ITEM 11. EXECUTIVE COMPENSATION
Compensation Discussion & Analysis
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Introduction
The following Compensation Discussion and Analysis, or CD&A, provides information relevant to understanding the 2017 compensation of our executive officers and former executive officers
identified in the Summary Compensation Table, whom we refer to as our NEOs, with the exception of Ms. Liane Hinrichs, our former Senior Vice President, General Counsel and Corporate. NEOs, as used in the CD&A, include only the named executive
officers who remained employed in their same position with McDermott through the date of this Amendment. For 2017, our NEOs and their respective titles were as follows:
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David Dickson, our President and Chief Executive Officer;
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Stuart Spence, our Executive Vice President and Chief Financial Officer;
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Linh Austin, our Vice President, Middle East and Caspian;
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Brian McLaughlin, our Senior Vice President, Commercial; and
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Scott Munro, our Vice President, Americas, Europe and Africa.
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The following discussion also contains statements regarding future individual and company performance targets and goals. These targets and goals are disclosed in the limited context of our
compensation programs and should not be understood to be statements of management’s expectations or estimates of results or other guidance. We caution investors not to apply these statements in other contexts.
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Our Business, the Macro Environment and our 2017 Operating Strategy
McDermott is a leading provider of integrated engineering, procurement, construction and installation (“EPCI”), front-end engineering and design and module fabrication services for
offshore, upstream field developments worldwide. We deliver fixed and floating production facilities, pipeline installations and subsea systems from concept to commissioning for complex offshore and subsea oil and gas projects. Operating in approximately
20 countries across the Americas, Europe, Africa, Asia and Australia, our integrated resources include a diversified fleet of marine vessels, fabrication facilities and engineering offices. We support our activities with comprehensive project management
and procurement services, while utilizing our fully integrated capabilities in both shallow water and deepwater construction. Our customers include national, major integrated and other oil and gas companies, and we operate in most major offshore oil and
gas producing regions throughout the world. McDermott generally has 40 or fewer active contracts at any given time, which typically span a duration of one to three years, are performed in a variety of jurisdictions, and may individually range from less
than $50 million to more than $2 billion in total contract value. We execute our contracts through a variety of methods, principally fixed-price, but also including cost reimbursable, cost-plus, day-rate and unit-rate basis or some combination of those
methods. These contracts are often performed in difficult conditions, and the cost and gross profit we realize on these contracts could vary materially from the estimated amounts due to supplier, contractor and subcontractor performance, changes in job
conditions, unanticipated weather conditions, variations in labor and equipment productivity, increases in the cost of raw materials over the term of the contract or our own performance.
The demand for our EPCI services and our ability to book new work is dependent upon the capital expenditures of oil and gas companies for the construction of development projects. Since the start of
the most recent substantial decline in the price of oil, many oil and gas companies made significant reductions in their capital expenditure budgets for 2015, 2016 and 2017. Though some of our customers have reduced their current levels of spending on
offshore exploration, development and production programs, including by deferring or delaying certain capital projects, we have seen, and expect to continue to see, other capital projects continue, as they are economically viable or strategically
necessary in a variety of oil and gas price environments. Notwithstanding this continued challenging macro environment, in 2017 McDermott remained focused on growing its leadership position in the Middle East, building upon strengthened customer
alignment and relationships with a new technology focus, proactively seeking ways to improve its cost structure and managing its cost base, deepening integration to build efficiencies and further enhance capabilities and building backlog in markets where
capital is available for investment.
Since David Dickson’s appointment as Chief Executive Officer in December 2013, McDermott has transformed as a company and positioned itself for the anticipated upturn in the oilfield services
industry through a turnaround, stabilization of the business and optimization via cost-reduction initiatives. McDermott has also been focused on sustainability and growth, through strategic asset investment and the proposed combination with Chicago
Bridge & Iron Company N.V. (“CB&I”) announced in late 2017.
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2
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3
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Stabilization
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New leadership took countermeasures to stop multi-year EBIT
decline
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Stronger relationships with key customers—signaled a
transformation of McDermott
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Optimization
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Undertook cost-reduction programs and business development efforts
across existing business lines
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Additional measures taken to improve process and asset
refreshment
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Sustainability and Growth
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Maintain strong focus on strengthening customer
relationships
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Maintain strong focus on operational and cost
effectiveness
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In 2017 our operating strategy was to maintain a sustainable, profitable and growth-oriented business, with a focus on stockholders, customers and other stakeholders. In furtherance of this strategy,
our 2017 goals were to:
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increase operating income via improved project execution;
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increase cash flow by prioritizing our liquidity needs;
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increase backlog and bookings to support our future business;
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promote pricing discipline on order intake operating margins; and
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efficiently allocate capital to profitable investments to grow our business.
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2017 Performance Highlights
Solid, consistent operational performance driven by the One McDermott Way, consistent focus on liquidity and strong customer relationships drove the execution of McDermott’s strategy and goals
in 2017.
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REVENUES
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OPERATING INCOME
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$3.0
B
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$324.2
M
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ORDER INTAKE
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BACKLOG
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$2.6
B
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$3.9
B
1
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1
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Our adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, as of January 1, 2018, will
result in a decrease in our backlog of between $205 million and $220 million. See Note 3, Revenue Recognition, to the Consolidated Financial Statements included in the Original Filing for additional information.
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McDermott's 2017 financial performance was highlighted by operating income of $324.2 million, which represents a 128% increase year over year. This was the highest level of operating income achieved
in over five years and resulted in the highest operating income margin since prior to 2010. Additionally, 2017 reported revenues were the second highest achieved since 2013. Strong order intake of $2.6 billion resulted in solid year-end backlog of $3.9
billion leading into 2018.
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In addition to the significant financial performance highlights noted above, McDermott also achieved the following noteworthy strategic and operational highlights:
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Entry into the Business Combination Agreement with CB&I and certain of its subsidiaries under which McDermott and CB&I have agreed to combine their businesses;
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Entry into a new $810 million credit agreement, with a sublimit of up to $300 million available for revolving loans, representing an increase in letter of credit capacity from $450 million and extended
maturity;
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Entry into strategic Memoranda of Understanding (“MOUs”) with Saudi Aramco for (1) a land lease at the planned new maritime facility at Ras Al-Khair in Saudi Arabia and (2) the expansion and
development of our physical and human capital within Saudi Arabia; and
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The acquisition and subsequent sale-leaseback of the deepwater pipelay and construction vessel
Amazon
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In evaluating the performance of David Dickson, our President and Chief Executive Officer, the Board has considered these financial, strategic and operational results, as well as other financial and
leadership goals detailed further below, and believes that Mr. Dickson has succeeded in positioning McDermott as a stronger, more durable company, particularly during a difficult business cycle and extended challenging macro environment.
Compensation Philosophy and 2017 Compensation Program Design and Levels
The Compensation Committee is committed to targeting reasonable and competitive total direct compensation for our NEOs, with a significant portion of that compensation being performance-based. Our
compensation programs are designed to align with and drive achievement of our business strategies and provide competitive opportunities. Accordingly, achievement of most of those opportunities depends on the attainment of performance goals and/or stock
price performance. McDermott’s compensation programs are designed to provide compensation that:
Attracts, motivates and retains high-performing
executives
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Provides performance-based incentives to reward achievement of short and long-term business goals and strategic objectives while recognizing individual contributions
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Aligns the interests of our executives with those of our stockholders
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The Compensation Committee has designed and administered compensation programs aligned with this philosophy and is committed to continued outreach to stockholders to understand and address comments
on our compensation programs.
