Our fundamental objectives are
to create sustainable, profitable growth and long-term value for our shareholders. Management sets our annual and long-term business goals to support attainment of these objectives. The Boards HR Committee, which we refer to as the Committee
throughout this Compensation Discussion and Analysis section, designs and oversees our executive compensation program to promote attainment of our objectives.
This Compensation Discussion and Analysis section describes and analyzes our executive compensation program. It covers the work of the Committee to
approve the design of our executive compensation program, set fixed pay, determine the results that must be achieved to earn incentives under the program and ultimately authorize incentive payouts. The focus of this section is on the executive
compensation program covering the executive officers listed in the Summary Compensation Table, who we refer to as the named executive officers. For fiscal 2017 (or FY17), which began on May 30, 2016 and ended on May 28, 2017, our named
executive officers were:
A short summary of our fiscal 2017
executive compensation program and our fiscal 2017 performance is included in the Executive Summary below. For more complete information on the program and the Committees processes, we encourage you to read this entire Compensation
Discussion and Analysis section.
Fiscal 2017 was another year of significant change for Conagra. As the year began, we were focused on completing several significant transactions that
would transform us into a branded, pure-play packaged food company. Most notably, at the start of the fiscal year we were in the process of completing the Spinoff. At the start of the year, the imminent Spinoff made it challenging to set full year
fiscal 2017 guidance for our shareholders, or to finalize three-year financial goals for our company. However, we announced the following imperatives:
With these
imperatives, the management team developed a fiscal 2017 operating plan and, during the summer of 2016, the Committee approved the incentive programs and related performance measures for performance periods beginning in fiscal 2017. The fiscal 2017
incentive program for our named executive officers was comprised of the following elements:
Compensation Discussion and Analysis
|
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|
|
Program
|
|
Summary
|
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|
|
Annual Incentive Plan:
|
|
Fiscal 2017 Management Incentive Plan (FY17 MIP)
|
|
A cash-based incentive
program.
For
the named executive officers, the FY17 MIP used a
two-tiered
metric structure:
FY17 diluted earnings per share from continuing operations, adjusted for items impacting
comparability, which we refer to as adjusted EPS, of at least $0.10; and
FY17 earnings before interest and taxes, which we refer to as EBIT (adjusted as described
below), aligned to our internal business plans.
Achievement of high levels of EBIT could increase earned awards. Below-target awards
would be earned with lower levels of EBIT performance. No awards would be earned by the named executive officers without achievement of the threshold adjusted EPS goal.
|
Long-Term Incentive Plan:
|
|
Fiscal 2017 to 2019 Performance Share Plan
(FY17-19
PSP)
|
|
An opportunity to earn a
defined number of shares of our common stock if we achieve
pre-set
performance goals over fiscal years 2017, 2018 and 2019.
For the named executive officers to earn a payout under the
FY17-19
PSP, we need to achieve:
Adjusted EPS of at least $0.10 for each of the three fiscal years covered by the program;
and
For
one-third
of the total grant, specified levels of FY17 earnings before interest, taxes, depreciation and amortization (EBITDA) return on invested capital (a measure of earnings as a percentage of invested capital)
(adjusted as described below). We refer to this measure as FY17 EBITDA Return on Capital.
Achievement of FY17 EBITDA Return on Capital above or below targeted levels guides the
earned level of
one-third
of the award. No award is payable to the named executive officers without achievement of the overarching EPS goal.
The Spinoff was
pending at the start of FY17, when the performance goals for this program were being set. The adjusted EPS goal applies to the entire grant made to the named executive officers. However, the Committee decided that it would set an underlying metric,
applicable to
two-thirds
of the grant, after completion of the Spinoff.
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Stock Options
|
|
Our stock options, which are
non-qualified
stock options, deliver value to the named executive officers only with a growth in our stock price.
The stock options that were granted to the named executive officers for
FY17-19
have an exercise price equal to the closing market price of our common stock on the date of grant and generally vest ratably over the first three anniversaries of the grant date.
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Restricted Stock Units (RSUs)
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RSUs generally represent the right to receive a defined number of shares of our common
stock after completing a period of service established at the date of grant. RSUs reward long-term commitment and aid in continuity of management service.
The RSUs granted to the named executive officers for
FY17-19
generally cliff-vest after three years.
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18
Compensation Discussion and Analysis
In October 2016, as the completion of the Spinoff neared, the company held an investor day and outlined
its financial guidance for the balance of FY17 and for the three years beginning with fiscal 2018 (or FY18). Among other metrics for FY17, we provided guidance of adjusted earnings per share in the range of $1.65 to $1.70.
Fiscal 2017 Results.
Fiscal 2017 was a successful year for the company. Management led the team to achieve our goals:
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We continued the important work of reshaping and contemporizing our portfolio.
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During the first quarter, we completed the divestitures of two smaller,
non-core
businesses: Spicetec Flavors & Seasonings and J.M. Swank.
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During the second quarter, we completed the Spinoff.
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During the second quarter, we acquired the gourmet Mexican packaged foods businesses of Frontera Foods, Inc. and Red Fork LLC, including the Frontera, Red Fork and Salpica brands.
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During the fourth quarter, we completed the acquisition of the Dukes meat snacks and BIGS seeds businesses.
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During the fourth quarter, we announced a definitive agreement to divest the Wesson oil business.
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During the fourth quarter, we began introducing to market a full line of new product innovations.
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We remained focused on our value over volume strategy and rationalized
low-value
SKUs and inefficient trade programs.
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We increased gross margin by 190 basis points from 28.0% to 29.9% and adjusted gross margin by 180 basis points to 30.2%.
1
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We completed our plan to deliver approximately $200 million in annual
run-rate
efficiencies through reductions in our SG&A expenses and made meaningful progress on our
plan to deliver approximately $100 million in profit improvement through trade spend efficiencies.
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We executed our strategy of managing debt, supporting dividends, and funding share repurchases.
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In connection with our portfolio transformation, we reduced our total debt by approximately $2.5
billion.
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We maintained our annual dividend rate of $1.00 per share through completion of the Spinoff; following the Spinoff, we maintained an annual dividend rate of $0.80 per share.
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We completed approximately $1 billion in share repurchases.
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We exceeded our adjusted EPS goal. We achieved diluted earnings per share from continuing operations of $1.25, and adjusted EPS of $1.74.
2
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We completed the relocation of our corporate headquarters to Chicago, Illinois. Our new headquarters was designed to enable greater collaboration while enhancing our ability to attract and retain top talent.
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The closing market price of our common stock rose from $35.29 per share on the first trading day of fiscal 2017 (as adjusted to
account for the later Spinoff of Lamb Weston) to $39.03 per share on the last trading day of fiscal 2017. With dividends (and assuming dividend reinvestment), this represents a total return to shareholders of approximately 13%. On a three-year
basis, from fiscal 2015 through fiscal 2017, the closing market price of our common stock grew from $24.37
per share on the first trading day of fiscal 2015 (again, as adjusted to account for the later Spinoff of Lamb Weston) to $39.03 per
share on the last trading day of fiscal 2017. With dividends (and assuming dividend reinvestment), this represents a total return to shareholders of over 70%.
1
A reconciliation of this
non-GAAP
measure to the most directly comparable GAAP measure is included in
Appendix A
to this Proxy Statement.
2
A reconciliation of this
non-GAAP
measure to the most
directly comparable GAAP measure is included in
Appendix A
to this Proxy Statement.
19
Compensation Discussion and Analysis
Fiscal 2017 Compensation Decisions.
Our strong performance in fiscal 2017 impacted
the compensation earned by our named executive officers for the year. Our fiscal 2017 MIP funded and paid out at above-target levels for each named executive officer, due to our earnings performance during fiscal 2017 and the individual
contributions of our executives. In addition, as discussed more fully below, our fiscal 2017 results had a positive impact on each outstanding cycle of our performance share program.
In determining attainment of the underlying performance goals for our incentive programs, the Committee considered the impact of items that it believes
were not indicative of the comparable operating performance of our businesses. Some of these items created financial benefits, and some of them created incremental expense or lost sales. The impact of these items was removed from our results for
purposes of determining plan payouts. More information can be found below under Use of Adjustments in Compensation Decisions.
The
Committee believes that its fiscal 2017 compensation decisions appropriately reflect its
pay-for-performance
philosophy. This philosophy is focused on compensating
executives based on performance and aligning managements interests with those of our shareholders.
Objectives of Our Compensation Program
Our executive compensation program is designed to encourage and reward behavior that promotes attainment of our annual and long-term goals and
that leads to sustainable growth in shareholder value. The Committee believes that the program must accomplish five objectives:
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1.
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Align the financial interests of our executives and our shareholders
, and inspire and reward behavior that promotes sustainable growth in shareholder value;
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2.
|
Incent the right results for the long-term health of the business
, without creating unnecessary or excessive risks;
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3.
|
Remain externally competitive to aid talent attraction and retention
, because the achievement of our strategic plans requires us to attract and retain talented leaders who have the skills, vision and experience
to lead our company;
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4.
|
Promote internal pay equity and consistency
, recognizing that individual pay will reflect differences in experience, performance, responsibilities and market considerations, but that programs should be
sufficiently similar to promote decisions that better our company as a whole; and
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5.
|
Promote and reward long-term commitment
and longevity of careers with Conagra Brands.
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The
Committees design of the compensation program with multiple objectives in mind helps mitigate the risk that employees will take unnecessary and excessive risks that threaten the long-term health and viability of our company. With the
assistance of Human Resources and Legal department personnel and FW Cook, the Committees independent compensation consultant, the Committee undertook a risk review of our fiscal 2017 compensation programs for all employees. Based on the
review, we believe our compensation programs encourage and reward prudent business judgment and appropriate risk-taking over the long-term. We believe our compensation policies and practices are balanced and aligned with creating shareholder value
and do not create risks that are reasonably likely to have a material adverse effect on our company.
20
Compensation Discussion and Analysis
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What We Do
|
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✓
Focus employees on a
balance of short- and long-term goals.
✓
Consider a mix of financial and
non-financial
goals to prevent over-emphasis on any single metric.
✓
Allow for some
subjective evaluation in the determination of incentive plan payouts, to ensure linkage between payouts and the quality of performance.
✓
Employ a greater
portion of variable pay (
i.e.
