligned with stockholder interests. The Cook study showed LTC’s 2015 grant values were below the peer group median level and similarly, total compensation for all named executive officers fell below the peer group median.
Therefore, in 2016, PSUs were added to the long-term incentive program to address the below median position of executives’ 2015 pay opportunity in a manner that only rewards the creation of long-term shareholder value. The Compensation Committee approved specific dollar values to be awarded to the named executive officers and the number of shares was determined by dividing the Committee approved target dollar value by the accounting fair value per share on the date of grant. The following table sets forth the grant values of PSUs granted on June 1, 2016:
|
|
|
|
|
|
|
|
|
PSU
|
|
Number of
|
|
|
|
Award
|
|
PSU
|
|
Named Executive Officer
|
|
Value
|
|
Award
|
|
Wendy L. Simpson
|
|
$
|
950,000
|
|
19,808
|
|
Pamela J. Shelley-Kessler
|
|
|
500,000
|
|
10,425
|
|
Clint B. Malin
|
|
|
500,000
|
|
10,425
|
|
PSUs granted in 2016 can be earned between 0-200% based on LTC’s cumulative TSR performance through February 28, 2020 (3.74-year performance period), and have an opportunity to be earned early if TSR through February 28, 2019 (2.74-year performance period) is at least 3%. The Compensation Committee intended for the PSUs to have a 4-year and 3-year performance period; however, the 2016 PSU grant was delayed from the typical February timing of granting long-term equity incentives to June due to considerations related to implementation of the PSU plan which resulted in a 3.74-year and 2.74-year performance period. The four-year performance period may be shortened to three years if three-year TSR performance is high enough to fund the maximum PSU earnout after three years. The share price at the grant date is used as the starting point for the TSR calculation, and a trailing 20 trading-day average share price is used to calculate the share price at the end of the performance period. Dividends for outstanding PSUs are accrued in the form of additional stock units during the restriction period, and are distributed if and when the underlying shares are earned (dividends accrued on unearned/forfeited PSU shares are not paid).
Under the 2016 PSU design, payouts range from 0% to 200% of target, based on the schedule below:
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
Accelerated
|
|
Payout %
|
|
|
|
3.74-year
|
|
Cumulative
|
|
of Target
|
|
Growth Requirements
|
|
TSR
|
|
2.74-year TSR
|
|
Share Granted
|
|
Below Threshold
|
|
Less than 4.1%
|
|
Less than 3.0%
|
|
—
|
|
Threshold
|
|
4.1%
|
|
3.0%
|
|
50.0%
|
|
Target
|
|
21.6%
|
|
15.8%
|
|
100.0%
|
|
Maximum
|
|
46.4%
|
|
33.1%
|
|
200.0%
|
|
The 2016 PSUs are earned based on 3.74-year cumulative TSR. The program has several features to minimize the impact of daily volatility and point-to-point variation. A 20 trading-day average price is used to measure performance at the end of the period.
In connection with the introduction of PSU awards, the Compensation Committee determined that RSAs should be attributable as an award for the year in which granted rather than the prior practice of being attributable to services for the preceding year. Attributing RSAs to the year in which granted better reflects the long-term incentive nature of the RSAs and aligns with standard practice prevalent in our industry and among our peer group. Accordingly, the long-term incentive compensation awarded to the named executive officers with respect to their 2016 performance was solely PSUs. For details regarding RSAs granted in 2016 to the named executive officers for their 2015 services, please refer to the summary compensation table on page 25 of this proxy statement. Information regarding RSAs granted in 2017 as long-term equity incentives will be disclosed in next year’s proxy statement discussing 2017 compensation.
Severance and Other Benefits Upon Termination of Employment or Change in Control
The employment agreements with certain executive officers of our company provide severance and other benefits upon termination of employment or a change in control of our company. We believe that we need to provide key executives with severance protections that are competitive with those offered by companies similar to ours. The
severance protections we have provided the named executive officers are consistent with our compensation objective to attract, motivate and retain qualified key executives.
We believe that severance should be payable to key executives if their employment is terminated for any reason, except for a termination for cause or a voluntary resignation without a good reason. The amount of severance we have agreed to pay and other severance benefits we extend to our executive officers upon such an occurrence is intended to help compensate them during a period of expected unemployment in the event of a termination without cause.