Reflecting this philosophy, our NEO compensation arrangements in 2017 provided for the continuing use of three elements of target total direct compensation: annual base salary, annual incentive
provided under our Executive Incentive Compensation Plan, or EICP, and long-term incentives, or LTI. In making compensation decisions for 2017, the Compensation Committee considered McDermott’s operating strategy and goals and significantly
improved operational and financial performance, with appreciation of the “lower for longer” macro oil and gas environment and comments received during the 2017 stockholder outreach program.
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With respect to plan design, the Compensation Committee maintained consistency:
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in the 2017 EICP performance metrics, with the continued use of operating income, free cash flow, order intake and order intake operating margin; and
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in the 2017 LTI performance metric, with the continued use of relative Return on Average Invested Capital, or relative ROAIC, in consideration of McDermott’s transformation from turnaround and
stabilization to optimization for future growth.
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Performance metrics and performance levels used within elements of annual and long-term compensation are
designed to support our strategic and financial goals and drive the creation of
stockholder value
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2017 EXECUTIVE INCENTIVE COMPENSATION PLAN
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GOAL
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PERFORMANCE METRIC
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Drive profitability via improved project execution
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Operating Income
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Prioritize liquidity needs
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Free Cash Flow
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Support future business
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Order Intake
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Promote pricing discipline on new work
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Order Intake Operating Margin
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2017 LONG-TERM INCENTIVE PLAN — PERFORMANCE UNITS
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GOAL
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PERFORMANCE METRIC
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Efficiently allocate capital to profitable investments
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Relative Return on Average Invested Capital
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Generate returns for stockholders
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Stock Price Increase
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With respect to levels of compensation, the Compensation Committee generally sought to bring 2017 NEO compensation more in line with market range (generally, within 15% of market median as further
described below). For 2017 NEO compensation, the Compensation Committee provided:
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Average annual base salary increases of approximately 6.4% to further align the NEO’s annual base salaries with market range and, in certain instances, for internal pay equity
considerations.
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Increases in annual target bonus awards, resulting in an increase in each NEO's performance-based compensation. As a result of McDermott’s 2017 financial performance, each NEO was eligible to earn 1.578x
of his target EICP award, subject to adjustment by the Compensation Committee based on his achievement of individual performance goals.
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Increases to the value of long-term incentives awarded to Messrs. Dickson and Spence as compared to 2016, based on their individual performance and to further align the value of their LTI with market
range.
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The mix of target total direct compensation for Mr. Dickson for 2017 is shown in the chart below.
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CEO TARGET 2017 COMPENSATION
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Impact of 2017 Say on Pay Vote on Executive Compensation and Stockholder Outreach
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STOCKHOLDER OUTREACH CYCLE
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2017 Stockholder Say on Pay Vote
In 2017, over 96% of our stockholders voted in favor of our executive compensation program. During both the Spring and Fall of 2017, we reached out to stockholders representing approximately 40%
of our outstanding shares of common stock and other stakeholders to gain insight regarding their perspectives on corporate governance and compensation matters. Based on our strong recent financial performance, enhancements to our compensation and
governance programs and positive say-on-pay results, limited meetings were requested by stockholders, which we believe is an indication of our stockholders’ support of our current compensation and governance framework. Our Board considered the 2017
say on pay vote and the matters discussed during our 2017 stockholder and stakeholder outreach efforts in considering any changes or enhancements to our compensation and governance programs.
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Executive Compensation Policies and Practices
Below we highlight certain of our executive compensation and governance policies and practices, including both those which we utilize to drive performance and those which we prohibit because we do not believe they would serve our stockholders’ long-term interests:
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What we do
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Pay for Performance
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A significant portion of target total direct compensation is tied to performance, including 100% of annual incentive compensation and 50% of the NEOs’ target value long-term incentive compensation.
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Meaningful Stock Ownership Guidelines
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We have stock ownership guidelines for our NEOs that generally require the retention of a dollar value of qualifying McDermott securities of 5x base salary for our CEO, 3x base salary for the other NEOs and 5x annual retainer for directors.
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Double Trigger Change in Control Agreements & Equity Agreements
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Our change in control agreements and, beginning in 2016, our equity award agreements provide benefits only upon an involuntary termination or constructive termination of the executive officer within one year following a change in control.
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Independent Compensation Consultant
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The Compensation Committee retains an independent compensation consultant to advise on executive compensation program and practices.
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Annual Compensation Risk Assessment
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Our compensation consultant assists the Compensation Committee in conducting an annual risk assessment of our compensation programs.
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Annual Advisory Vote on NEO Compensation
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We value our stockholders’ input on our executive compensation programs, and our Board of Directors seeks an annual advisory vote from stockholders to approve NEO compensation.
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Modest Directed Perquisite Program
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The Compensation Committee provides reimbursement to members of McDermott’s executive committee, or EXCOM (which includes all of our NEOs), for financial planning and required executive physicals, in a combined amount not to exceed $20,000.
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Annual Review of Share Utilization
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We evaluate share utilization levels annually by reviewing overhang levels (the dilutive impact of equity compensation on our stockholders) and annual run rates (the aggregate stock awarded as a percentage of total outstanding shares).
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Clawback Policy
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We have a clawback policy that allows McDermott to recover, under certain circumstances, compensation paid to executive officers.
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What we prohibit
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Derivatives Trading, Hedging or Pledging of McDermott Stock
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Members of the Board of Directors and employees are prohibited from engaging in derivatives trading, hedging or pledging of our common stock.
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Excise Tax Gross-Ups
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We do not provide excise tax gross-ups in our change in control agreements.
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Repricing of Underwater Stock Options
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Our equity incentive plans do not permit repricing or exchange of underwater stock options without stockholder approval.
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Employment Contracts
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None of our current NEOs has an employment contract with McDermott providing for ongoing employment.
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2017 Compensation Program
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What We Pay and Why: Elements of Total Direct Compensation
TARGET TOTAL DIRECT COMPENSATION
The Compensation Committee seeks to provide reasonable and competitive compensation. As a result, it targets the elements of total direct compensation, or “TDC,” for our NEOs generally within approximately 15% of the median compensation of our market for comparable positions. Throughout this CD&A, we refer to compensation that is within approximately 15% of market median as “market range” compensation.
The Compensation Committee may set TDC or individual elements of TDC above or below the market range to account for a NEO’s performance, experience, tenure in the role, internal pay equity and other factors or situations that are not typically captured by looking at standard market data and practices and which the Compensation Committee deems relevant to the appropriateness or competitiveness of a NEO’s compensation.
When making decisions regarding individual compensation elements, the Compensation Committee also considers the effect on the NEO’s target TDC and target total cash-based compensation (annual base salary and annual incentives at target level), as applicable. The Compensation Committee’s goal is to establish target compensation for each element that, when combined, creates a target TDC award for each NEO that is reasonable and competitive and supports our compensation philosophy and objectives.
ELEMENTS OF TOTAL DIRECT COMPENSATION
Total direct compensation is comprised of three elements: annual base salary, annual incentive and long-term incentives.
ANNUAL BASE SALARY
We pay base salaries to provide a fixed level of compensation that helps attract and retain executives. Base salary levels recognize an executive officer’s experience, skill and performance, with the goal of being market competitive based on the officer’s role and responsibilities within the organization. Adjustments may be made based on individual performance, inflation, pay relative to market and internal pay equity considerations.