, incentives) at more senior levels of the organization.
✓
Require stock ownership
for more than 80 of our most senior employees.
✓
Generally require a double-trigger for accelerated vesting to occur in equity awards in connection with a change of control.
✓
Clawback amounts paid
to any of our most senior officers (including our named executive officers) under our incentive plans in the event of a material restatement of our financial statements resulting from the fraudulent, dishonest or reckless actions of the senior
officers.
✓
Use a range of strong
processes and controls, including Committee and Board oversight, in our compensation practices.
✓
Use an independent
compensation consultant, who performs no other work for our company.
✓
Pay incentive
compensation only after our financial results are complete and the Committee has certified our performance results.
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What We Dont Do
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×
No
director or executive officer may pledge or hedge their ownership of company stock.
×
No
excessive perquisites are provided to executives.
×
No backdating or
re-pricing
of options may occur without shareholder approval.
×
Since fiscal 2012, no change in control agreements have been executed with excise tax
gross-up
protection.
×
No
additional years of credited service are provided to named executive officers.
×
No
compensation programs that encourage unreasonable risk taking will be implemented.
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Design and Approval of Our Fiscal 2017 Program
The Committee is charged with designing and approving our executive compensation program and setting compensation opportunities for our named executive
officers and certain other senior leaders. The Committee uses a variety of inputs to make these decisions, including the results of our annual
say-on-pay
vote, the advice of the Committees independent compensation consultant, including with respect to market data, company and participant-focused considerations, the input of our Chief Executive Officer, and the unique circumstances of each named
executive officer. We address each of these inputs here.
Annual Say on Pay Vote.
In designing the executive compensation program
for fiscal 2017, the Committee looked to our shareholders. The Committees policy is to present a
say-on-pay
vote to our shareholders annually. In
fiscal 2016, we received nearly 96% approval in our
say-on-pay
vote, leading the Committee to the conclusion that material changes in compensation design, solely due to
the outcome of the
say-on-pay
vote, were not warranted for fiscal 2017.
21
Compensation Discussion and Analysis
Independent Consultant and Market Data.
The Committee also leveraged the advice and
counsel of its independent compensation consultant, FW Cook, in setting fiscal 2017 compensation. The consultant assists the Committee in monitoring policy positions of institutional shareholders and their advisors, emerging market practices in
compensation design and philosophy, and policy developments relevant to the Committees work. The Committees consultant also provides information on internal and external pay comparison data. The Committee uses this data as a market check
on its compensation decisions. The Committee recognizes that over-reliance on external comparisons can be of concern, and the Committee is mindful of the value and limitations of comparative data.
The Committees first step in using external data for fiscal 2017 was the identification of an appropriate peer group. FW Cook initially prepared a
list of potential peer companies (with an emphasis on food and beverage companies) based on the following criteria:
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Operations
: Companies similar in size, operational scope and industry (competitors for business);
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Investors
: Companies with which we compete for investor capital (similar performance characteristics, growth orientation, access to capital and business cycles); and
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Talent
: Companies with which we compete for executive talent.
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FW Cook identified companies with
annual revenues within an approximate range of between
one-third
to three times our
pre-Spinoff
revenue. (With the Spinoff pending at the time of the peer groups
authorization, FW Cook recommended, and the Committee agreed, to assess its peer group based on the business owned at the start of fiscal 2017.) To further enhance the comparability of the companies included in the peer group, FW Cook used
regression analysis as needed to adjust the compensation data on a comparable basis to the size of the peer group in the aggregate. The Committee also asked FW Cook to ensure that the peer group would be large enough to withstand unanticipated
changes in our, or an included companys, structure or compensation programs.
Ultimately, the Committee decided to retain its fiscal 2016 peer
group, consisting of the following companies, for an additional year:
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Altria Group. Inc.
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Dr. Pepper Snapple Group, Inc.
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The Kraft Heinz Company
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Campbell Soup Company
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General Mills, Inc.
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Mondelez International, Inc.
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The Clorox Company
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The Hershey Company
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PepsiCo, Inc.
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The Coca-Cola Company
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Hormel Foods Corporation
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Tyson Foods, Inc.
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Colgate-Palmolive Company
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Kellogg Company
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Dean Foods Company
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Kimberly-Clark Corporation
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The median revenue of the peer group listed above was similar to ours prior to the Spinoff; all of the companies fell
within the desired range of approximately
one-third
to three times our annual revenue, with the exception of PepsiCo, Inc. Although PepsiCo, Inc. had revenues greater than three times larger than ours, the
Committee determined to keep it in the peer group for fiscal 2017 due to its status as a direct competitor for business and executive talent.
The
Committee used data from the fiscal 2017 peer group, together with general industry data, as a market check on its fiscal 2017 compensation decisions. As noted above, this was just one of many factors that played a role in compensation decisions.
The Committee does not mandate target ranges for our named executive officers salaries, annual incentive opportunities, long-term incentive opportunities, or total direct compensation levels as compared to the peer group. The Committee will
continue to use peer data mindfully, as one of many tools for assessing the market competitiveness and appropriateness of executive pay opportunities.
22
Compensation Discussion and Analysis
Company and Participant Focused Matters.
The Committee also generally considered the
following company and participant focused matters in making fiscal 2017 compensation decisions:
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Company-
Focused Matters
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Company performance
in prior years and expectations for the future
The anticipated degree of difficulty inherent in the targeted incentive performance goals
The level of risk-taking the
program would reward
The
general business environment
Practices and developments in compensation design and governance
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Participant-
Focused Matters
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Individual performance history
The anticipated degree of
difficulty inherent in individual goals
Internal pay equity
The potential complexity of each program, preferring programs that were transparent to
participants and shareholders and easily administered
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The Chief Executive Officers Views.
Mr. Connolly, our Chief Executive Officer and President,
played a role in several key areas of the design and approval of our fiscal 2017 executive compensation program.
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Selecting Performance Metrics and Targeted Performance Levels
. An important part of designing incentive compensation programs is the selection of plan metrics and performance targets. To help ensure that the
Committees
pay-for-performance
goals are achieved, selected metrics must be tied to shareholder value creation. In addition, performance targets must be set at
levels that balance investor expectations against achievability, without incenting undue risk taking. The Committee sought Mr. Connollys input on these matters for fiscal 2017. Mr. Connolly provided the Committee his views on the
appropriate company goals for use in our fiscal 2017 MIP and the fiscal 2017 tranches of the 2016 to 2018 and 2017 to 2019 cycles of the performance share plan. Mr. Connolly provided input based on his understanding of investor expectations and
our operating plans and financial goals. The Committee had sole authority to approve the program metrics and targets, but found Mr. Connollys input valuable.
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Assessing Company Performance
. Financial performance is at the core of our incentive programs. However, the Committee retains the discretion to modify payouts based on the manner in which business results are
delivered. At the end of fiscal 2017, Mr. Connolly offered the Committee his views of the quality of our performance against expectations.
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Assessing Individual Performance
. With respect to individual performance, which also informed fiscal 2017 compensation decisions, the Committee relied on Mr. Connollys regular performance evaluations
of the senior leadership team. Mr. Connolly shared information on the named executive officers impact on strategic initiatives and organizational goals, as well as their leadership behaviors.
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Individual Named Executive Officer Considerations
.
The Committee, and in the case of our Chief Executive Officer, the
independent directors, specifically considered the following when setting fiscal 2017 compensation opportunities for each of our named executive officers. No named executive officer played a direct role in his or her own compensation determination
for fiscal 2017.
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Mr. Sean Connolly
. Mr. Connolly has served as our Chief Executive Officer and a member of the Board since
April 2015. The Committee believes that within our company, Mr. Connolly should have the largest aggregate
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23
Compensation Discussion and Analysis
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compensation opportunity due to his level of responsibility and business experience. The Committee also believes Mr. Connolly should have the greatest proportion of
at-risk
compensation. External market data supports this conclusion. For fiscal 2017, consistent with this belief, the independent directors set Mr. Connollys compensation opportunities at a level higher
than the comparable opportunities for the other named executive officers. The Committee considered Mr. Connollys accountability for the performance of the entire organization as well as his employment agreement.
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Mr. David S. Marberger
. Mr. Marberger joined us on August 8, 2016 and has served as our Executive Vice President and Chief Financial Officer since August 29, 2016. As Chief Financial
Officer, Mr. Marberger is our Principal Financial Officer, leads all finance functions for the company, heads our Investor Relations department and has accountability for the Information Technology function. The Committee considered the broad
scope of Mr. Marbergers responsibilities, his previous experience as a Chief Financial Officer, his
in-depth
knowledge of the food industry, internal pay equity, and external market data
in
setting Mr. Marbergers compensation opportunity for fiscal 2017.
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Ms. Colleen R. Batcheler
. Ms. Batcheler has served as our Executive Vice President, General Counsel and Corporate Secretary since September 2009 and as Senior Vice President, General Counsel and
Corporate Secretary since February 2008. She joined the company in 2006. When setting Ms. Batchelers compensation opportunities for fiscal 2017, the Committee considered Ms. Batchelers demonstrated results as an advisor to the
organization on legal, governance, and policy matters over multiple years, the significant initiatives facing the company during fiscal 2017, internal pay equity, and external market data.
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Mr. David B. Biegger
. Mr. Biegger has served as our Executive Vice President and Chief Supply Chain Officer since October 2015. His responsibilities cover traditional supply chain functions as well
as Real Estate, Facilities, Security, and Aviation. Prior to joining the company, Mr. Biegger accumulated approximately 35 years of supply chain experience at major consumer packaged goods companies. The Committee considered
Mr. Bieggers deep supply chain expertise, the breadth of his responsibilities, internal pay equity, and external market data in setting his compensation opportunities for fiscal 2017.
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Mr. Thomas M. McGough
. Mr. McGough has served as the President of our branded food business since May 2013. He joined the company in 2007 as Vice President, Marketing, and progressed through our
branded food organization quickly, being named President, Specialty Foods, in August 2010 and then President, Grocery Products in July 2011. The Committee considered the scope of Mr. McGoughs role, the fact that following the Spinoff, the
branded food business would be our sole focus, internal pay equity, and market data in setting his compensation opportunities for fiscal 2017.