We also believe that severance should be payable to our key executives in connection with a change in control transaction. A change in control creates uncertainty regarding the continued employment of the executives. We provide severance in the event of a change-in-control to make our key executives indifferent about their own job security if the Board determines that it is in the best interests of shareholders to sell the company. The amount of cash severance we have agreed to pay and other severance benefits we extend to our executive officers upon such an occurrence is intended to encourage the executives to remain employed by us during an important time when their prospects for continued employment following the change in control transaction are often uncertain. Our current practice for change in control severance follows a “double‑trigger” approach. Ms. Simpson’s, Ms. Shelley‑Kessler’s, and Mr. Malin’s 2014 employment agreements contain double‑trigger change in control provisions. Under a double‑trigger approach, a severance payment obligation arises only if a change in control occurs
and
the executive’s employment is terminated for any reason, except for a termination for cause or a voluntary resignation without a good reason, within a 24-month period after the change in control.
Additionally, upon the circumstances described above regarding termination of employment or change in control, we have agreed to provide health insurance benefits to each named executive officer for a period of 18 months. None of the employment agreements with our executive officers provide for lifetime benefits.
None of the employment agreements with our executive officers provide for “gross‑up payments” to offset taxes due for severance or other benefits upon termination of employment or change in control.
401(k) Savings Plan
We have a 401(k) Savings Plan which is a defined contribution plan covering all of our employees. Each year participants may contribute up to 15% of pre‑tax annual compensation. In 2016, the contributions may not exceed $18,000, or $24,000 if the employee is 50 years or older. We match up to 3% of salaries for our vice presidents and contribute 3% of the individual’s salary for staff that open an account. We will not match contributions for our executive officers at the senior vice president level and higher.
Benefits
With limited exceptions, the Compensation Committee’s policy is to provide benefits to executive officers that are substantially the same as those offered to other officers of our company at or above the level of vice president. Except for the health insurance benefits described in “Severance and Other Benefits Upon Termination of Employment or Change in Control” above and the supplemental medical insurance described below, the employee benefits programs in which our executive officers participate (which provide benefits such as medical, dental and vision benefits coverage, life insurance protection, and 401(k) savings plan) are generally the same programs offered to all of our full‑time employees. Our officers at the level of vice president and above are eligible to participate in a supplemental medical insurance program which reimburses participants up to a maximum of $10,000 per year for eligible out‑of‑pocket medical expenses such as primary insurance co‑payments, deductibles, and certain elective medical procedures not covered by the employee’s primary insurance policy.
Stock Ownership Guideline
s
We encourage our executives to hold our company’s stock on a long‑term basis. The following table represents our company’s stock ownership guidelines for our executives and independent directors:
|
|
Chief Executive Officer
|
Six times base salary
|
Executive Vice Presidents
|
Three times base salary
|
Independent Directors
|
Five times annual fee
|
Our company’s stock ownership guidelines recommend that the Chief Executive Officer and Executive Vice Presidents achieve the targeted level of ownership within three years from the date of hire, promotion or appointment. The stock ownership guidelines recommend that the independent directors achieve the targeted level of ownership within five years from date of election. At this time all of our executive officers and independent directors hold at least the full amount of the guideline. The Nominating and Corporate Governance Committee receives a quarterly report on executive and independent director stock ownership of company stock.
Prohibition on Pledging and Hedging Stoc
k
Pursuant to our company’s Insider Trading Policy, we prohibit employees and directors from (i) pledging their shares in our company’s stock, and (ii) purchasing financial instruments or otherwise engaging in transactions that are designed to or have the effect of hedging the economic risk of ownership in our company’s stock. All of our executive officers and directors are in compliance with these anti‑pledging and anti‑hedging provisions.
Tax and Accounting Consideration
s
Policy with Respect to Section 162(m)
Section 162(m) of the Code denies deduction for Federal income tax purposes for certain compensation in excess of $1,000,000 paid to certain executive officers, unless certain performance, disclosure, stockholder approval and other requirements are met. The Compensation Committee periodically reviews the effects of its compensation programs with regard to Code Section 162(m) and evaluates alternatives to ensure executive compensation is reasonable, performance‑based, and consistent with our overall compensation objectives. The Compensation Committee reserves the right to design programs that recognize a full range of performance criteria important to our success, even where the compensation paid under such programs may not be deductible. Interpretations of and changes in the tax laws and other factors beyond the Compensation Committee’s control may affect the deductibility of certain compensation payments. The Compensation Committee may consider various alternatives to preserve the deductibility of compensation payments and benefits to the extent reasonably practicable and to the extent consistent with its other compensation objectives.