ANNUAL INCENTIVE
The Compensation Committee administers our annual incentive compensation program under our Executive Incentive Compensation Plan, or EICP. The EICP is a cash incentive plan designed to motivate and reward our NEOs and other key employees for their contributions to strategic business goals and other factors that we believe drive our earnings and promote creation of stockholder value. In 2017, EICP bonus pool funding was entirely based on our financial performance, with each participant’s actual bonus award determined by achievement of the participant’s individual performance goals.
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Financial Performance Goals.
For 2017 EICP awards, the Compensation Committee approved financial metric performance goals based on consolidated operating income, consolidated free cash flow (defined as consolidated cash from operations less consolidated capital expenditures), order intake (including change orders) and operating margins on order intake, weighted as set forth below. McDermott established the 2017 financial performance goals with consideration of management’s internal forecast of 2017 financial results, with the exception of the order intake operating margin goals, which were established at an increase over the forecast 2017 results.
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Due to the nature of our business, Order Intake Operating Margin Threshold, Target and Maximum business goals are competitively sensitive and therefore are not disclosed.
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McDermott’s actual performance against the stated goals determines the funding for each financial performance goal, with the weighted sum of each funding multiple determining the financial metric result.
2017 Financial Performance Results Under the EICP.
McDermott’s actual 2017 financial performance results against the stated performance goals under the EICP were as follows:
Financial Metric Performance Goal
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Actual Result
($/%)
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Funding
Multiple
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Weight
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Weighted
Funding Multiple
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Operating Income
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324.2
M
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2.000
x
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25
%
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0.500
x
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Free Cash Flow
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16.9
M
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2.000
x
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25
%
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0.500
x
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Order Intake
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2,564.4
M
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0.592
x
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30
%
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0.178
x
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Order Intake Operating Margin
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2.000
x
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20
%
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0.400
x
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Total EICP Bonus Pool Funding Multiple
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1.578
x
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Due to the nature of our business, Order Intake Operating Margin results are competitively sensitive and therefore are not disclosed.
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Accordingly, each NEO was eligible to earn 1.578x of his target EICP award, subject to modification by the Compensation Committee, based on his achievement of individual performance goals.
Individual Performance Goals.
Following the determination of the EICP bonus pool funding multiple, an individual participant’s award was determined based on the achievement of the participant’s individual performance goals. In no event could any NEO’s annual bonus exceed two times his or her target EICP award opportunity. The Compensation Committee had the discretion to reduce the amount of payout to any participant, even if performance goals were achieved.
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LONG-TERM INCENTIVES
The Compensation Committee believes that the interests of our stockholders are best served when a significant percentage of executive compensation is comprised of equity that appreciates in value contingent on increases in the value of our common stock and other performance measures that reflect improvements in McDermott’s business fundamentals. Therefore, LTI compensation represents the single largest element of our NEOs’ total direct compensation. The Compensation Committee maintained the performance-based component of LTI at 50% in 2017, and allocated LTI compensation to executive officers, including the NEOs, as follows:
Performance Units
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Restricted Stock Units
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50
%
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50
%
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Performance Units.
Performance units are intended to align the NEOs’ interests with those of our stockholders, with a focus on long-term results. The performance units awarded in 2017 are structured to be paid out, if at all, in shares of McDermott common stock, cash equal to the fair market value of the shares otherwise deliverable, or any combination thereof, at the sole discretion of the Compensation Committee, at the end of a three-year performance period, to the extent the applicable performance goals are met. Relative return on average invested capital, or ROAIC, was used as the performance metric for the performance units granted in 2017, as the Compensation Committee believed that this metric tied specifically to our strategy of appropriately investing capital to grow the business. The number of performance units earned is determined based on both (1) our average ROAIC, and (2) our relative ROAIC improvement as compared to a competitor peer group comprised of both domestic and international peers, in each case over the three-year performance period. Based on this performance, up to 200% of a participant’s target award may be earned, with earned awards between the amounts shown calculated by linear interpolation. We compute McDermott’s ROAIC improvement by subtracting McDermott’s 2016 ROAIC from the three-year performance period average ROAIC. Similar calculations are done for each member of the competitor peer group, following which the median competitor peer group ROAIC improvement is calculated. The amount by which McDermott’s ROAIC improvement exceeds the competitor peer group median ROAIC improvement determines whether the threshold, target or maximum earned award is achieved.
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MDR 3-Year Average ROAIC
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< 6%
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≥ 6% and < 10%
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≥ 10%
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Performance Level
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Amount by which MDR ROAIC Improvement
Exceeds Competitor Peer Group Median
ROAIC Improvement
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Earned Award
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Earned Award
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Earned Award
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Maximum
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≥
6
%
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50
%
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200
%
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200
%
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Target
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2
%
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50
%
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100
%
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100
%
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Threshold
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0
%
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50
%
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50
%
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50
%
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<
0
%
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0
%
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0
%
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50
%
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Restricted Stock Units.
Restricted stock units, or RSUs, are intended to promote the retention of employees, including the NEOs. The RSUs granted in 2017 generally vest in one-third increments on the first, second and third anniversaries of the grant date. The RSUs may be paid out in shares of McDermott common stock, cash equal to the fair market value of the shares otherwise deliverable, or any combination thereof, at the sole discretion of the Compensation Committee.
2017 NEO Compensation
For 2017 NEO compensation, the Compensation Committee provided:
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Average annual base salary increases of approximately 6.4% to further align the NEOs’ annual base salaries with market range and, in certain instances, for internal pay equity considerations.
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Increases in annual target bonus awards, resulting in an increase in each NEO’s performance-based compensation. As a result of McDermott’s 2017 financial performance, each NEO was eligible to earn 1.578x of his target EICP award, subject to adjustment by the Compensation Committee based on his achievement of individual performance goals.
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Increases to the value of long-term incentives awarded to Messrs. Dickson and Spence, as compared to 2016, based on their individual performance and to further align the value of their LTI with market range.
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The compensation of each NEO is discussed in more detail on the following pages.
DAVID DICKSON
President and Chief Executive Officer
McDermott Tenure:
4 years 6 months
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2017 TARGET TOTAL DIRECT COMPENSATION
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Annual Base Salary
– In 2017, Mr. Dickson received an increase in his annual base salary of approximately 6% to more closely align his annual base salary with market range.
Annual Incentive
– In February 2017, the Compensation Committee approved the following individual performance goals as a component of Mr. Dickson’s 2017 EICP award:
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Financial
– Deliver financial performance in line with forecast, with a focus on continuing to build backlog, maintain capital discipline and implement a new capital structure
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Strategic
– Position McDermott for long-term stability and growth during a period of difficult macro-environment through exploration and evaluation of both organic and inorganic strategic opportunities, including strategic asset acquisitions
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QHSES
– Continue focus on quality, health, safety, environment and security, or QHSES, statistics, with increased focus on the cost of non-quality and further development of McDermott’s Taking the Lead initiative
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Relationships
– Continue development of relationships with customers, potential partners, the investment community, governments and banks
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Internal Organization
– Continue development of effectiveness and efficiency of internal organization, and continued enhancement of processes for talent management and succession planning
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The Governance Committee’s assessment of these individual performance goals considered McDermott’s continued financial and operational performance improvements during 2017. Notably, McDermott’s 2017 financial results reflected revenues of $3.0 billion, operating income of $324.2 million and order intake (including change orders) of $2.6 billion, which resulted in year-end backlog of $3.9 billion. These results reflect continued, significant improvements since Mr. Dickson was elected as President and Chief Executive Officer in 2013, and were achieved despite the difficult, “lower for longer” oil and gas market. Additionally, Mr. Dickson positioned McDermott for significant growth through: the proposed combination with CB&I, which was announced in late 2017; the entry into MOUs with Saudi Aramco for (1) a land lease at the planned new maritime facility at Ras Al-Khair in Saudi Arabia and (2) the expansion and development of our physical and human capital within Saudi Arabia; and the acquisition and subsequent sale-leaseback of the deepwater pipelay and construction vessel
Amazon
. Under his oversight, McDermott’s QHSES performance has continued on a positive trend with peer leading safety statistics, increased focus on the cost of non-quality and the deployment of McDermott’s Taking the Lead initiative, designed to promote consistency in quality, safety and performance across the globe as well as operating in an environmentally conscious and socially responsible manner. During 2017, Mr. Dickson also continued improving relationships with customers, potential joint venture or consortium counterparties, the investment community, governments and banks. Finally, following significant executive management changes in prior years, in 2017 Mr. Dickson remained focused on building and optimizing the executive management team as required for achievement of McDermott’s operating strategy, while improving talent management and succession planning for key roles.