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Mr. John F. Gehring
. Mr. Gehring served as our Executive Vice President and Chief Financial Officer from 2009 until August 2016. In May 2016, Mr. Gehring notified us that he would retire from
the company after a successor had been appointed. His fiscal 2017 compensation opportunities were informed by the fact that he would be retiring. We entered into an agreement with Mr. Gehring in connection with his retirement. Please refer to
Agreements with Named Executive Officers Departure of Mr. Gehring below for additional information.
|
Below
is a more detailed analysis of each element of the fiscal 2017 compensation program for our named executive officers, as well as actual fiscal 2017 payouts under the programs.
24
Compensation Discussion and Analysis
Key Elements of our Fiscal 2017 Executive Compensation Program
The fiscal 2017 compensation of our named executive officers consisted of the following key components:
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|
|
Type
|
|
Components
|
|
|
Incentive Compensation
|
|
Annual incentive opportunity (cash)
|
|
Long-term incentive opportunity (equity)
|
Fixed
Compensation
|
|
Salary
Retirement benefits
Health and welfare benefits
|
The Committee believes that using a mix of compensation types (salary, benefits, cash incentives, and equity-based
incentives) and performance periods (single year and multi-year periods) promotes behavior consistent with our long-term strategic plan and minimizes the likelihood of executives having significant motivation to pursue risky and unsustainable
results.
Opportunity Mix
.
By design, targeted incentive compensation for the named executive officers for fiscal 2017 was
a significant percentage of the total compensation opportunity. The Committees general policy is to provide the greatest percentage of the incentive opportunity in the form of long-term compensation payable in shares of our common stock. The
Committee believes that the emphasis on stock-based compensation is the best method of aligning management interests with those of our shareholders.
The charts below show the total compensation opportunity (calculated using base salary rate, targeted FY17 MIP award, and targeted long-term incentive
value) for Mr. Connolly and for our other named executive officers (other than Mr. Gehring) as a group. Due to his anticipated retirement during fiscal 2017, Mr. Gehring did not receive grants under the fiscal 2017 long-term incentive plan
and is not included in the charts below.
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|
|
Salaries
.
We pay salaries to our named executive officers to provide them with a base level of
fixed income for services rendered. On average, 22% of the total fiscal 2017 compensation opportunity for each named executive officer, other than the Chief Executive Officer and Mr. Gehring, was provided in the form of base salary. For
Mr. Connolly, our Chief Executive Officer, 13% of his total compensation opportunity was provided in the form of base salary. For more information on Mr. Connollys base salary, see Agreements with Named Executive
Officers Agreement with Mr. Connolly below.
Please see the section above entitled Individual Named Executive Officer
Considerations for a discussion of the factors the Committee considered when determining the salaries of each of the named executive officers. In fiscal 2017, the
25
Compensation Discussion and Analysis
Committee approved an initial base salary of $580,000 for Mr. Marberger and salary increases for each of Ms. Batcheler (from $525,000 to $540,750), Mr. Biegger (from $500,000 to
$511,260), and Mr. McGough (from $650,000 to $669,500). No changes were made to Mr. Connollys salary or to Mr. Gehrings salary in fiscal 2017. For more information on the compensation of each named executive officer,
please see Executive Compensation Summary Compensation Table Fiscal 2017.
Incentive
Programs
.
Consistent with its overall compensation objectives, the Committee aligned management compensation with company performance through a mix of annual and long-term incentive opportunities for fiscal 2017. Opportunities
under these programs combined to represent approximately 78% of the compensation opportunity for each named executive officer, other than the Chief Executive Officer and Mr. Gehring. For Mr. Connolly, targeted incentive compensation for
fiscal 2017 was approximately 87% of his total compensation opportunity. We provide details of our incentive programs below. Financial targets disclosed in these discussions are done so in the limited context of our incentive plans; they are not
statements of managements expectations or estimates of results or other guidance. We specifically caution investors not to apply these statements to other contexts.
Management Incentive Plan
The FY17 MIP provided a
cash incentive opportunity to approximately 1,900
employees, including our named executive officers. We provide an annual incentive opportunity to a broad group of employees to reinforce an ownership mentality across our company. Conagra
employees are incented to create shareholder value.
For our named executive officers, our FY17 MIP used a framework that positioned awards to
potentially qualify as tax deductible under Section 162(m) of the Internal Revenue Code, which we refer to as the Code. This framework, discussed more in the following paragraphs, uses an overarching performance goal and underlying performance
goals. Please refer to our discussion under Tax and Accounting Implications of the Committees Compensation Decisions for more information on this plan design.
Overarching EPS Performance Goal.
At the start of fiscal 2017, the Committee approved an overarching goal under the FY17 MIP of
adjusted EPS of $0.10. This goal, applicable only to a small group of senior officers, including the named executive officers, was required to be achieved before any payouts under the FY17 MIP could be made to the officers. The FY17 MIP further
provided that if the overarching adjusted EPS goal was achieved, the Committee could exercise negative discretion to potentially reduce, but not increase, authorized payouts. This negative discretion was to be guided by performance against the
underlying financial goals described in the next paragraph.
Underlying
Pre-Established
Financial
Goals.
At the start of fiscal 2017, the Committee approved EBIT as the underlying metric for the FY17 MIP (to be adjusted, as appropriate, for items impacting comparability of results). Because the Spinoff was expected to be completed
within the first half of the fiscal year, the Committee adopted fiscal 2017 EBIT goals specific to the businesses that would remain with Conagra (referred to as the Conagra Brands businesses). The Committee developed EBIT goals to align with
threshold, target, and maximum incentive opportunities as follows:
|
|
|
|
|
Threshold EBIT of
Conagra Brands Businesses
|
|
Target EBIT of Conagra Brands
Businesses
|
|
Maximum EBIT of Conagra
Brands Businesses
|
|
|
|
$1,046.3 million
|
|
$1,230.9 million
|
|
$1,415.5 million
|
|
|
|
Achievement at or below this level would result in a 0% payout
|
|
Achievement at this level would result in a payout equal to 100% of the targeted opportunity
|
|
Achievement at or above this level would result in a payout equal to 200% of the targeted opportunity the maximum level of payout
|
26
Compensation Discussion and Analysis
In fiscal 2016, the MIPs underlying goals were EBIT and net sales. The net sales goal was
included as a kicker to EBIT-driven results, allowing up to 20 additional points of MIP payout to be earned. While achievement of the companys net sales commitments to shareholders remained a priority in fiscal 2017, the
kicker feature was removed from the FY17 MIP. Management was focused on eliminating lower value sales in favor of more profitable ones during fiscal 2017. Given the planned reduction in fiscal 2017 net sales and the importance of profit
growth, the Committee chose to limit the underlying FY17 MIP metric to EBIT.
Individual Compensation Opportunities.
In addition to
setting the financial goals for the FY17 MIP, the Committee set corresponding target compensation opportunities for each named executive officer, measured as a percentage of his or her base salary earnings. The following table shows the ranges of
authorized payments (expressed as a percentage of base salary earned during fiscal 2017) for the named executive officers upon achievement of the threshold, target, and maximum EBIT goals approved for the FY17 MIP. If the overarching adjusted EPS
goal was not met, no payments would be made. No portion of the incentive was guaranteed.
|
|
|
|
|
|
|
Named Executive Officer
|
|
Threshold MIP Award
|
|
Target MIP Award
|
|
Maximum MIP Award
|
|
|
|
|
Mr. Connolly
|
|
0%
|
|
150% of salary
|
|
300% of salary
|
|
|
|
|
Mr. Marberger
|
|
0%
|
|
80% of salary
|
|
160% of salary
|
|
|
|
|
Ms. Batcheler
|
|
0%
|
|
100% of salary
|
|
200% of salary
|
|
|
|
|
Mr. Biegger
|
|
0%
|
|
80% of salary
|
|
160% of salary
|
|
|
|
|
Mr. McGough
|
|
0%
|
|
100% of salary
|
|
200% of salary
|
|
|
|
|
Mr. Gehring
|
|
0%
|
|
100% of salary
|
|
200% of salary
|
Fiscal 2017 Results.
As discussed above, Conagra overdelivered its earnings goals in fiscal 2017. The
companys results led to above-target performance under the FY17 MIP. For FY17 MIP purposes, the Committee determined that we achieved fiscal 2017 adjusted EPS above $0.10 (as discussed above) and fiscal 2017 EBIT for the Conagra Brands
businesses of $1,302.0 million. Formulaically, these results warranted a payout equal to 127% of target.
To incent management to make decisions
that have positive long-term impacts, even at the expense of shorter-term results, and to prevent unusual gains and losses from having too great of an impact on plan payouts in any year, the Committee retained discretion in the FY17 MIP to exclude
items impacting comparability from company-wide results and adjust actual results for specific items that occurred during the fiscal year. The use of adjustments approved by the Committee and applicable to the fiscal 2017 adjusted EPS and EBIT
metrics is described below under Use of Adjustments in Compensation Decisions.
Quality of Results.
Once the
performance metrics review was complete, the Committee considered the manner in which management executed the operating plan during the year to determine the overall payout level. Reflecting on the many operational and strategic accomplishments from
the year, as set forth above under the heading Executive Summary Fiscal 2017 Results, the Committee determined the financial performance results for fiscal 2017, before consideration of individual performance, warranted
a payout level for all MIP participants equal to 122% of target.
27
Compensation Discussion and Analysis
Determination of Individual Named Executive Officer Awards.