Tax Withholding
We permit our employees and directors to elect to withhold shares of stock to satisfy their tax withholding requirements upon the vesting of restricted stock.
Clawback Polic
y
We have adopted a Clawback Policy that grants the Board the discretion to recoup from executive officers, including each currently serving named executive officer, all cash bonuses paid that would not have been paid if performance had been measured in accordance with restated financials, for the periods covering any of the three fiscal years preceding a restatement (other than to comply with changes in applicable accounting principles). The Board of Directors is responsible for the interpretation and enforcement of this Clawback Policy.
Each of the senior executive employment agreements we entered into in 2014 with Ms. Simpson, Ms. Shelley‑Kessler and Mr. Malin contains a clawback provision. In particular, the employment agreements provide the
Board of the Directors with the contractual ability to clawback a cash or share grant bonus in the event of a restatement of our financial results if:
|
·
|
|
the restatement is attributable to misconduct or wrongdoing by the executive;
|
|
·
|
|
the bonus was issued within three years preceding the restatement;
|
|
·
|
|
the bonus was calculated and awarded pursuant to a specific financial formula; and
|
|
·
|
|
the bonus would have been diminished based on the restated financial results.
|
Compensation Risk Assessmen
t
We have reviewed our compensation policies and practices to determine whether risks arising from our compensation policies and practices for employees are reasonably likely to have a material adverse effect on our company. The review included assessment of our various compensation programs and consideration of risk mitigating factors. We believe that our compensation policies and practices for employees do not present risks that are reasonably likely to have a material adverse effect on our company. We generally take a conservative approach to managing our business. Although some risk-taking is necessary to manage and grow any business, we believe our compensation policies and practices do not encourage unnecessary or excessive risk-taking and do not promote short term rewards for management decisions that could pose long‑term risks to our company. With particular respect to compensation of our executive officers:
|
·
|
|
the Compensation Committee exercises discretion in determining cash bonuses and equity awards to executive officers;
|
|
·
|
|
awards of restricted stock with long‑term vesting periods provides executive officers with an incentive to make decisions that contribute to long‑term performance of our company;
|
|
·
|
|
our Clawback Policy and provisions in our senior executive employment agreements provides our company with recourse in the event of material non‑compliance with any financial reporting requirement that leads to a material or significant restatement; and
|
|
·
|
|
stock ownership guidelines for executive officers further aligns their personal wealth with the long‑term performance of our company.
|
EXECUTIVE COMPENSATION TABLES
Summary Compensation Table
The following table presents information regarding compensation of the named executive officers for services provided in 2016, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Incentive Plan
|
|
All other
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
Salary
|
|
Awards
(1)
|
|
Compensation
|
|
Compensation
(2)
|
|
Total
|
|
Wendy L. Simpson
|
|
2016
|
|
$
|
655,000
|
|
$
|
950,000
|
(3)
|
$
|
1,368,131
|
(4)
|
$
|
711
|
|
$
|
2,973,842
|
|
Chairman, Chief
|
|
2015
|
|
|
627,917
|
|
|
977,224
|
(5)
|
|
952,500
|
(4)
|
|
1,653
|
|
|
2,559,294
|
|
Executive Officer and
|
|
2014
|
|
|
610,500
|
|
|
664,440
|
(6)(7)
|
|
661,260
|
(8)
|
|
1,067
|
|
|
1,937,267
|
|
President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pamela J. Shelley-Kessler
|
|
2016
|
|
|
390,000
|
|
|
500,000
|
(3)
|
|
506,142
|
(4)
|
|
4,572
|
|
|
1,400,714
|
|
Executive Vice President,
|
|
2015
|
|
|
375,833
|
|
|
514,556
|
(5)
|
|
427,500
|
(4)
|
|
4,955
|
|
|
1,322,844
|
|
Chief Financial Officer and
|
|
2014
|
|
|
365,833
|
|
|
607,625
|
(6)(7)
|
|
296,925
|
(8)
|
|
10,000
|
|
|
1,280,383
|
|
Corporate Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clint B. Malin
|
|
2016
|
|
|
390,000
|
|
|
500,000
|
(3)
|
|
506,142
|
(4)
|
|
3,444
|
|
|
1,399,586
|
|
Executive Vice President
|
|
2015
|
|
|
375,833
|
|
|
514,556
|
(5)
|
|
427,500
|
(4)
|
|
3,481
|
|
|
1,321,370
|
|
and Chief Investment Officer
|
|
2014
|
|
|
365,833
|
|
|
607,625
|
(6)(7)
|
|
296,925
|
(8)
|
|
467
|
|
|
1,270,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents the fair value on the grant date of the stock awards, as required by SEC rules. Under U.S. generally accepted accounting principles, compensation expense with respect to stock awards granted is generally recognized over the vesting periods applicable to the awards. For a discussion of the assumptions and methodologies used to value the stock awards granted refer to
Note 9. Equity
of Notes to Consolidated Financial Statements included in our company’s 2016 Annual Report on Form 10-K.