In 2017, Mr. Dickson received an increase in his target EICP award from 100% to 110% of his annual base salary earned. In consideration of the Governance Committee’s assessment of Mr. Dickson’s achievement of his individual performance goals as discussed above, the Compensation Committee awarded Mr. Dickson a final EICP award of $1,694,575.
Long-Term Incentive
– Mr. Dickson received an increase in his 2017 target long-term incentive award, based on his individual performance and to bring his target long-term incentive award closer to the market median.
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Table of Contents
STUART SPENCE
Executive Vice President and Chief Financial Officer
McDermott Tenure:
3 years 7 months
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2017 TARGET TOTAL DIRECT COMPENSATION
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Annual Base Salary
–
In 2017, Mr. Spence received an increase in his annual base salary of approximately 7% to more closely align his annual base salary with market range.
Annual Incentive
–
In 2017, Mr. Spence received an increase in his target EICP award from 70% to 75% of his annual base salary earned. Based on the Compensation Committee’s and Mr. Dickson’s assessment of Mr. Spence’s achievement of his individual performance goals, the Compensation Committee awarded Mr. Spence a final EICP award of $652,552.
Long-Term Incentive
–
Mr. Spence received an increase in his 2017 target long-term incentive award, based on his individual performance and to bring his target long-term incentive award closer to the market median.
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LINH AUSTIN
Vice President, Middle East and Caspian
McDermott Tenure:
3 years 3 months
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2017 TARGET TOTAL DIRECT COMPENSATION
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Annual Base Salary
–
In 2017, Mr. Austin received an increase in his annual base salary of approximately 8% to more closely align his annual base salary with market range and for internal pay equity considerations.
Annual Incentive
–
In 2017, Mr. Austin received an increase in his target EICP award from 50% to 60% of his annual base salary earned. Based on the Compensation Committee’s and Mr. Dickson’s assessment of Mr. Austin’s achievement of his individual performance goals, the Compensation Committee awarded Mr. Austin a final EICP award of $335,226.
Long-Term Incentive
–
The Compensation Committee maintained consistency in Mr. Austin’s 2017 target long-term incentive award as compared to 2016.
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Table of Contents
BRIAN McLAUGHLIN
Senior Vice President, Commercial
McDermott Tenure:
12 years
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2017 TARGET TOTAL DIRECT COMPENSATION
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Annual Base Salary
– In 2017, Mr. McLaughlin received an increase in his annual base salary of approximately 7% to more closely align his annual base salary with market range and for internal pay equity considerations.
Annual Incentive
– In 2017, Mr. McLaughlin received an increase in his target EICP award from 50% to 60% of his annual base salary earned. Based on the Compensation Committee’s and Mr. Dickson’s assessment of Mr. McLaughlin’s achievement of his individual performance goals, the Compensation Committee awarded Mr. McLaughlin a final EICP award of $342,150.
Long-Term Incentive
– The Compensation Committee maintained consistency in Mr. McLaughlin’s 2017 target long-term incentive award as compared to 2016.
|
SCOTT MUNRO
Vice President, Americas, Europe and Africa
McDermott Tenure:
4 years 3 months
|
2017 TARGET TOTAL DIRECT COMPENSATION
|
Annual Base Salary
– In 2017, Mr. Munro received an increase in his annual base salary of approximately 8% to more closely align his annual base salary with market range and for internal pay equity considerations.
Annual Incentive
– In 2017, Mr. Munro received an increase in his target EICP award from 50% to 60% of his annual base salary earned. Based on the Compensation Committee’s and Mr. Dickson’s assessment of Mr. Munro’s achievement of his individual performance goals, the Compensation Committee awarded Mr. Munro a final EICP award of $315,699.
Long-Term Incentive
– The Compensation Committee maintained consistency in Mr. Munro’s 2017 target long-term incentive award as compared to 2016.
|
LIANE HINRICHS
Ms. Hinrichs served as McDermott’s Senior Vice President, General Counsel and Corporate Secretary until August 13, 2017, following which she served as Vice President, Legal, until her retirement in December 2017. Ms. Hinrichs’ 2017 target direct compensation was comprised of an annual base salary of $490,000, annual incentive target award of 70% of annual base salary earned in 2017 and long-term incentive awards with a target value of $1,000,000.
In connection with Ms. Hinrichs’ retirement, we entered into a separation agreement with Ms. Hinrichs providing for various compensation-related benefits in exchange for, among other things, her agreement to comply with several restrictive covenants. Under that separation agreement, Ms. Hinrichs received: (1) a lump-sum cash payment in the amount of $1,666,000; (2) an amount of 2017 bonus under the EICP based on the higher of (i) Ms. Hinrichs’ target EICP award for 2017 and (ii) the EICP bonus pool funding multiple times Ms. Hinrichs’ target EICP award for 2017; (3) contribution to the McDermott International, Inc. Director and Executive Deferred Compensation Plan in respect of 2017 in the amount of $44,412; (4) payment of an amount to fund twelve months of continuing health insurance coverage under
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the Consolidated Omnibus Budget Reconciliation Act; (5) payment in an amount equal to $15,000, which represented the cost of executive-level financial planning; (6) accrued but unutilized vacation pay; and (7) payment of Ms. Hinrichs’ reasonable legal fees incurred in connection with the negotiation and execution of the separation agreement.
Additionally, Ms. Hinrichs received the following relating to her outstanding equity awards under the 2014 LTIP and the 2016 LTIP: (1) each then outstanding portion of her March 5, 2015 RSU award, February 26, 2016 RSU award and February 28, 2017 RSU award which would, absent her retirement, have remained outstanding and continued to vest would, subject to certain conditions, vest and be settled on the first to occur of (i) the date such award would otherwise be settled in accordance with the terms of the 2014 LTIP or 2016 LTIP, as applicable, and the applicable grant agreement as if Ms. Hinrichs’ employment had continued through March 15, 2020, and (ii) March 15, 2018; (2) each then outstanding portion of her March 5, 2015 performance units award, February 26, 2016 performance units award and February 28, 2017 performance units award, which would, absent her retirement, have remained outstanding and continued to vest would, subject to certain conditions, vest and be settled in accordance with the terms of the 2014 LTIP or 2016 LTIP, as applicable, and the applicable grant agreement (including the corporate performance conditions that determine the amount, if any, of such award that will become vested and payable) as if her employment had continued through March 15, 2020. Any vested stock options awarded to Ms. Hinrichs under the McDermott International, Inc. 2009 Long-Term Incentive Plan will remain exercisable until the stated maximum expiration date in the applicable grant agreement, notwithstanding any provision providing for earlier termination in the event of termination of employment.