The Committees
final step was to determine each named executive officers individual payout under the FY17 MIP. This process involved an assessment of each executives individual performance. The Committee considered the factors set forth above under the
heading Individual Named Executive Officer Considerations when determining named executive officer payouts under the FY17 MIP. Mr. Connollys input on the individual contribution of these leaders, and his recommendations on
program payouts, also assisted the Committee in approving specific MIP payouts. The full Boards performance evaluation of Mr. Connolly was used in determining his payout. The Committee believes that the MIP awards paid to the named
executive officers for fiscal 2017 are consistent with the level of accomplishment by the company and each named executive officer during the year.
|
|
|
|
|
|
|
Named Executive Officer
|
|
Target Payout
|
|
Actual MIP Payout
|
|
Actual Payout as
a % of Target
|
|
|
|
|
Mr. Connolly
|
|
$1,650,000
|
|
$2,314,950
|
|
140%
|
|
|
|
|
Mr. Marberger
|
|
$339,077(1)
|
|
$471,588
|
|
139%
|
|
|
|
|
Ms. Batcheler
|
|
$538,630
|
|
$749,126
|
|
139%
|
|
|
|
|
Mr. Biegger
|
|
$407,796
|
|
$552,237
|
|
135%
|
|
|
|
|
Mr. McGough
|
|
$666,875
|
|
$878,675
|
|
132%
|
|
|
|
|
Mr. Gehring
|
|
$302,105(2)
|
|
$368,568
|
|
122%
|
|
(1)
|
Mr. Marberger served for a portion of fiscal 2017; his employment began on August 8, 2016. His FY17 MIP Target Payout, which is measured as a percentage of his base salary earnings, reflects that he served
only a portion of FY17.
|
|
(2)
|
Mr. Gehring served for a portion of fiscal 2017; he retired in connection with the Spinoff on November 9, 2016. His FY17 MIP Target Payout, which is measured as a percentage of his base salary earnings,
reflects that he served only a portion of FY17.
|
Long-Term Incentive Plan
The Committee firmly believes in aligning the interests of our senior leaders with those of our shareholders. The significant extent to which equity is
included in our named executive officers compensation opportunity evidences this belief. The long-term incentive plan for executive officers has historically been the primary vehicle for delivering this equity-based compensation.
For fiscal 2017, the long-term incentive program was intended to focus participants on driving long-term success in a time of rapid and significant
short-term change and to incent and reward those leaders who have the greatest impact on our ability to achieve our ambition and deliver value to our shareholders. The fiscal 2017 program for the named executive officers included three elements: an
award of stock options, an award of performance shares that are settled in shares of common stock, and an award of service-based RSUs. The same vehicles were used in fiscal 2016.
The actual number of stock options, targeted performance shares, and RSUs granted under the long-term incentive plan for fiscal 2017 was determined using
a value-based approach. Each named executive officer was provided a total targeted grant value, based on the considerations set forth above in the section entitled Individual Named Executive Officer Considerations. Fifty percent (50%) of
the total targeted value was delivered as performance shares, 25% of the total targeted value was delivered as RSUs, and 25% of the total targeted value was delivered as stock options. Performance share and (for named executive officers other than
Mr. Marberger) RSU grant sizes were determined by dividing the dollar value of the targeted opportunity by the average of the closing market price of our common stock for the 30 consecutive trading days as of 10 trading days prior to, and not
including, the grant date. For Mr. Marberger, RSU grant sizes were determined by dividing the dollar value of the targeted opportunity by the average of the closing market price of our
28
Compensation Discussion and Analysis
common stock for the 30 trading days prior to, and not including, the grant date. Stock option grant totals were determined by multiplying the number of RSUs granted by six. The Committee used
this approach to deliver what it views as an equal mix of stock options and RSUs to participants.
Due to his anticipated retirement during fiscal
2017, Mr. Gehring did not receive grants under the fiscal 2017 long-term incentive plan.
Each element of the long-term incentive plan used in
fiscal 2017 is discussed more fully below.
Long-Term Incentive Plan Stock Options
Historically, the Committee has used stock options to directly align the interests of the named executive officers with those of our shareholders. All
stock options granted for fiscal 2017 have a
ten-year
term and an exercise price equal to the closing market price of our common stock on the grant date. The options vest pro rata on each of the first three
anniversaries of the grant date, generally subject to the executives continued employment with the company.
The number of options granted to
each named executive officer during fiscal 2017 was:
|
|
|
Named Executive Officer
|
|
Stock Options Granted During Fiscal 2017 (1)
|
Mr. Connolly
|
|
273,309
|
Mr. Marberger
|
|
69,248
|
Ms. Batcheler
|
|
69,965
|
Mr. Biegger
|
|
52,472
|
Mr. McGough
|
|
69,965
|
Mr. Gehring
|
|
|
|
(1)
|
The number of stock options noted here reflects an equitable adjustment made to the original award in connection with the Spinoff. For information about equitable adjustments made to equity awards in connection with the
Spinoff, please see Special Note on the Treatment of Equity Awards in the Spinoff below. Prior to the Spinoff (and the corresponding equitable adjustment), the number of stock options granted was as follows: for Mr. Connolly,
203,418; for Mr. Marberger, 51,540; for Ms. Batcheler, 52,074; for Mr. Biegger, 39,054; and for Mr. McGough, 52,074.
|
The Committee considered the factors discussed above under the heading Individual Named Executive Officer Considerations when determining
grant sizes by individual. Grants to the named executive officers other than Mr. Marberger were made on July 11, 2016 with an exercise price (after the Spinoff-related equitable adjustment) of $35.81 per share. Mr. Marberger did not
commence employment with us until August 8, 2016, and his option grant was made on September 1, 2016 with an exercise price (after the Spinoff-related equitable adjustment) of $34.26 per share. The grant date fair value of the stock
options awarded to our named executive officers is included in the Option Awards column of the Summary Compensation Table Fiscal 2017.
For fiscal 2018, the Committee has chosen to discontinue the use of stock options in our long-term incentive program. Instead, the named executive
officers received a mix of performance shares, weighted at 75% of the total targeted opportunity, and RSUs, which made up the remaining 25%. The Committees decision regarding stock options was based on a review of market practices and a
preference for performance shares as a means of aligning executive and shareholder interests.
29
Compensation Discussion and Analysis
Long-Term Incentive Plan Restricted Stock Units
RSUs generally represent the right to receive a defined number of shares of our common stock after completing a period of service established at the
grant date. RSUs support our compensation objective of encouraging long-term commitment to the company. In general, all RSUs granted for fiscal 2017 vest in full on the third anniversary of the date of grant, subject to the executives
continued employment with us. Awards granted in fiscal 2017 are not entitled to dividend equivalents.
The number of RSUs granted to each named
executive officer pursuant to the fiscal 2017 long-term incentive program is set forth below.
|
|
|
Named Executive Officer
|
|
RSUs Granted During Fiscal 2017(1)
|
Mr. Connolly
|
|
45,551
|
Mr. Marberger
|
|
11,541 (2)
|
Ms. Batcheler
|
|
11,660
|
Mr. Biegger
|
|
8,745
|
Mr. McGough
|
|
11,660
|
Mr. Gehring
|
|
-
|
|
(1)
|
The number of RSUs noted here reflects an equitable adjustment made to the original award in connection with the Spinoff. For information about equitable adjustments made to equity awards in connection with the Spinoff,
please see Special Note on the Treatment of Equity Awards in the Spinoff below. Prior to the Spinoff (and the corresponding equitable adjustment), the number of RSUs granted were as follows: for Mr. Connolly, 33,903; for
Mr. Marberger, 8,590; for Ms. Batcheler, 8,679; for Mr. Biegger, 6,509; and for Mr. McGough, 8,679.
|
|
(2)
|
The number of RSUs noted here reflects only the RSUs Mr. Marberger received in connection with our long-term incentive program. For information about his
sign-on
RSU grant,
see Agreements with Named Executive Officers Commencement of Employment of Mr. Marberger below.
|
The Committee
considered the factors set forth above under the heading Individual Named Executive Officer Considerations when determining grant sizes by individual. Grants to the named executive officers other than Mr. Marberger were made on
July 11, 2016. As with his option award, Mr. Marbergers RSUs were granted effective September 1, 2016.
The grant date fair value of the RSUs awarded to our named executive officers is included in the Stock
Awards column of the Summary Compensation Table Fiscal 2017.
Long-Term Incentive Plan Performance Shares
Performance shares generally represent an opportunity to earn a defined number of shares of our common stock if we achieve
pre-set
performance goals over time. The three-year nature of each performance share grant means that in any year, a named executive officer can have up to three outstanding performance share plan, or PSP, cycles
outstanding. In fiscal 2017, for example, named executive officers could have been participants in our fiscal 2015 to 2017 PSP, our fiscal 2016 to 2018 PSP and our fiscal 2017 to 2019 PSP.
30
Compensation Discussion and Analysis
The targeted number of performance shares granted to our named executive officers in fiscal 2017,
together with the performance share grants made under the comparable program in fiscal 2016 and fiscal 2015, are set forth below.
|
|
|
|
|
|
|
Named Executive
Officer
|
|
Targeted Performance
Shares for Fiscal
2017 to 2019 Cycle (1)
|
|
Targeted Performance
Shares for Fiscal
2016 to 2018 Cycle (1)
|
|
Targeted Performance
Shares for Fiscal
2015 to 2017 Cycle (1)
|
|
|
|
|
Mr. Connolly
|
|
88,665
|
|
94,372
|
|
80,832 (2)
|
|
|
|
|
Mr. Marberger
|
|
22,698
|
|
-
|
|
-
|
|
|
|
|
Ms. Batcheler
|
|
22,698
|
|
24,159
|
|
34,325
|
|
|
|
|
Mr. Biegger
|
|
17,023
|
|
19,492 (3)
|
|
-
|
|
|
|
|
Mr. McGough
|
|
22,698
|
|
24,159
|
|
34,325
|
|
|
|
|
Mr. Gehring
|
|
-
|
|
8,054 (4)
|
|
22,884 (4)
|
|
(1)
|
The number of performance shares noted here reflects an equitable adjustment made to the original award in connection with the Spinoff. For information about equitable adjustments made to equity awards in connection
with the Spinoff, please see Special Note on the Treatment of Equity Awards in the Spinoff below. Prior to the Spinoff (and the corresponding equitable adjustment), the targeted number of performance shares granted under the fiscal 2017
to 2019 cycle were as follows: for Mr. Connolly, 65,992 performance shares; for Mr. Marberger, 16,894 performance shares; for Ms. Batcheler, 16,894 performance shares; for Mr. Biegger, 12,670 performance shares; and for
Mr. McGough, 16,894 performance shares. Prior to the Spinoff (and the corresponding equitable adjustment), the targeted number of performance shares granted under the fiscal 2016 to 2018 cycle were as follows: for Mr. Connolly, 70,239
performance shares; for Ms. Batcheler, 17,981 performance shares; for Mr. Biegger, 14,507 performance shares; for Mr. McGough, 17,981 performance shares; and for Mr. Gehring, 17,981 performance shares. Prior to the Spinoff (and
the corresponding equitable adjustment), the targeted number of performance shares granted under the fiscal 2015 to 2017 cycle were as follows: for Mr. Connolly, 60,162 performance shares; for Ms. Batcheler, 25,547 performance shares; for
Mr. McGough, 25,547 performance shares; and for Mr. Gehring, 25,547 performance shares.
|
|
(2)
|
Mr. Connolly commenced employment with us during the fourth quarter of fiscal 2015 and was granted participation in the fiscal 2015 to 2017 cycle of the PSP.
|
|
(3)
|
Mr. Biegger commenced employment with us during the second quarter of fiscal 2016 and was granted participation in the fiscal 2016 to 2018 cycle of the PSP.
|
|
(4)
|
Mr. Gehring served for a portion of fiscal 2017; he retired in connection with the Spinoff on November 9, 2016. The number of performance shares noted here reflects a proration of his initial targeted
performance share grants for the fiscal 2015 to 2017 cycle of the PSP and the fiscal 2016 to 2018 cycle of the PSP, in each case to reflect the number of full fiscal years he served during the relevant performance period.
|
The level at which our named executive officers will earn the awards subject to these grants is dependent on the companys performance over time
against two sets of goals: an overarching adjusted EPS goal and underlying performance goals.