|
|
(2)
|
|
Represents supplemental health insurance benefits.
|
|
(3)
|
|
Named executive officers were awarded the following performance-based stock units during 2016 with the number of shares to be earned depending on our TSR over the applicable performance period. These PSUs require a minimum threshold of 4.1% cumulative annual TSR performance, before threshold shares are earned, and they require 21.6% cumulative TSR performance before target shares are earned, each as measured over a 3.74-year performance period, with opportunity to earn the awards after 2.74 years if cumulative TSR performance is at least 3.0% at the end of 2.74 years:
|
|
|
|
|
|
|
|
|
|
PSU
|
|
Number of
|
|
|
|
Award
|
|
PSU
|
|
Named Executive Officer
|
|
Value
|
|
Award
|
|
Wendy L. Simpson
|
|
$
|
950,000
|
|
19,808
|
|
Pamela J. Shelley-Kessler
|
|
|
500,000
|
|
10,425
|
|
Clint B. Malin
|
|
|
500,000
|
|
10,425
|
|
|
(4)
|
|
Represents amounts earned in cash under the Annual Cash Bonus Incentive Plan for performance in 2016 and 2015 which were paid in 2017 and 2016.
|
|
(5)
|
|
Named executive officers received the following restricted common stock awards on February 18, 2016 for services provided in the preceding 2015 year. Subsequent to this grant, the Compensation Committee determined that RSAs should be attributable to the year in which the award is granted as compared to the approach of awarding RSAs to the named executive officer for performance in the preceding year. The February 18, 2016 awards vest ratably over a three-year period from the grant date:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
Restricted
|
|
Restricted
|
|
Named Executive Officer
|
|
Stock Value
|
|
Stock
|
|
Wendy L. Simpson
|
|
$
|
977,224
|
|
22,600
|
|
Pamela J. Shelley-Kessler
|
|
|
514,556
|
|
11,900
|
|
Clint B. Malin
|
|
|
514,556
|
|
11,900
|
|
|
(6)
|
|
Named executive officers received the following restricted common stock awards on February 10, 2015 for services provided in the preceding 2014 year. These stock awards vest ratably over a three-year period from the grant date:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
Restricted
|
|
Restricted
|
|
Named Executive Officer
|
|
Stock Value
|
|
Stock
|
|
Wendy L. Simpson
|
|
$
|
561,090
|
|
12,623
|
|
Pamela J. Shelley-Kessler
|
|
|
504,275
|
|
11,345
|
|
Clint B. Malin
|
|
|
504,275
|
|
11,345
|
|
|
(7)
|
|
Ms. Simpson, Ms. Shelley-Kessler and Mr. Malin were each granted 2,500 shares of restricted common stock at $41.34 per share on November 12, 2014 in accordance with and upon entering into their 2014 executive employment agreements. These shares vest ratably over a one-year period from the grant date.