2017 Other Compensation Elements
PERQUISITES
In 2017 our Compensation Committee continued its approach with respect to perquisites started in 2016, and provided for financial planning services and an executive physical to be reimbursed to the participant or paid directly to the participant’s provider of choice, in a combined amount not to exceed $20,000, rather than providing an allowance to be used for a company-required physical and any other purpose determined by the participant, as in prior years. No other perquisites were available to the participants in the perquisite program, with the exception of any company-required spousal travel for (1) the Chief Executive Officer, and (2) the remaining participants, including our NEOs, as approved by the Chief Executive Officer. There were no reimbursements to any perquisite program participants for company-required spousal travel in 2017.
Additionally, and consistent with our past practice, we may provide a gross-up for any imputed income related to such company-required spousal travel, but only when the presence of the spouse is related to the underlying business purpose of the trip. We also may provide our NEOs with a tax gross-up on any relocation-related expense reimbursements that may be subject to tax, but no such reimbursements were made in 2017.
EXPATRIATE BENEFITS
McDermott provides benefits to our expatriate employees, which benefits are designed to relocate and support employees who are sent on an assignment outside of their home country. Expatriate benefits generally include an expatriate premium equal to 10% of the employee’s base salary, a hardship premium in certain countries, a housing allowance (or company provided housing in certain locations), transportation allowance (or company provided transportation in certain locations), a cost of living differential, where applicable, a vacation allowance based on the cost of an economy plane ticket to the employee’s home location, company paid education for approved dependents in locations where public education is not an option and a tax assistance program.
Under McDermott’s tax assistance program, we ensure that expatriate employees are subject to essentially the same income tax liability on employment compensation as they would have paid had they lived and worked in the United States. Each expatriate employee is responsible for a hypothetical U.S. income tax liability based on an estimate of the expatriate’s anticipated U.S. income tax liability on his or her stay-at-home employment income. Under the program, McDermott is responsible for the host country tax (if applicable) and assignment country taxes (if applicable) and any additional United States income taxes attributed to the international assignment in excess of the hypothetical tax liability. Mr. Austin received expatriate benefits during 2017, as Mr. Austin is a United States citizen based in Dubai.
DEFINED CONTRIBUTION PLANS
We provide retirement benefits for most of our U.S. based employees, including our U.S. based NEOs, through sponsorship of the McDermott Thrift Plan, a qualified defined contribution 401(k) plan, which we refer to as our “Thrift Plan.” We provide retirement benefits for our non-U.S. expatriate employees through sponsorship of a global defined contribution plan, which we refer to as the “McDermott Global Defined Contribution Plan.”
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RETIREMENT AND EXCESS PLANS
We do not provide defined benefit pension plans to any of our NEOs. Ms. Hinrichs, however, was a participant in our now closed and frozen retirement and excess plan. Ms. Hinrichs was eligible for participation under the McDermott (U.S.) Retirement Plan (the “U.S. Retirement Plan”) before it was closed to new participants in 2006. Benefit accruals under the U.S. Retirement Plan were frozen altogether in 2010. Ms. Hinrichs was also a participant in our unfunded, nonqualified excess retirement plan (the “U.S. Excess Plan”), under which benefits have been frozen since 2010. This plan covers a small group of highly compensated employees whose ultimate benefits under the U.S. Retirement Plan are reduced by Internal Revenue Code limits on the amount of benefits which may be provided under qualified plans and the amount of compensation which may be taken into account in computing benefits under qualified plans. See the “Pension Benefits” table under “Executive Compensation Tables” below for more information regarding the U.S. Retirement Plan and the U.S. Excess Plan.
DEFERRED COMPENSATION PLAN
The McDermott International, Inc. Director and Executive Deferred Compensation Plan, or the DCP, is a defined contribution supplemental executive retirement plan established by our Board and the Compensation Committee to help maintain the competitiveness of our post-employment compensation as compared to our market. The DCP is an unfunded, nonqualified plan that provides each participant in the plan with benefits based on the participant’s notional account balance at the time of retirement or termination. Under the DCP, on an annual basis, the Compensation Committee has the discretion to credit a specified participant’s notional account with an amount equal to a percentage of the participant’s prior-year base salary and annual bonus paid in the prior year. We refer to such credit as a “Company Contribution.” In 2017, each of our NEOs and Ms. Hinrichs were participants in the DCP and their respective accounts in the DCP received a Company Contribution in an amount equal to 5% of the sum of their respective base salaries paid in 2016 and 2015 bonus paid in 2016.
The Compensation Committee has designated deemed mutual fund investments to serve as indices for the purpose of determining notional investment gains and losses to each participant’s account for any Company Contribution or participant-elected deferrals. Each participant allocates any Company Contributions and deferrals among the various deemed investments. DCP benefits are based on the participant’s vested notional account balance at the time of retirement or termination. Please see the “Nonqualified Deferred Compensation” table and accompanying narrative below for more information about the DCP and Company Contributions to DCP accounts.
EMPLOYMENT AGREEMENTS
Except for change in control agreements described below, we do not currently have any employment agreements with any of our NEOs relating to ongoing employment. Mr. Austin has an employment agreement related to his status as an expatriate employee, which sets forth the expatriate benefits as discussed above under “Expatriate Benefits.” This employment agreement does not provide for any specified term of employment, and the terms of the agreement are generally consistent with those of employment agreements entered into with various other McDermott expatriate employees.
CHANGE IN CONTROL AGREEMENTS
We believe change in control agreements for executive officers are common within our industry, and our Board and the Compensation Committee believe that providing these agreements to our NEOs protects stockholders’ interests by helping to assure management continuity and focus through and beyond a change in control. Accordingly, the Compensation Committee has offered change in control agreements to key senior executives since 2005. Our change in control agreements contain what is commonly referred to as a “double trigger,” that is, they provide benefits only upon an involuntary termination or constructive termination of the executive officer within one year following a change in control. The change in control agreements for our NEOs generally provide a cash severance payment of a multiple of the sum of the NEO’s annual base salary and target EICP, as set forth below, and a pro-rated bonus payment under the EICP.
NEO
|
|
Multiple of Base Salary +
Target EICP
|
Mr. Dickson
|
|
2.5x
|
Mr. Spence
|
|
2.0x
|
Mr. Austin
|
|
1.0x
|
Mr. McLaughlin
|
|
2.0x
|
Mr. Munro
|
|
1.0x
|
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In addition, upon an involuntary termination or constructive termination within one year following a change in control, each such officer would become fully vested in any outstanding and unvested equity-based awards and his or her respective account balance in the DCP.
The change in control agreements: (1) do not provide for excise tax gross-ups; (2) require the applicable officer’s execution of a release prior to payment of certain benefits; and (3) provide for the potential reduction in payments to an applicable officer in order to avoid excise taxes. Additionally, the change in control agreements with Messrs. Austin, McLaughlin and Munro are scheduled to expire on March 15, 2019. See the “Potential Payments Upon Termination or Change in Control” table under “Compensation of Executive Officers” below and the accompanying disclosures for more information regarding the change in control agreements with our NEOs, as well as other plans and arrangements that have different trigger mechanisms that relate to a change in control.
Other Compensation Policies and Practices
|
Sizing Long-Term Incentive Compensation and Timing of Equity Grants
The Compensation Committee generally determines the size of equity-based grants as a dollar value, rather than granting a targeted number of shares or units, with each target value generally set within market range. To determine the number of restricted stock units and performance shares or units granted, the target value of long-term incentive compensation is divided by the fair market value of the applicable component of equity on the date of grant.