Overarching EPS Performance
Goal.
Similar to the FY17 MIP, the PSP utilizes an overarching adjusted EPS performance goal for our most senior executive participants. The PSPs framework allows performance share awards to potentially qualify as tax deductible
under Section 162(m) of the Code. The overarching adjusted EPS goal applicable to the named executive officers in each PSP cycle outstanding during fiscal 2017 was as follows:
31
Compensation Discussion and Analysis
|
|
|
|
|
Fiscal 2015 to 2017 cycle
|
|
Adjusted EPS of $0.10 in each of fiscal years 2015, 2016, and 2017 (1)
|
Fiscal 2016 to 2018 cycle
|
|
Adjusted EPS of $0.10 in each of fiscal years 2016, 2017, and 2018 (2)
|
Fiscal 2017 to 2019 cycle
|
|
Adjusted EPS of $0.10 in each of fiscal years 2017, 2018, and 2019
|
|
(1)
|
Because of Mr. Connollys hire date, his performance share grant for the fiscal 2015 to 2017 cycle of the PSP is subject to an overarching EPS goal covering only fiscal years 2016 and 2017 ($0.10 in each
fiscal year). The underlying performance goal for his fiscal 2015 to 2017 grant average EBITDA Return on Capital and Net Sales Growth is the same as that applicable to other named executive officer participants.
|
|
(2)
|
Because of Mr. Bieggers hire date, his performance share grant for the fiscal 2016 to 2018 cycle of the PSP is subject to an overarching EPS goal covering the second quarter through the fourth quarter of
fiscal 2016 ($0.05 of adjusted EPS during this period) and fiscal years 2017 and 2018 ($0.10 in each fiscal year). The underlying performance goal for his fiscal 2016 to 2018 grant average EBITDA Return on Capital is the same
as that applicable to the other named executive officer participants.
|
As with the FY17 MIP, the adjusted EPS goal must be met before
any payout can be made to a named executive officer. If the overarching adjusted EPS goal is met, the Committee can exercise negative discretion to potentially reduce, but not increase, authorized payouts. This negative discretion is guided by
performance against underlying financial goals approved by the Committee. Refer to our discussion below under Tax and Accounting Implications of the Committees Compensation Decisions for more information on this plan design.
Underlying
Pre-Established
Performance Goals.
Near the beginning of each performance period of
a cycle of the PSP, the Committee approves underlying performance goals aligned with threshold, target, and maximum incentive opportunities. If the overarching adjusted EPS goal for the cycle is ultimately met, the named executive officers
participating in the cycle are eligible to earn a payout in shares of common stock of between 0% and 220% (in the case of the fiscal 2015 to 2017 cycle) or 0% and 200% (in the case of the fiscal 2016 to 2018 and fiscal 2017 to 2019 cycles) of their
respective target amounts with respect to each applicable performance period.
For each cycle of the PSP outstanding during fiscal 2017, EBITDA
Return on Capital was a key underlying performance metric. This metric is calculated by dividing EBITDA by average invested capital as follows:
|
|
|
|
|
EBITDA
|
|
=
|
|
Earnings before interest and taxes + Depreciation and amortization
expense
|
Average Invested Capital
|
|
|
Interest bearing debt + Equity (13 period average)
|
For the fiscal 2015 to 2017 cycle of the PSP, the Committee chose to include a second underlying performance metric:
average net sales growth (Net Sales Growth) over the three-year performance period. The Committee has chosen not to include a net sales metric as part of the 2016 and 2017 tranches of the fiscal 2016 to 2018 cycle or the 2017 tranche of
the fiscal 2017 to 2019 cycle.
In the case of both EBITDA Return on Capital and Net Sales Growth, the operating results may be adjusted for items
impacting comparability of results.
FY15 to FY17 Cycle of the PSP.
The underlying performance goals for the fiscal 2015 to 2017
cycle were set as follows.
32
Compensation Discussion and Analysis
|
|
|
|
|
|
|
Plan Cycle
|
|
Threshold
3-Year
Average EBITDA
Return on Capital
|
|
Target
3-Year
Average EBITDA
Return on Capital
|
|
Maximum
3-Year
Average EBITDA
Return on Capital
|
|
|
|
|
FY15-FY17 Cycle
|
|
14.2%
|
|
17.5%
|
|
19.5%
|
|
Achievement at this level would result in a payout equal to 25% of the targeted opportunity; achievement below this level would result in a 0% payout
|
|
Achievement at this level would result in a payout equal to 100% of the targeted opportunity (with an opportunity for additional funding based on the Net Sales Growth feature)
|
|
Achievement at or above this level would result in a payout equal to 200% of the targeted opportunity the maximum level of payout, before taking into account the Net Sales Growth feature
|
|
|
|
Net Sales Growth:
|
|
If EBITDA Return on Capital of 15.5% or greater was achieved for fiscal 2015 to 2017, an additional payout could be earned based on the three-year
average Net Sales Growth during the performance period. The additional payout under this secondary metric was designed to provide between zero and 20 points of funding based on the following framework (with no interpolation):
20 points if
three-year average Net Sales Growth of 4.5% or more was achieved;
15 points if three-year average Net Sales Growth of 3.5% to 4.49% was achieved;
10 points if
three-year average Net Sales Growth of 2.5% to 3.49% was achieved; and
5 points of funding if three-year average Net Sales Growth of 1.5% (threshold) to
2.49% was achieved.
|
As a result of the
two-metric
structure, high levels of financial performance
were designed to result in payouts up to a total of 220% of targeted shares under the fiscal 2015 to 2017 cycle.
The Committee selected these
financial metrics for the fiscal 2015 to 2017 cycle because it believed they have a positive impact on shareholder value. At the time the goals were set, the Committee believed they appropriately balanced the interests of shareholders and
participants.
FY16 to FY18 Cycle of the PSP.
For the fiscal 2016 to 2018 cycle of the PSP, the Committee chose to approve the
underlying performance goals in a multi-step process. This shift was a result of the significant amount of change being led by Mr. Connolly. At the time of incentive plan goal setting for fiscal 2016, Mr. Connolly was only four months into
his tenure. The portfolio, cost, and cultural overhauls he identified had just commenced. In addition, strategic alternatives were being launched for a major business unit, Private Brands. As a result, multi-year performance objectives were
challenging to set. Therefore, the Committee decided to set the underlying goals relevant to the fiscal 2016 to 2018 cycle of the PSP in stages.
In
August 2015, the Committee approved the first set of underlying performance goals for the fiscal 2016 to 2018 PSP. The Committee approved a fiscal 2016 EBITDA Return on Capital goal applicable to 1/3 of the total targeted fiscal 2016 to 2018 award.
Thereafter, in August 2016, the Committee approved the second set of underlying performance goals for the fiscal 2016 to 2018 PSP. Again, the Committee used EBITDA Return on Capital. It applied this goal, for fiscal 2017 performance, to a second 1/3
of the total targeted fiscal 2016 to 2018 award. The Committee agreed to approve the underlying performance goal for fiscal 2018 performance and the remaining 1/3 of the targeted award in the summer of 2017.
33
Compensation Discussion and Analysis
We refer to a portion of a PSP award as a tranche, and detail the specific EBITDA Return on Capital
goals for the fiscal 2016 to 2018 cycle here:
|
|
|
|
|
|
|
Plan Cycle
|
|
Threshold
Average EBITDA
Return on Capital
|
|
Target
Average EBITDA
Return on Capital
|
|
Maximum
Average EBITDA
Return on
Capital
|
|
|
|
|
FY16 Tranche of FY16-FY18 Cycle (1)
(1/3 of Total Grant)
|
|
20.2%
|
|
22.8%
|
|
25.1%
|
|
|
|
|
FY17 Tranche of FY16-FY18 Cycle (2)
(1/3 of Total Grant)
|
|
17.9%
|
|
20.5%
|
|
22.8%
|
|
|
|
|
|
|
Achievement at or below these levels would result in no payout for the related tranche
|
|
Achievement at this level would result in a payout equal to 100% of the targeted opportunity for the related tranche
|
|
Achievement at or above this level would result in a payout equal to 200% of the targeted
opportunity the maximum level of payout for the related tranche
|
|
(1)
|
The FY16 EBITDA Return on Capital goal related to the companys
pre-Spinoff
portfolio of businesses. As reported in last years proxy statement, we achieved EBITDA
Return on Capital of 25.1% for fiscal 2016, resulting in this tranche being notionally earned at 200% of target. However, the Committee has not yet exercised additional discretion to increase or decrease final earned amounts for this cycle. Further,
awards for our named executive officers remain subject to the overarching adjusted EPS goal. For more information regarding the portion of the
FY16-18
PSP award notionally earned in fiscal 2016, see last
years proxy statement.
|
|
(2)
|
The FY17 EBITDA Return on Capital goal relates solely to the companys post-Spinoff portfolio of businesses.
|
As noted above, the Committee chose to eliminate the Net Sales Growth goal for the fiscal 2016 to 2018 cycle of the PSP. Achievement of the
companys net sales commitments to shareholders remained a priority. However, with the portfolio work underway, the Committee determined that profit improvement and capital allocation were more important focus areas for the senior leadership.