|
|
(8)
|
|
Represents amounts earned in cash and shares of restricted stock under the Annual Cash Bonus Incentive Plan for performance in 2014. The Compensation Committee exercised its discretion to award shares of restricted stock in lieu of cash for the subjective component of the Annual Cash Bonus Incentive Plan. The named executive officers who participated in the Annual Cash Bonus Incentive Plan received the following cash and restricted stock awards on February 10, 2015. The restricted shares vest ratably over a three-year period from the grant date. The amount shown in the “Non-Equity Incentive Plan Compensation” column corresponding to this footnote includes the fair value of the restricted stock in this table and was determined in accordance with footnote (1) to this summary compensation table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Award
|
|
|
|
|
|
|
|
|
|
Number
|
|
Stock
|
|
Cash
|
|
|
Total
|
|
Named Executive Officer
|
|
of Stock
|
|
Value
|
|
Award
|
|
|
Award
|
|
Wendy L. Simpson
|
|
10,377
|
|
$
|
461,260
|
|
$
|
200,000
|
|
$
|
661,260
|
|
Pamela J. Shelley-Kessler
|
|
4,655
|
|
|
206,925
|
|
|
90,000
|
|
|
296,925
|
|
Clint B. Malin
|
|
4,655
|
|
|
206,925
|
|
|
90,000
|
|
|
296,925
|
|
Employment Agreement
s
Our company has entered into employment agreements with each of the named executive officers. The following table presents information regarding the employment agreements with the named executive officers for the year ended December 31, 2016:
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
Agreement Date
|
|
Agreement Term
|
|
Salary
|
|
Wendy L. Simpson
|
|
11/12/14
|
|
3-year evergreen
|
|
$
|
655,000
|
|
Pamela J. Shelley-Kessler
|
|
11/12/14
|
|
2-year evergreen
|
|
|
390,000
|
|
Clint B. Malin
|
|
11/12/14
|
|
2-year evergreen
|
|
|
390,000
|
|
The employment agreements provide that the base salaries may be increased at the discretion of the Board. Any increase in base salary will automatically amend each executive’s respective employment agreement to provide that thereafter the executive’s annual base salary will not be less than the increased base salary approved by the Board. During the term of his or her employment by us, each officer will devote the time necessary to provide the services reasonably required by the Board and will not, without the express approval of the Board, engage for his or her own account or for the account of any other person or entity, in a business which competes with us.
The employment agreements contain standard provisions regarding bonuses and benefits, as described in the CD&A section of this proxy statement. Additionally, the employment agreements with the named executive officers provide payments for severance upon termination of employment, including in connection with a change in control, as described under “Severance and Other Benefits Upon Termination of Employment or Change in Control” on page 21 of this proxy statement and under “Potential Payments Upon Termination or Change in Control” below.
Grants of Plan-Based Award
s
The following table presents information regarding plan-based awards made in 2016 and as of December 31, 2016 to the named executive officers and is intended to supplement the summary compensation table above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Possible
|
|
Stock
|
|
Grant Date
|
|
|
|
|
|
|
|
Estimated Possible Payouts Under
|
Payouts Under Equity
|
|
Awards:
|
|
Fair Value
|
|
|
|
Grant
|
|
Grant
|
|
Non-Equity Incentive Plan Awards
|
Incentive Plan Awards
|
|
Number
|
|
of Stock
|
|
Named Executive Officer
|
|
Date
|
|
Type
|
|
Threshold
|
|
Target
|
|
Max
|
|
Threshold
|
|
Target
|
|
Max
|
|
of RSAs
|
|
Awards
|
|
Wendy L. Simpson
|
|
2/18/16
|
(1)
|
RSA
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
—
|
|
—
|
|
—
|
|
22,600
|
|
$
|
977,224
|
|
|
|
6/1/16
|
(2)
|
PSU
|
|
|
—
|
|
|
—
|
|
|
—
|
|
9,904
|
|
19,808
|
|
39,616
|
|
—
|
|
|
950,000
|
|
|
|
—
|
(3)
|
—
|
|
|
614,063
|
|
|
818,750
|
|
|
1,432,813
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
Pamela J. Shelley-Kessler
|
|
2/18/16
|
(1)
|
RSA
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
|
11,900
|
|
|
514,556
|
|
|
|
6/1/16
|
(2)
|
PSU
|
|
|
—
|
|
|
—
|
|
|
—
|
|
5,213
|
|
10,425
|
|
20,850
|
|
—
|
|
|
500,000
|
|
|
|
—
|
(3)
|
—
|
|
|
175,500
|
|
|
351,000
|
|
|
526,500
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
Clint B. Malin
|
|
2/18/16
|
(1)
|
RSA
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
|
11,900
|
|
|
514,556
|
|
|
|
6/1/16
|
(2)
|
PSU
|
|
|
—
|
|
|
—
|
|
|
—
|
|
5,213
|
|
10,425
|
|
20,850
|
|
—
|
|
|
500,000
|
|
|
|
—
|
(3)
|
—
|
|
|
175,500
|
|
|
351,000
|
|
|
526,500
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
(1)
|
|
Awarded under the 2015 Equity Participation Plan in 2016 for 2015 performance. These shares vest ratably over a three-year period from the grant date.