To avoid timing equity grants ahead of the release of material nonpublic information, the Compensation Committee generally grants equity awards effective as of the first day of the open trading window following the meeting at which the grants are approved, which window period generally opens on the third NYSE trading day following the filing of our annual report on Form 10-K or quarterly report on Form 10-Q with the SEC.
Stock Ownership Guidelines
To assist with the alignment of the interests of directors, executive officers and stockholders, we believe our directors and officers should have a significant financial stake in McDermott. To further that goal, we have adopted stock ownership guidelines requiring generally that our nonemployee directors and employees who are members of McDermott’s EXCOM maintain a minimum ownership interest in McDermott. The EXCOM includes all of the NEOs. The ownership requirements are as follows:
Level
|
|
Base Salary or Annual
Retainer Multiple
|
CEO
|
|
5x
|
Members of McDermott’s EXCOM
|
|
3x
|
Nonemployee Directors
|
|
5x
|
Directors and officers have five years from their initial election as a director/officer or a change in position which increases the expected ownership level, whichever is later, to comply with the guidelines. Shares of McDermott common stock, restricted shares of McDermott common stock, restricted stock units (whether or not McDermott can settle them in cash and whether or not vested), performance shares and units (whether or not McDermott can settle them in cash and whether or not vested, but to the extent not vested, at target performance level), shares of McDermott common stock held in an employee’s Thrift Plan account and shares of McDermott common stock held in any trust in which an employee has a pecuniary interest (to the extent the employee has investment control over such shares) are all counted towards compliance with the stock ownership guidelines. Further, each director and officer subject to the stock ownership guidelines has the ability to certify his or her ownership at any time after reaching compliance with the required ownership level, following which such director or officer is not required to accumulate any additional McDermott securities, so long as he or she retains the number of securities held on the certification date, regardless of any subsequent changes in the market price of shares of McDermott common stock. All directors and NEOs currently meet or exceed their ownership requirement or are within the five-year period to achieve compliance.
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Derivatives Trading and Hedging
McDermott’s Insider Trading Policy prohibits all directors, officers and employees, including our NEOs, from engaging in “short sales” or trading in puts, calls or other options on McDermott’s common stock. Additionally, directors, officers and employees are prohibited from engaging in hedging transactions and from holding McDermott shares in a margin account or pledging McDermott shares as collateral for a loan.
Clawback Policy
Our Compensation Committee has adopted a clawback policy, which provides that, if the consolidated financial statements of McDermott are materially restated within three years of their initial filing, and the Compensation Committee determines, in its reasonable discretion, that any current or former executive officer has engaged in intentional misconduct, and such misconduct caused or partially caused the need for such restatement, the Compensation Committee may, within 12 months after such a material restatement, require that the executive forfeit and/or return to McDermott all or a portion of the compensation vested, awarded or received under any bonus award, equity award or other award during the period subject to restatement and the 12-month period following the initial filing of the financial statements that were restated. The forfeiture and/or return of compensation under the policy would be limited to any portion that the executive officer would not have received if the consolidated financial statements had been reported properly at the time of their initial filing. The clawback policy would not apply to restatements occurring as a result of a change in control, as defined in the DCP, and the policy does not limit the ability of McDermott to pursue forfeiture or reclamation of amounts under applicable law.
Forfeiture Provisions
Additionally, consistent with our recent practice, our grant agreements for awards made in 2017 contain a forfeiture provision. In 2017, this provision provided that, in the event that, while the grantee is employed by McDermott or performing services on behalf of McDermott under any consulting agreement, the grantee is convicted of a felony or a misdemeanor involving fraud, dishonesty or moral turpitude, or the grantee engages in conduct that adversely affects or, in the sole judgment of the Compensation Committee, may reasonably be expected to adversely affect, the business reputation or economic interests of McDermott, then all rights and benefits awarded under the respective agreements are immediately forfeited, terminated and withdrawn.
How We Make Compensation Decisions
COMPENSATION COMMITTEE
The Compensation Committee has primary responsibility for determining and approving, on an annual basis, the compensation of our CEO and other executive officers. The Compensation Committee evaluates, in coordination with the Governance Committee, the CEO’s performance in light of goals and objectives relevant to CEO compensation, and sets the CEO’s compensation based on that evaluation. The Compensation Committee receives information and advice from its compensation consultant as well as from our human resources department and management to assist in compensation determinations.
COMPENSATION CONSULTANT
After completion of a selection process, in August 2017 our Compensation Committee engaged Meridian Compensation Partners, LLC (“Meridian”) to serve as its consultant on executive compensation matters. Previously, our Compensation Committee had engaged Pay Governance LLC, or “Pay Governance,” as its consultant, including during the period from January to August 2017. The compensation consultants have provided advice and analysis to the Compensation Committee on the design, structure and level of executive and director compensation, and, when requested by the Compensation Committee, attended meetings of the Compensation Committee and participated in executive sessions without members of management present. Meridian and Pay Governance have reported directly to the Compensation Committee. The Compensation Committee will review, on an annual basis, Meridian’s performance and provide Meridian with direct feedback on its performance. When requested by the Governance Committee, Meridian will attend meetings of the Governance Committee with respect to nonemployee director compensation.
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During 2017, neither Meridian nor Pay Governance performed any services for McDermott other than as described above. In January 2018, our Compensation Committee assessed whether the work performed by Meridian during 2017 raised any conflict of interest and determined that Meridian’s work performed for the Compensation Committee raised no conflict of interest.
ROLE OF CEO AND MANAGEMENT
While the Compensation Committee has the responsibility to approve and monitor all compensation for our executive officers, management plays an important role in determining executive compensation. Management, at the request of the Compensation Committee, recommends financial goals that drive the business and works with Meridian to analyze competitive market data and to recommend compensation levels for our executive officers other than our CEO. Our CEO likewise assists the Compensation Committee by providing his evaluation of the performance of our other executive officers and recommending compensation for those officers, including adjustments to their annual incentive compensation, based on individual performance.
DEFINING MARKET RANGE COMPENSATION – 2017 BENCHMARKING AND PEER GROUPS
To identify median compensation for each element of total direct compensation, the Compensation Committee relies on “benchmarking.” This involves reviewing the compensation of our NEOs relative to the compensation paid to similarly situated executives at companies we consider our peers. As a result, the annual base salary, target annual incentive compensation and target LTI compensation for each of the NEOs is benchmarked. However, the specific performance metrics and performance levels used within elements of annual and long-term compensation are designed for the principal purpose of supporting our strategic and financial goals and driving the creation of stockholder value, and, as a result, generally are not benchmarked.
Proxy Peer Group
It is the Compensation Committee’s practice to periodically review and consider the individual companies used for benchmarking purposes. The Compensation Committee believes that identification of peers using a broad industry sector code is inadequate and does not establish similarity of operations and business models, nor identify historical competitors for managerial talent – factors the Compensation Committee considers in the selection of companies for benchmarking purposes. Therefore, the Compensation Committee considers the revenues and market capitalization of the component companies. In this CD&A, we refer to the peer group as the “Proxy Peer Group.” For Messrs. Dickson and Spence and Ms. Hinrichs, market data from the Proxy Peer Group was reflective of 2015 compensation as reported in the 2016 proxy statements of the companies in the Proxy Peer Group, and was not size adjusted. Market data from the Proxy Peer Group was not utilized in making compensation decisions for Messrs. Austin, McLaughlin or Munro due to the limited proxy statement disclosures and corresponding compensation information available relating to their respective positions. The component companies of the Proxy Peer Group are as follows:
Archrock, Inc.
|
Noble Corporation plc
|
Chicago Bridge & Iron Company N.V.
|
Oceaneering International, Inc.
|
Helix Energy Solutions Group, Inc.
|
Oil States International, Inc.
|
Jacobs Engineering Group, Inc.
|
Superior Energy Services, Inc.
|
KBR, Inc.
|
Tidewater Inc.
|
These Proxy Peer Group companies are the same as the Proxy Peer Group utilized in 2016, except that the Proxy Peer Group for 2017 did not include Cameron International Corporation, which merged with Schlumberger N.V. (Schlumberger Limited) in 2016, Dresser-Rand Group, Inc., which was acquired by Siemens AG in 2015, and FMC Technologies, Inc., which merged with Technip in 2017.