FY17 to FY19 Cycle of the PSP.
During fiscal 2016, the company continued its transformation under Mr. Connollys
leadership. Among other initiatives, the company announced and began preparing for the Spinoff. With the Spinoff still pending at the start of fiscal 2017, the Committee determined that it was appropriate to continue using a staged goal-setting
approach for the PSP. The Committee knew that the companys portfolio of businesses would be changed meaningfully during fiscal 2017, and that a three-year goal would be challenging to set. As a result, the Committee determined that it was
appropriate to approve the underlying performance goals for the fiscal 2017 to 2019 cycle of the PSP in two tranches: a fiscal 2017 goal, set in the summer of 2016, would be applicable to 1/3 of the total targeted fiscal 2017 to 2019 award, and a
second fiscal 2018 to 2019 goal, set in the summer of 2017, would be applicable to the remaining 2/3 of the targeted award.
34
Compensation Discussion and Analysis
In August 2016, the Committee approved the following fiscal 2017 EBITDA Return on Capital goal
applicable to 1/3 of the total targeted fiscal 2017 to 2019 PSP award:
|
|
|
|
|
|
|
Plan Cycle
|
|
Threshold
Average EBITDA
Return on Capital
|
|
Target
Average EBITDA
Return on Capital
|
|
Maximum
Average EBITDA
Return on
Capital
|
|
|
|
|
FY17 Tranche of FY17-FY19
Cycle (1)
(1/3 of Total Grant)
|
|
17.9%
|
|
20.5%
|
|
22.8%
|
|
|
|
|
|
|
Achievement at or below these levels would result in no payout for the related tranche
|
|
Achievement at this level would result in a payout equal to 100% of the targeted opportunity for the related tranche
|
|
Achievement at or above this level would result in a payout equal to 200% of the targeted
opportunity the maximum level of payout for the related tranche
|
|
(1)
|
The FY17 EBITDA Return on Capital goal relates solely to the companys post-Spinoff portfolio of businesses.
|
Because the overarching performance goal for the total fiscal 2017 to 2019 PSP cycle was established in fiscal 2017, the grant date fair value of all
performance shares granted under the fiscal 2017 to 2019 cycle, based on the probable outcome of the performance conditions for such period, is included in the Stock Awards column of the Summary Compensation Table Fiscal
2017.
PSP Awards Earned for Fiscal 2017: FY15 to FY17 Cycle.
At the end of fiscal 2017, the fiscal 2015 to 2017 cycle of the PSP
concluded. The Committee certified the overarching performance goals for adjusted EPS; the companys performance exceeded the thresholds in the plan (as discussed above). The Committee also assessed the companys average EBITDA Return on
Capital and average Net Sales Growth performance. The Committees assessment of these underlying performance goals was impacted by the Spinoff.
In connection with the Spinoff, we entered into an employee matters agreement with Lamb Weston, which we refer to as the Employee Matters Agreement.
Among other things, the Employee Matters Agreement provided that the Committee would score our average EBITDA Return on Capital and average Net Sales Growth achievement for purposes of the fiscal 2015 to 2017 cycle of the PSP as of the end of the
companys last fiscal period ending prior to the Spinoff. After factoring in reported results and approved adjustments, we achieved average EBITDA Return on Capital of 17.2%. Our average Net Sales Growth failed to reach threshold payout levels.
According to the
pre-established
goals, this performance level equated to a payout of 94.9% of the targeted performance share awards. For more information about this process, see Special Note on the
Treatment of Equity Awards in the Spinoff and Use of Adjustments in Compensation Decisions below.
Although the underlying
performance metrics were scored prior to the end of fiscal 2017, the awards granted to the named executive officers remained subject to the cycles overarching adjusted EPS goal for the entire original performance period and, generally,
continued employment.
35
Compensation Discussion and Analysis
The table below lists the number of shares of common stock that were issued to the named executive
officers following fiscal 2017 for the fiscal 2015 to 2017 cycle of the PSP. Neither Mr. Marberger nor Mr. Biegger participated in the cycle. The noted amounts include dividend equivalents on earned shares, which were paid in additional
shares.
|
|
|
|
|
|
|
Named Executive
Officer
|
|
Targeted Performance
Shares Granted for Fiscal
2015 to 2017 Cycle (1)
|
|
Actual Performance Shares
Earned for Fiscal 2015 to
2017 Cycle
|
|
Actual as % of Target (with
Dividend Equivalents)
|
|
|
|
|
Mr. Connolly
|
|
80,832
|
|
80,820
|
|
100%
|
|
|
|
|
Ms. Batcheler
|
|
34,325
|
|
35,070
|
|
102%
|
|
|
|
|
Mr. McGough
|
|
34,325
|
|
35,070
|
|
102%
|
|
|
|
|
Mr. Gehring
|
|
22,884
|
|
23,380
|
|
102%
|
|
(1)
|
The number of target performance shares noted here reflects an equitable adjustment made to the original award in connection with the Spinoff. Prior to the Spinoff (and the corresponding equitable adjustment), the
targeted number of performance shares granted were as follows: for Mr. Connolly, 60,162; for Ms. Batcheler, 25,547; for Mr. McGough, 25,547; and for Mr. Gehring, 25,547. For information about equitable adjustments made to equity
awards in connection with the Spinoff, please see Special Note on the Treatment of Equity Awards in the Spinoff below.
|
PSP Awards Notionally Earned for Fiscal 2017: FY17 Tranches of the FY16 to FY18 Cycle and FY17 to FY19 Cycle.
After fiscal 2017 was
completed, the Committee determined the relative achievement against the underlying performance metric applicable to the fiscal 2017 tranche of the fiscal 2016 to 2018 cycle and fiscal 2017 to 2019 cycle of the PSP. Awards granted to the named
executive officers under both cycles (including the 2017 tranche) remain subject to the overarching adjusted EPS goals applicable to the cycle and, generally, continued employment. After factoring in reported results and approved adjustments, we
achieved fiscal 2017 average EBITDA Return on Capital of 21.4%. According to the
pre-established
goals, this level of performance permits funding at 122.8% of target for the 2017 tranche under both cycles.
This percentage can still be adjusted by the Committee prior to payout after the three-year performance period for the fiscal 2016 to 2018 cycle or fiscal 2017 to 2019 cycle, as applicable, is completed, depending on the Committees further
evaluation of performance under the applicable underlying metrics and other considerations, subject to the funding conditions for such award. For information about the use of adjustments approved by the Committee and applicable to the 2017 tranche
of the fiscal 2016 to 2018 PSP and the fiscal 2017 to 2019 PSP, please see Use of Adjustments in Compensation Decisions.
Dividend
Equivalents.
Dividend equivalents are paid on the portion of the performance shares actually earned; dividend equivalents are paid at the regular dividend rate in shares of our common stock.
Other Notes on Performance Shares.
In general, performance shares that have not been paid at the time of a participants
termination of employment are forfeited. An exception allows for pro rata payouts, based on actual plan performance, in the event of death, disability or retirement. The Committee has also retained the discretion to provide for payouts on
termination when it finds it appropriate and in the best interest of Conagra Brands. To date, however, the Committee has not used this discretion.
Special Note on the Treatment of Equity Awards in the Spinoff
In connection with the Spinoff, certain equitable adjustments were made to all of the companys outstanding equity awards, including those held by
the named executive officers. The equitable adjustments were made to maintain after the Spinoff the approximate aggregate intrinsic value that the original award had prior to the Spinoff. A description of the equitable adjustments is set forth
below.
36
Compensation Discussion and Analysis
Each outstanding company equity incentive award other than performance shares held by a Conagra Brands
employee (which includes the named executive officers other than Mr. Gehring) that was outstanding as of the Spinoff was equitably adjusted to retain, immediately after the Spinoff, the approximate intrinsic value that it had immediately prior
to the Spinoff. In each case, the equitable adjustment was accomplished by adjusting the number of shares subject to the award (and, in the case of stock options, the applicable exercise price). More specifically, the number of shares underlying
each award was recalculated based on a ratio comparing the average volume weighted average price per share of Conagra Brands for the five trading day period prior to the Spinoff to the average volume weighted average price per share of Conagra
Brands for the five trading day period following the Spinoff. The ratio was applied to the number of company shares subject to the award. Generally, such awards remain subject to substantially the same terms and conditions after the Spinoff as the
terms and conditions that applied prior to the Spinoff.
Performance shares held by Conagra Brands employees (which includes the named executive
officers other than Mr. Gehring) that were outstanding as of the Spinoff were equitably adjusted in accordance with the terms of our equity plans so that the awards immediately after the Spinoff, in the aggregate, generally maintained the same
approximate intrinsic value that the awards had immediately prior to the Spinoff. Specific treatment was dependent upon the year in which the performance shares were originally granted and whether such awards were intended to constitute
qualified performance-based compensation for purposes of Section 162(m) of the Code.
Mr. Gehring ceased employment with
Conagra Brands and continued employment with Lamb Weston, effective as of the Spinoff. Mr. Gehring joined Lamb Weston as its interim Chief Financial Officer. Because Mr. Gehring planned to serve as the interim Chief Financial Officer of
Lamb Weston for only a limited period of time, and in accordance with his Interim Position and
Non-Compete
Agreement (as described below), Mr. Gehrings outstanding company equity awards were treated
similarly to those held by the other named executive officers. That is, they were equitably adjusted to reflect the Spinoff and continued to cover shares of Conagra Brands common stock. However, as of the Spinoff, the service or employment
requirements under Mr. Gehrings equity awards were based on Mr. Gehrings service or employment with Lamb Weston rather than Conagra Brands. For more information about Mr. Gehrings retirement from Conagra, please see
Agreements with Named Executive Officers Departure of Mr. Gehring below.