|
|
(2)
|
|
Performance stock unit awards were granted in fiscal year 2016 under our 2015 Equity Plan, to be earned based on our absolute TSR performance over a 3.74-year period starting on the grant date (with an opportunity for an early payout after 2.74 years). Threshold amounts shown are 50% of the PSUs granted, target amounts are 100% of the PSUs granted, and maximum amounts are 200% of the PSUs granted. No PSUs are earned for performance below threshold.
|
|
(3)
|
|
The amounts shown represents bonus opportunities for 2016 performance under the Annual Cash Bonus Incentive Plan as approved by the Compensation Committee on February 18, 2016. The actual amount awarded was based on the achievement of certain performance measures as described under “Annual Cash Bonus Incentive Plan” on page 18
of this proxy statement. The awards earned for such performance in 2016 were granted on February 14, 2017 as shown in the “Non-Equity Incentive Plan Compensation” column of the summary compensation table above.
|
Outstanding Equity Awards at Year-En
d
The following table presents information regarding the outstanding equity awards held by the named executive officers as of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option awards
|
|
Stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan awards:
|
|
Plan awards:
|
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
Number of
|
|
Market value
|
|
Number of
|
|
Market value
|
|
|
|
securities
|
|
securities
|
|
|
|
|
|
shares or
|
|
of shares
|
|
shares or
|
|
of shares
|
|
|
|
underlying
|
|
underlying
|
|
|
|
|
|
units of
|
|
or units of
|
|
units of
|
|
or units of
|
|
|
|
unexercised
|
|
unexercised
|
|
Option
|
|
Option
|
|
stock that
|
|
stock that
|
|
stock that
|
|
stock that
|
|
|
|
options
|
|
options
|
|
exercise
|
|
expiration
|
|
have not
|
|
have not
|
|
have not
|
|
have not
|
|
Named Executive Officer
|
|
exercisable
|
|
unexercisable
|
|
price
|
|
date
|
|
vested
|
|
vested
(1)
|
|
vested
|
|
vested
(1)
|
|
Wendy L. Simpson
|
|
—
|
|
—
|
|
$
|
—
|
|
—
|
|
44,601
|
(2)
|
$
|
2,095,355
|
|
19,808
|
(4)
|
$
|
930,580
|
|
Pamela J. Shelley-Kessler
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
27,901
|
(3)
|
|
1,310,789
|
|
10,425
|
(4)
|
|
489,767
|
|
Clint B. Malin
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
27,901
|
(3)
|
|
1,310,789
|
|
10,425
|
(4)
|
|
489,767
|
|
|
(1)
|
|
The market value is the number of shares that have not vested multiplied by the closing market price of our common stock as reported by the NYSE on December 30, 2016, last trading day of 2016.
|
|
(2)
|
|
Represents number of outstanding unvested RSAs which vests as follows: 7,667 on February 10, 2017 and 2018; 6,667 on February 12, 2017; 7,533 on February 18, 2017 and 2018; 7,534 on February 18, 2019.
|
|
(3)
|
|
Represents number of outstanding unvested RSAs which vests as follows: 5,333 on February 10, 2017; 5,334 on February 12, 2017 and February 10, 2018; 3,966 on February 18, 2017; 3,967 on February 18, 2018 and 2019.