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Survey Peer Group
The Compensation Committee also utilized market data based on a set of 78 companies in similar industries which participate in Towers Watson surveys (the “Survey Peer Group”). Aside from screening companies on the basis of their industry classifications, no further refinements or judgments were applied in the identification of companies within the sample. The Survey Peer Group is intended to provide a reference point for pay levels within similar industries, and was used as a secondary reference for Messrs. Dickson and Spence and Ms. Hinrichs, and a primary reference for Messrs. Austin, McLaughlin and Munro. The component companies of the Survey Peer Group are as follows:
Anadarko Petroleum Corporation
|
|
Hess Corporation
|
|
Polymer Group, Inc.
|
Andeavor
|
|
HNTB Corporation
|
|
PolyOne Corporation
|
Apache Corporation
|
|
Holly Frontier Corporation
|
|
PulteGroup, Inc.
|
A.O. Smith Corporation
|
|
Hunt Consolidated, Inc.
|
|
Rockwell Automation, Inc.
|
Archrock, Inc.
|
|
Husky Injection Molding Systems Ltd.
|
|
Rowan Companies plc
|
Ball Corporation
|
|
ION Geophysical Corporation
|
|
Saudi Arabian Oil Co.
|
Beam, Inc.
|
|
Irving Oil Commercial G.P.
|
|
Schlumberger Limited
|
Bemis Company, Inc.
|
|
ITT Corporation
|
|
Sealed Air Corporation
|
BG US Services
|
|
Jacobs Engineering Group, Inc.
|
|
ShawCor Ltd.
|
BP p.l.c.
|
|
KBR, Inc.
|
|
Shell Oil Company
|
Caterpillar Inc.
|
|
Koch Industries, Inc.
|
|
Snap-On Incorporated
|
CH2M Hill
|
|
Lehigh Hanson Materials Limited
|
|
Sonoco Products Co.
|
Chevron Corporation
|
|
Magellan Midstream Partners, L.P.
|
|
Spectra Energy Corp
|
ConocoPhillips
|
|
Marathon Oil Corporation
|
|
SPX Corporation
|
Deere & Company
|
|
Marathon Petroleum Corporation
|
|
Statoil ASA
|
Devon Energy Corporation
|
|
Matthews International Corporation
|
|
Terex Corporation
|
Donaldson Company, Inc.
|
|
MDU Resources Group, Inc.
|
|
Textron Inc.
|
Eaton Corporation
|
|
MeadWestvaco Corporation
|
|
3M Company
|
EQT Corporation
|
|
Milacron Holdings Corp.
|
|
The Timken Company
|
Exxon Mobil Corporation
|
|
Noble Energy, Inc.
|
|
The Toro Company
|
GAF Materials
|
|
Occidental Petroleum Corporation
|
|
Transocean Ltd.
|
The Goodyear Tire & Rubber Company
|
|
Owens Corning
|
|
Trinity Industries, Inc.
|
Graco Inc.
|
|
Pall Corporation
|
|
URS Corporation
|
HD Supply, Inc.
|
|
Parker Hannifin Corporation
|
|
USG Corporation
|
Hercules Offshore, Inc.
|
|
Parsons Corporation
|
|
Valero Energy Corporation
|
Herman Miller, Inc.
|
|
Phillips 66 Company
|
|
Xylem Inc.
|
Performance Unit Peer Group
In consideration of comments received from the stockholder outreach efforts undertaken during 2015 and 2016 regarding the composition of the peer group, the Compensation Committee established the following peer group comprised of domestic and international competitors for purposes of the 2016 and 2017 Performance Unit awards:
Archrock, Inc.
|
|
Saipem SpA
|
Helix Energy Solutions Group, Inc.
|
|
Subsea7 SA
|
Oceaneering International, Inc.
|
|
TechnipFMC plc
|
Superior Energy Services, Inc.
|
|
Swiber Holdings Limited
|
Tidewater Inc.
|
|
SapuraKencana Petroleum Berhad
|
The table below sets forth comparative information regarding: (1) the annual total compensation of our Chief Executive Officer, Mr. David Dickson, for the year ended December 31, 2017, determined on the basis described below; (2) the median of the annual total compensation of all employees of McDermott and its consolidated subsidiaries, excluding our Chief Executive Officer, for the year ended December 31, 2017, determined on the basis described below; and (3) a ratio comparison of those two amounts. These amounts were determined in accordance with rules prescribed by the SEC.
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The applicable SEC rules require us to identify the median employee, by using either annual total compensation for all such employees or another consistently applied compensation measure. For these purposes, we used total earnings, as determined from McDermott’s payroll records for the period from January 1, 2017 through December 31, 2017 (with December 31, 2017 being the “Measurement Date”), as our consistently applied compensation measure. We included all employees of McDermott and its consolidated subsidiaries as of the Measurement Date, whether employed on a full-time, part-time or seasonal basis and whether employed in the U.S. or a non-U.S. jurisdiction. We did not use statistical sampling or include cost of living adjustments for purposes of this determination. We converted all amounts paid in foreign currencies into U.S. Dollars.
After identifying the median employee, based on the process described above, we calculated annual total compensation for that employee using the same methodology we used for determining total compensation for 2017 for our named executive officers as set forth in the Summary Compensation Table. The median employee is an Indian national employed as a Structural Fitter at our fabrication yard in Dubai, paid on an hourly basis in United Arab Emirates Dirham. The median employee’s hourly pay was determined based on a review of market data for companies with individuals in similar positions and location, and such pay is within market range compensation. The median employee’s total compensation is inclusive of holiday pay, vacation pay, religious holiday pay and McDermott provided housing accommodations.
Chief Executive Officer annual total compensation (A)
|
|
$
|
7,530,841
|
Median annual total compensation of all employees (excluding Chief Executive Officer) (B)
|
|
$
|
12,455
|
Ratio of (A) to (B)
|
|
|
605
to 1
|
The Compensation Committee reviewed the ratio set forth in the table above and determined that the differential in compensation reflected above is appropriate for the Company, given the wide range of responsibilities and level of accountability of our Chief Executive Officer, as compared to our median employee.
Compensation Committee Report
|
We have reviewed and discussed the Compensation Discussion and Analysis with McDermott’s management and, based on our review and discussions, we recommended to the Board that the Compensation Discussion and Analysis be included in this Amendment.