As provided for under the Employee
Matters Agreement (and as described above), the Committee equitably adjusted the performance shares for the fiscal 2015 to 2017 cycle for all of our named executive officers (including Mr. Gehring) and scored the underlying EBITDA Return on
Capital and Net Sales Growth metrics as of the end of the last fiscal period ending prior to the Spinoff. Because of the timing of the Spinoff, the cycle was scored based on two years and five months of performance. Based on our performance results
for such underlying metrics, the Committee approved achievement of the metrics at 94.9% of target. However, the vesting of such awards remained subject to achievement of the threshold adjusted EPS performance goal applicable to the fiscal 2015 to
2017 cycle. For performance shares for the fiscal 2016 to 2018 and fiscal 2017 to 2019 cycles held by all of our named executive officers (including Mr. Gehring), the underlying performance metrics continue to apply.
Other Fiscal 2017 Compensation
The additional
material elements of our compensation program for the named executive officers during fiscal 2017 were as follows:
Benefit
Programs.
We offer a package of core employee benefits to our employees, including our named executive officers. With respect to health and welfare benefits, we offer health, dental, and vision coverage and life and disability
insurance. The company and employee participants share in the cost of these programs. We also offer a matching-gifts program through our Conagra Brands Foundation. To maximize community impact, the Conagra Brands Foundation will match, dollar for
dollar, donations employees make to eligible organizations, up to $1,000 in a calendar year. Donations made by the Foundation on behalf of a named executive officer are included in the All Other Compensation column of the Summary
Compensation Table Fiscal 2017.
37
Compensation Discussion and Analysis
With respect to retirement benefits, we maintain qualified 401(k) retirement plans (with a company
match on employee contributions) and qualified pension plans. The named executive officers are entitled to participate in these plans on the same terms as other employees.
Some of the named executive officers and other employees at various levels of the organization participate in a
non-qualified
pension plan,
non-qualified
401(k) plan, and/or voluntary deferred compensation plan. The
non-qualified
pension,
non-qualified
401(k), and voluntary deferred compensation plans permit us to pay retirement benefits in amounts that exceed the limitations imposed by the Code under our qualified plans.
Our voluntary deferred compensation plan allows the named executive officers, as well as a broader group of approximately 400 employees, to defer receipt
of up to 50% of their base salary and 90% of their annual cash incentive compensation. The program permits executives to save for retirement in a
tax-efficient
way at minimal administrative cost to the
company. Executives who participate in the program are not entitled to above-market (as defined by the SEC) or guaranteed rates of return on their deferred funds.
We include contributions made by the company to the named executive officers 401(k) plan,
non-qualified
401(k) plan, and voluntary deferred compensation accounts in the All Other Compensation column of the Summary Compensation Table Fiscal 2017. We provide a complete description of these retirement programs under the
headings Pension Benefits Fiscal 2017 and Nonqualified Deferred Compensation Fiscal 2017 below.
Perquisites.
The Committee has determined that it is appropriate to cover Mr. Connolly by our security policy. As a result,
Mr. Connolly is required to take corporate aircraft for all business and personal air transportation. To offset a portion of the incremental cost to the company of his personal use of corporate aircraft, we entered into an aircraft time share
agreement with Mr. Connolly. Under the agreement, Mr. Connolly is responsible for reimbursing us, in cash, certain amounts to help offset a portion of our incremental costs of personal flights, consisting of the cost of fuel and
incidentals such as landing and parking fees, airport taxes and catering costs for such flights. We do not charge for the fixed costs that would be incurred in any event to operate company aircraft (for example, aircraft purchase costs, maintenance,
insurance and flight crew salaries). Mr. Connollys reimbursement obligation to the company begins once the incremental cost of his personal flights exceeds $150,000 in a fiscal year. The incremental cost to us of providing these benefits
in fiscal 2017, if any, is included in the All Other Compensation column of the Summary Compensation Table Fiscal 2017.
A copy of the Conagra Brands, Inc. Aircraft Use Policy is available upon request by a shareholder to the Corporate Secretary at 222 Merchandise Mart
Plaza, Suite 1300, Chicago, Illinois 60654.
Relocation Benefits.
In fiscal 2016, the decision was made, as a part of the
companys efforts to overhaul its culture, to relocate its headquarters from Omaha, Nebraska to Chicago, Illinois. As a result, Ms. Batchelers role was moved to the new headquarters. In connection with her relocation to Chicago,
Illinois, Ms. Batcheler was provided relocation benefits consistent with those provided to other officers of the company, plus associated tax assistance. Mr. Biegger also received relocation benefits in fiscal 2017, which relocation
benefits were consistent with those provided to other officers of the company, plus associated tax assistance, as well as additional payments to assist him with expenses incurred as a result of the significant amount of time his role was required to
spend at our Omaha offices following the relocation of his role to Chicago. The incremental cost to us of providing these benefits in fiscal 2017, if any, is included in the All Other Compensation column of the Summary Compensation
Table Fiscal 2017.
Agreements with Named Executive Officers
Agreement with Mr.
Connolly
.
We entered into an employment agreement with Mr. Connolly in
February 2015 as a part of his hiring as our Chief Executive Officer. The agreement expires on August 1, 2018. The agreement generally describes Mr. Connollys duties and responsibilities as CEO, and, for its term, provides for a
minimum base salary of $1.1 million and a customary vacation allowance. The employment agreement also outlines Mr. Connollys participation in our incentive compensation programs during its term. Regarding the annual incentive
program, the agreement provides that Mr. Connollys target opportunity must be at least 150% of his base salary. With respect to long-term incentives,
38
Compensation Discussion and Analysis
commencing with fiscal 2016, Mr. Connolly is entitled, each year during the term of the agreement, to receive a targeted long-term award opportunity with a value of at least
$6.25 million for any ensuing three-year performance period. For the 2015 to 2017 performance cycle, the employment agreement entitled Mr. Connolly to an award opportunity under the PSP with a grant date value of $2.09 million, which
award is described above.
The agreement subjects Mr. Connolly to our stock ownership guidelines and a
one-year
post-employment
non-competition
restriction. It also requires Mr. Connolly to execute our standard confidentiality and
non-solicitation
agreement.
The employment agreement also provides Mr. Connolly with certain other
benefits, including indemnification. The agreement entitles Mr. Connolly to use corporate aircraft, as further described above and under Executive Compensation Summary Compensation Table Fiscal 2017
below.
The employment agreement provides for severance, termination and change of control benefits further described below under the heading
Executive Compensation Potential Payments Upon Termination or Change of Control.
The agreement also entitles
Mr. Connolly to participate in benefit plans and programs that are made available to senior executives generally. For information about the terms of Mr. Connollys participation in our retirement plans and deferred compensation plans,
see Executive Compensation Nonqualified Deferred Compensation Fiscal 2017 below.
Departure of
Mr.
Gehring.
On May 18, 2016, Mr. Gehring notified us of his intent to retire from the company. It was initially anticipated that Mr. Gehring would continue to serve as our principal financial
officer until August 29, 2016 and retire from Conagra Brands on or about September 30, 2016. In connection with his anticipated retirement, we entered into a Transition and
Non-Competition
Agreement,
dated August 29, 2016, with Mr. Gehring which, among other things, required Mr. Gehring to comply with certain
non-competition
and employee
non-solicitation
obligations for periods of 12 and 24 months following his retirement date and provided that, until his cessation of employment, Mr. Gehring would provide certain services in connection
with Mr. Marbergers transition into the CFO role. The agreement also provided that, subject to the terms of the agreement, we would make certain cash payments to Mr. Gehring.
However, it was subsequently determined that Mr. Gehring would serve as principal financial officer for Lamb Weston on an interim basis prior to,
and for a limited time following, the Spinoff. As such, on September 28, 2016, we and Mr. Gehring entered into an Interim Position and
Non-Compete
Agreement, which we refer to as the Gehring Interim
Agreement. The Gehring Interim Agreement superseded in its entirety the Transition and
Non-Competition
Agreement.
Under the Gehring Interim Agreement, Mr. Gehring was to serve as the Vice President and interim Chief Financial Officer of Lamb Weston for a limited
period that was generally expected to continue until December 15, 2016. The Gehring Interim Agreement provided that Mr. Gehring would receive a base salary during his employment at an annual rate of $650,000. It further provided that
Mr. Gehring would continue to participate in the companys FY17 MIP until the completion of the Spinoff, but that his payout would be
pro-rated
based on his actual service to Conagra Brands during
fiscal year 2017 prior to the Spinoff. The Gehring Interim Agreement also provided that Mr. Gehring would participate in Lamb Westons fiscal year 2017 short-term annual cash incentive program after completion of the Spinoff on a
pro-rata
basis tied to his actual service to Lamb Weston during fiscal 2017 following the Spinoff.
Under the
Gehring Interim Agreement, Mr. Gehrings equity awards outstanding at the time of the Spinoff were to be equitably adjusted under the terms of our equity plans to reflect the Spinoff, would settle in shares of Conagra Brands stock, and
would continue vesting based on his service to Lamb Weston after the Spinoff. Mr. Gehring would also remain eligible for early retirement treatment for his equity awards.
Pursuant to the Gehring Interim Agreement, prior to the Spinoff, Mr. Gehring would continue to participate in our applicable benefit plans, but he
would cease such participation at the time of the Spinoff and participate in Lamb Westons benefit plans thereafter. Mr. Gehring would also be entitled to (1) use our or Lamb Westons aircraft for commuting purposes related to
his employment and (2) reimbursement for reasonable legal expenses relating to the execution of the Gehring Interim Agreement. He would also be available to assist and cooperate with Conagra Brands with respect to matters of which he is
knowledgeable for up to one year after the Spinoff.
39
Compensation Discussion and Analysis
Under the Gehring Interim Agreement, Mr. Gehring is eligible for a payment of $250,000 as
consideration for his execution and the
non-revocation
of a customary release of claims. In addition, if Mr. Gehring complies with the terms of the Gehring Interim Agreement (including certain customary
confidentiality,
two-year
non-solicitation,
one-year
non-competition,
and mutual
non-disparagement
covenants) and executes and does not revoke both the first release and an additional customary release of claims following his separation from service, he will be entitled to receive $400,000,
$200,000 of which is payable six months following his separation from service and the remaining $200,000 of which is payable 12 months following his separation from service.
Commencement of Employment of Mr.
Marberger.