|
|
(4)
|
|
Represents PSUs that are eligible for vesting following the end of a four-year performance period, subject to acceleration, depending on TSR over the applicable performance period. The amounts listed are at 100% of the target PSU granted, representing the PSUs that would be earned with target performance. However, our TSR performance over the interim performance period from June 1, 2016, through December 31, 2016, would be 52.3% of target.
|
Option Exercises and Stock Veste
d
The following table shows the number and value of stock options exercised and the number of shares and value of restricted common stock that vested related to each of the named executive officers for the year ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option awards
|
|
Stock awards
|
|
|
|
Number of
|
|
|
|
Number of
|
|
|
|
|
|
shares
|
|
Value
|
|
shares
|
|
Value
|
|
|
|
acquired
|
|
realized
|
|
acquired
|
|
realized
|
|
Named Executive Officer
|
|
on exercise
|
|
on exercise
|
|
on vesting
|
|
on vesting
(1)
|
|
Wendy L. Simpson
|
|
—
|
|
$
|
—
|
|
34,333
|
|
$
|
1,540,033
|
|
Pamela J. Shelley-Kessler
|
|
—
|
|
|
—
|
|
16,766
|
|
|
713,878
|
|
Clint B. Malin
|
|
—
|
|
|
—
|
|
16,766
|
|
|
713,878
|
|
|
(1)
|
|
The value realized is the number of shares that vested multiplied by the closing market price of our common stock as reported by the NYSE on the vesting date. This differs from the compensation expense in the summary compensation table above which is determined using the fair value on the grant date of the stock award.
|
Potential Payments
Upon Termination or Change In Control
As described under “Severance and Other Benefits Upon Termination of Employment or Change in Control” on page 21 of this proxy statement, we have provided the named executive officers with employment agreements that provide certain severance and other benefits depending on the circumstances surrounding their termination of employment with us, including upon a change in control of our company. In addition to the benefits referenced below, upon termination of employment with us, the executive is generally entitled to amounts or benefits earned or accrued during the term of employment, including earned but unpaid salary.
Severance and Other Benefits Upon Termination of Employment
If a named executive officer’s employment is terminated, except for a termination for cause or a voluntary resignation without a good reason, we have agreed to pay the named executive officer a lump sum severance equal to the following:
|
|
Wendy L. Simpson
|
Four times base salary
|
Pamela J. Shelley-Kessler
|
Three times base salary
|
Clint B. Malin
|
Three times base salary
|
Upon such a termination of employment, we also have agreed to continue health insurance benefits at our expense up to an 18-month period for the named executive officer. Further, all stock options and restricted common stock automatically vest for the named executive officer and all performance-based stock units vest at the conclusion of the performance period based on a prorated basis and the truncated service period ending at the termination.
Additionally, the provisions of the Annual Cash Bonus Incentive Plan, in which each of the named executive officers participate, provide that the participant is eligible to receive a pro-rated award if her or his employment terminates, except for a termination for cause or a voluntary resignation without a good reason.
The following table lists the estimated amounts each of the named executive officers would have received under their respective employment agreements if their employment with us terminated and their severance and benefits became payable on December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
Maximum
|
|
Health Benefits
|
|
Equity
|
|
Name
|
|
Severance
(1)
|
|
Bonus
(2)
|
|
Continuation
(3)
|
|
Acceleration
(4)
|
|
Wendy L. Simpson
(5)
|
|
$
|
2,620,000
|
|
$
|
1,432,813
|
|
$
|
27,100
|
|
$
|
2,198,664
|
|
Pamela J. Shelley-Kessler
(5)
|
|
|
1,170,000
|
|
|
526,500
|
|
|
34,700
|
|
|
1,365,145
|
|
Clint B. Malin
(5)
|
|
|
1,170,000
|
|
|
526,500
|
|
|
23,300
|
|
|
1,365,145
|
|
|
(1)
|
|
Represents base salaries and termination provisions in effect at December 31, 2016.
|
|
(2)
|
|
Represents the maximum payable to participants in the Annual Cash Bonus Incentive Plan for 2016. The actual amount for 2016 performance was less, as shown in the “Non-Equity Incentive Plan Compensation” column of the summary compensation table above.
|
|
(3)
|
|
Assumes the value of benefits for an 18-month period required by the named executive officer’s employment agreement is at the same monthly amount paid for her or his medical, dental and vision insurance in 2016.
|
|
(4)
|
|
For unvested restricted common stock, this amount represents the closing market price as reported by the NYSE on December 30, 2016, last trading date in 2016. For unvested performance-based stock units, this amount is based on interim TSR performance measured as of December 30, 2016, last trading date in 2016, the prorated service term from the grant date to December 31, 2016, and the closing market price as reported by the NYSE on December 30, 2016, last trading date in 2016.
|
|
(5)
|
|
The employment agreements for each of the named executive officers contain “cut back” provisions to reduce severance benefits if an excise tax otherwise would be due and payable by them. We have assumed that no severance benefits would be cut back under the named executive officer’s employment agreement. The actual severance benefits payable to the named executive officers may be less than the amounts shown above as a result of the application of the cut back.
|
Severance and Other Benefits Upon Change in Control
As described under “Severance and Other Benefits Upon Termination of Employment or Change in Control” on page 21 of this proxy statement, we have agreed to pay severance and other benefits to the named executive officers upon our company’s change in control as defined in each named executive officer’s employment agreement. The employment agreements with each of the named executive officers are triggered if (i) her or his employment is terminated, except for a termination for cause or a voluntary resignation without a good reason, and (ii) such termination occurs within 24 months following a change in control or in contemplation of a change in control which actually occurs.
Upon such an occurrence, we have agreed to pay the named executive officer a severance payment in cash equal to the following:
|
|
Wendy L. Simpson
|
Greater of $3,000,000 or 300% of 5-year average annual compensation
|
Pamela J. Shelley-Kessler
|
250% of 5-year average annual compensation
|
Clint B. Malin
|
250% of 5-year average annual compensation
|
Upon such an occurrence, we also have agreed to continue health insurance benefits at our expense up to an 18-month period for the named executive officers. Further, under the standard provisions of our equity compensation plan award agreements, all stock options and restricted common stock automatically vest upon a change in control for the named executive officers and all the performance-based stock units deemed earned as of the date of the change of control, will vest upon termination within 24 months following a change in control.
Additionally, the provisions of the Annual Cash Bonus Incentive Plan, in which each of the named executive officers participate, provide that the participant is eligible to receive a portion of the target amount of the award based upon the number of days remaining in the performance period upon the change in control.
The following table lists the estimated amounts each of the named executive officers would have received under their respective employment agreements if there had been a change in control of our company and their severance and benefits were triggered on December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
Health Benefits
|
|
Equity
|
|
Name
|
|
Severance
(1)
|
|
Target Bonus
(2)
|
|
Continuation
(3)
|
|
Acceleration
(4)
|
|
Wendy L. Simpson
(5)
|
|
$
|
6,280,298
|
|
$
|
818,750
|
|
$
|
27,100
|
|
$
|
2,582,350
|
|
Pamela J. Shelley-Kessler
(5)
|
|
|
2,657,105
|
|
|
351,000
|
|
|
34,700
|
|
|
1,567,065
|
|
Clint B. Malin
(5)
|
|
|
2,898,444
|
|
|
351,000
|
|
|
23,300
|
|
|
1,567,065
|
|
|
(1)
|
|
Represents base salaries and change in control provisions in effect at December 31, 2016.
|
|
(2)
|
|
Represents the target amount payable to participants in the Annual Cash Bonus Incentive Plan for 2016.
|
|
(3)
|
|
Assumes the value of benefits for a period required by the named executive officer’s employment agreement is at the same monthly amount paid for her or his medical, dental and vision insurance in 2016.
|
|
(4)
|
|
For unvested restricted common stock, this amount represents the closing market price as reported by the NYSE on December 30, 2016, last trading day in 2016. For unvested performance-based stock units, this amount is based on interim TSR performance measured as of December 30, 2016, last trading date in 2016, and the closing market price as reported by the NYSE on December 30, 2016, last trading date in 2016.
|
|
(5)
|
|
The employment agreements for each of the named executive officers contain “cut back” provisions to reduce severance benefits if an excise tax otherwise would be due and payable by them. We have assumed that no severance benefits would be cut back under the named executive officer’s employment agreement. The actual severance benefits payable to the named executive officer may be less than the amounts shown above as a result of the application of the cut back.
|