In connection with his commencement of employment as Executive Vice
President and Chief Financial Officer in August 2016, Mr. Marberger executed an offer letter, dated July 1, 2016. The offer letter provided that Mr. Marbergers initial base salary would be $580,000 and that he would be eligible
to participate in our annual and long-term incentive programs. As noted above, he participated in the FY17 MIP with a target opportunity of 80% of his annual base salary, prorated for fiscal 2017 based on his days of employment. In addition,
Mr. Marberger is a participant in our long-term incentive program, as described above. His participation in the long-term incentive program provided an initial targeted opportunity equal to $1,600,000.
Pursuant to the offer letter, on September 1, 2016, Mr. Marberger was granted a
sign-on
grant of 14,287
RSUs (after the Spinoff-related equitable adjustment), which RSUs are generally scheduled to vest ratably on each of the first two anniversaries of the grant date. These RSUs will vest in full if we terminate Mr. Marbergers employment
without cause prior to the second anniversary of the grant date.
Pursuant to the offer letter, Mr. Marberger also received a
one-time
cash
sign-on
cash payment of $200,000. Fifty percent (50%) of this payment was intended to compensate Mr. Marberger for travel and housing expenses during his
first 12 months of employment and to assist with costs associated with Mr. Marbergers commute from his home to our Chicago office prior to his permanent relocation. In addition, if Mr. Marbergers interim travel and housing
expenses exceed $100,000 during his first 12 months of employment, Mr. Marberger may be eligible to receive an additional cash payment of $50,000. However, if Mr. Marbergers employment terminates voluntarily or involuntarily within
one year of his commencement of employment (other than for reasons unrelated to his performance or behavior), then $100,000 of such payments must be repaid to us. We made these grants to ease the employment transition for Mr. Marberger, as he
forfeited an annual incentive opportunity and equity awards in connection with his termination of employment with his prior employer.
The offer
letter also provided that Mr. Marberger would be eligible to participate in our standard relocation program for our officers and health and welfare and retirement programs generally applicable to our employees.
Arrangements with Mr.
Biegger
.
In connection with his commencement of employment and assumption of the role
of Executive Vice President, Chief Supply Chain Officer in October
2015, Mr. Biegger executed an offer letter, dated September 9, 2016. Among other things, the offer letter provided that Mr. Bieggers initial base salary
would be $500,000. The offer letter also provided that Mr. Biegger would be eligible to participate in our annual and long-term incentive programs, as described above. Pursuant to the offer letter, if Mr. Biegger departs the company after
he has reached age 62 but before he has achieved retirement eligibility under the companys equity programs, then, with the approval of the Committee, which approval will not be unreasonably withheld, (1) stock options granted pursuant to
the annual long-term incentive program and vested at the time of his departure will be amended to provide Mr. Biegger the remaining life of the option to exercise, and (2) his departure will be treated as a position elimination for
purposes of determining
pro-rata
vesting of RSU grants that are made prior to the date of Mr. Bieggers notice to Conagra of his intent to depart pursuant to our annual long-term incentive program.
The offer letter also provided that Mr. Biegger would be eligible to participate in our standard relocation program for senior officers.
Change of Control / Severance Benefits
.
We have agreements with our named executive officers that are designed to promote
stability and continuity of senior management in the event of a change of control. The Committee routinely evaluates participation in this program and its benefit levels to ensure their reasonableness. Since fiscal 2012, individuals
40
Compensation Discussion and Analysis
promoted or hired into positions that, in the Committees view, are appropriate for change of control program participation have not been entitled to any excise tax
gross-up
protection. Although the Committee continues to believe in the importance of maintaining a change of control program, it believes that offering excise tax
gross-ups
to new participants is inappropriate relative to best executive pay practices. We provide a complete description of the amounts potentially payable to our named executive officers under these agreements under the heading Executive
Compensation Potential Payments Upon Termination or Change of Control.
We have also adopted a broad severance plan applicable to
most salaried employees, including the named executive officers. In some circumstances, as part of negotiations during the hiring or recruiting process, we have supplemented this plan with specific severance arrangements.
Committees Views on Executive Stock Ownership
The Committee has adopted stock ownership guidelines applicable to approximately 80 of our senior employees. These guidelines, which are represented as a
percentage of salary, increase with level of responsibility within the company. The Committee has adopted these guidelines because it believes that management stock ownership promotes alignment with shareholder interests. The named executive
officers are expected to reach their respective ownership requirement within a reasonable period of time after appointment. Shares personally acquired by the executive through open market purchases or through our employee stock purchase plan, as
well as RSUs and shares acquired upon the deferral of earned bonuses, are counted toward the ownership requirement. Neither unexercised stock options nor unearned performance shares are counted. The following table reflects ownership as of
July 31, 2017 for our continuing named executive officers.
|
|
|
|
|
Named Executive Officer
|
|
Stock Ownership Guideline
(% of Salary)
|
|
Actual Ownership
(% of Salary)(1)
|
Mr. Connolly
|
|
600%
|
|
795%
|
|
|
|
Mr. Marberger
|
|
400%
|
|
223%
|
|
|
|
Ms. Batcheler
|
|
400%
|
|
1598%
|
|
|
|
Mr. Biegger
|
|
300%
|
|
301%
|
|
|
|
Mr. McGough
|
|
400%
|
|
880%
|
|
(1)
|
Based on the closing price of our common stock on the NYSE on July 31, 2017 ($34.24) and the salaries of the named executive officers in effect as of fiscal year end. Messrs. Marberger and Biegger joined the
company in August 2016 and November 2015, respectively.
|
Use of Adjustments in Compensation Decisions
Our goal is to pay incentives based on the same underlying business trends and results that our investors are using to measure management performance. To
incent management to make decisions that have positive long-term impacts, even at the expense of shorter term results, and to prevent
one-time
gains and losses from having too great of an impact on incentive
payouts, the Committee designed its programs to exclude certain items impacting comparability from results in the fiscal 2017 MIP, the fiscal 2015 to 2017 cycle of the PSP, and the 2017 tranches of each of the fiscal 2016 to 2018 cycle of the PSP
and the fiscal 2017 to 2019 cycle of the PSP. The underlying metric for the fiscal 2017 MIP was fiscal 2017 EBIT. The underlying metrics for the fiscal 2015 to 2017 cycle of the PSP were EBITDA Return on Capital and average Net Sales Growth.
The underlying metric for the 2017 tranche of each of the fiscal 2016 to 2018 cycle of the PSP and the fiscal 2017 to 2019 cycle of the PSP was EBITDA Return on Capital.
The Committee approved adjustments that are generally consistent with the adjustments presented to investors in our discussions of comparable earnings
results.
41
Compensation Discussion and Analysis
Committees Practices Regarding the Timing of Equity Grants
We do not backdate stock options or grant equity retroactively. We do not coordinate grants of equity with disclosures of positive or negative
information. Most equity is granted in the ordinary course at an annual Committee meeting each July.
The Committee has decided to eliminate the
granting of stock options from its executive compensation program in fiscal 2018 and forward. However, historically, stock options have been granted with an exercise price equal to the closing market price of our common stock on the NYSE on the date
of grant. And, if a stock option grant was made other than during the routine July Committee meeting, the company would require that the grant be made on the first trading day of the month on or following the grantees date of hire.
Additional Information on the Committees Compensation Consultant
The Committee engaged FW Cook directly to assist it in obtaining and reviewing information relevant to its compensation decisions. The independence and
performance of FW Cook are of the utmost importance to the Committee. As a result, Committee policy prevents management from directly engaging the consultant without the prior approval of the Committees Chair. For fiscal 2017, FW Cook did not
provide any additional services to us or our affiliates. In addition, the Committee reviews the types of services provided by the consultant and all fees paid for those services on a regular basis and conducts a formal evaluation of the consultant
on an annual basis. The Committee assessed the independence of FW Cook, as required under NYSE listing rules. The Committee has also considered and assessed all relevant factors, including those required by the SEC that could give rise to a
potential conflict of interest with respect to FW Cook during fiscal 2017. Based on this review, the Committee did not identify any conflict of interest raised by the work performed by FW Cook.
Tax and Accounting Implications of the Committees Compensation Decisions
U.S. federal income tax law prohibits us from taking a tax deduction for certain compensation paid in excess of $1 million to our chief executive
officer or any of our three other most highly compensated executive officers, other than the chief financial officer, who are employed as of the end of the year. This limitation does not apply to qualified performance-based compensation under
federal tax law. Generally, qualified-performance based compensation is compensation paid only if performance meets
pre-established,
objective goals based on performance metrics approved by our shareholders.
The Committees general intent is to structure our executive compensation programs so that payments may be able to qualify as fully tax deductible. However, while the Committee believes it is in the best interests of the company and its
shareholders to have the ability to grant qualified performance-based compensation under Section 162(m) of the Code, it may decide from time to time to grant compensation that will not qualify as qualified performance-based
compensation for purposes of Section 162(m) of the Code. Moreover, even if the Committee intends to grant compensation that qualifies as qualified performance-based compensation for purposes of Section 162(m) of the Code,
the company cannot guarantee that such compensation ultimately will be deductible.
For fiscal 2017, all annual incentive and performance share
awards to covered employees were subject to, and made in accordance with, performance-based compensation arrangements that were intended to qualify as tax deductible. In order to achieve this potential result, the Committee approved a framework in
which (1) maximum awards under these incentive programs would be authorized upon attainment of adjusted EPS of: $0.10 for the fiscal 2017 MIP; $0.10 per year for the performance period (for Mr. Connolly, excluding fiscal 2015) for the
fiscal 2015 to 2017 cycle of the PSP; $0.10 per year for the performance period for the fiscal 2016 to 2018 cycle of the PSP for each named executive officer other than Mr. Biegger; $0.05 for the second quarter through the fourth quarter of
fiscal 2016 and $0.10 per year for each of 2017 and 2018 for the fiscal 2016 to 2018 cycle of the PSP for Mr. Biegger; and $0.10 per year for the performance period for the fiscal 2017 to 2019 cycle of the PSP; and (2) negative discretion
would be applied by the Committee to decrease
42
Compensation Discussion and Analysis
authorized awards based upon the program frameworks described above. The Committee intends to continue using this type of approach to potentially preserve the tax deductibility of its
compensation arrangements in the future. However, the Committee does retain the discretion to make payments or grants of equity that are not fully deductible (for example, a portion of Mr. Connollys salary) when, in its judgment, those
payments or grants are needed to achieve its overall compensation objectives.
43