THE COMPENSATION COMMITTEE
Stephen G. Hanks, Chair
Erich Kaeser
Gary Luquette
David Trice
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EXECUTIVE COMPENSATION TABLES
The following table summarizes the prior three years’ compensation of our Chief Executive Officer, our Chief Financial Officer, our three highest paid executive officers who did not serve as our CEO and CFO during 2017 and were employed by McDermott as of December 31, 2017, and our former Senior Vice President, General Counsel and Corporate Secretary, Ms. Hinrichs (who served in this capacity until August 13, 2017 and then served as Vice President, Legal (and a non-executive officer) until December 31, 2017). No compensation information is provided for Messrs. McLaughlin or Munro for 2015 and 2016, as they were not previously included as “named executive officers” in our proxy statement for our annual meeting of stockholders in 2016 or 2017. No compensation information is provided for Mr. Austin for 2015, as he was not previously included as a “named executive officer” in our proxy statement for our annual meeting of stockholders in 2016.
Summary Compensation Table
|
Name and
Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
(1)
|
|
Stock
Awards
($)
(2)
|
|
Non-Equity
Incentive
Plan
Compensation
($)
(3)
|
|
Change in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
(4)
|
|
All Other
Compensation
($)
(5)
|
|
Total
($)
|
Mr.
Dickson
President and Chief
Executive Officer
|
|
2017
|
|
887,500
|
|
0
|
|
4,799,979
|
|
1,694,575
|
|
N/A
|
|
148,787
|
|
7,530,841
|
|
2016
|
|
850,000
|
|
0
|
|
3,774,469
|
|
1,190,000
|
|
N/A
|
|
101,691
|
|
5,916,160
|
|
2015
|
|
850,000
|
|
0
|
|
4,999,998
|
|
1,445,340
|
|
N/A
|
|
75,750
|
|
7,371,088
|
Mr.
Spence
Executive Vice President and
Chief Financial Officer
|
|
2017
|
|
501,250
|
|
0
|
|
1,499,990
|
|
652,552
|
|
N/A
|
|
86,869
|
|
2,740,661
|
|
2016
|
|
475,000
|
|
0
|
|
1,321,064
|
|
478,800
|
|
N/A
|
|
60,533
|
|
2,335,397
|
|
2015
|
|
475,000
|
|
0
|
|
1,199,996
|
|
565,383
|
|
N/A
|
|
55,675
|
|
2,296,054
|
Mr.
Austin
Vice President, Middle East
|
|
2017
|
|
343,750
|
|
0
|
|
399,972
|
|
335,226
|
|
N/A
|
|
406,457
|
|
1,485,405
|
|
2016
|
|
325,000
|
|
70,000
|
|
377,444
|
|
214,500
|
|
N/A
|
|
397,750
|
|
1,383,694
|
Mr.
McLaughlin
Senior Vice President,
Commercial
|
|
2017
|
|
368,750
|
|
0
|
|
399,972
|
|
342,150
|
|
N/A
|
|
57,484
|
|
1,168,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr.
Munro
Vice President, Americas,
Europe and Africa
|
|
2017
|
|
343,750
|
|
0
|
|
399,972
|
|
315,699
|
|
N/A
|
|
42,676
|
|
1,102,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ms.
Hinrichs
Former Senior Vice President,
General Counsel and
Corporate Secretary
|
|
2017
|
|
486,938
|
|
0
|
|
999,974
|
|
537,871
|
|
74,567
|
|
1,847,078
|
|
3,946,428
|
|
2016
|
|
477,750
|
|
0
|
|
943,608
|
|
401,310
|
|
30,704
|
|
63,982
|
|
1,917,354
|
|
2015
|
|
477,750
|
|
0
|
|
999,987
|
|
473,880
|
|
14,663
|
|
58,972
|
|
2,025,252
|
(1)
|
The amount reported in this column for Mr. Austin for 2016 represents payment of the remaining portion of a sign-on bonus Mr. Austin received upon joining McDermott in 2015. Mr. Austin received $70,000 on his date of hire in 2015 and the remaining $70,000 in 2016, 12 months after his date of hire.
|
(2)
|
The amounts reported in this column represent the aggregate grant date fair value of stock awards or option awards, as applicable, granted to each NEO and computed in accordance with FASB ASC Topic 718. See the “Grants of Plan-Based Awards” table for more information regarding the stock awards we granted in 2017. For a discussion of the valuation assumptions with respect to these awards, see Note 16 to the Consolidated Financial Statements included in the Original Filing.
|
(3)
|
The amounts reported in this column for 2017, 2016 and 2015, respectively, are attributable to the annual incentive awards earned in fiscal year 2017, but paid in 2018, earned in 2016, but paid in 2017, and earned in 2015 but paid in 2016.
|
(4)
|
The amounts reported in this column represent the changes in actuarial present values of the accumulated benefits under defined benefit plans, determined by comparing the prior completed fiscal year end amount to the covered fiscal year end amount.
|
(5)
|
The amounts reported in this column for 2017 are attributable to the following:
|
32
Table of Contents
All Other Compensation
|
|
Deferred
Compensation
Plan
Contribution
($)
(A)
|
|
Employer
Match
($)
(B)
|
|
Safe Harbor
Non-Elective
Contribution
($)
(B)
|
|
Perquisite
Program
($)
(C)
|
|
Expatriate
Benefits
($)
(D)
|
|
Other
($)
(E)
|
|
Tax
Payments
($)
(F)
|
Mr. Dickson
|
|
114,767
|
|
8,100
|
|
8,100
|
|
17,820
|
|
0
|
|
0
|
|
0
|
Mr. Spence
|
|
52,019
|
|
6,750
|
|
8,100
|
|
20,000
|
|
0
|
|
0
|
|
0
|
Mr. Austin
|
|
22,455
|
|
7,751
|
|
8,100
|
|
4,020
|
|
255,892
|
|
0
|
|
108,239
|
Mr. McLaughlin
|
|
26,332
|
|
5,400
|
|
8,100
|
|
17,652
|
|
0
|
|
0
|
|
0
|
Mr. Munro
|
|
27,763
|
|
6,813
|
|
8,100
|
|
0
|
|
0
|
|
0
|
|
0
|
Ms. Hinrichs
|
|
91,994
|
|
7,207
|
|
8,100
|
|
15,596
|
|
0
|
|
1,724,182
|
|
0
|
(A)
|
The amounts reported in this column are attributable to contributions made by McDermott under the Deferred Compensation Plan.
|
(B)
|
The amounts reported in these columns are attributable to contributions made under the Thrift Plan.
|
(C)
|
The amounts reported in this column are attributable to payments made pursuant to McDermott’s 2017 perquisite program. For Mr. Dickson, $15,738 related to financial planning and $2,082 related to his required physical. For Mr. Spence, $18,510 related to financial planning and $1,490 related to his required physical. For Mr. McLaughlin, $16,492 related to financial planning and $1,160 related to his required physical. For Mr. Austin, $4,020 related to financial planning. For Ms. Hinrichs, $15,596 related to financial planning. For more information on McDermott’s 2017 perquisite program, see “Compensation Discussion and Analysis — 2017 Other Compensation Elements — Perquisites.”
|
(D)
|
The amounts reported in this column for 2017 are attributable to the following:
|
|
|
|
Expatriate
Premium
($)
|
|
Commodities
& Service
Allowance
($)
|
|
Housing &
Utilities
Allowance
($)
|
|
Vacation
Airfare
($)
|
|
Education
Allowance
($)
|
|
Relocation
($)
|
|
Company
Provided
Automobile
($)
|
|
Mr. Austin
|
|
34,375
|
|
45,909
|
|
90,946
|
|
23,575
|
|
61,087
|
|
0
|
|
0
|
(E)
|
The amount reported in this column for Ms. Hinrichs represents a cash severance payment pursuant to her Separation Agreement ($1,681,000), payment for vacation earned but not taken by Ms. Hinrichs in 2017 ($10,365), payment of reasonable legal fees incurred in connection with the negotiation and execution of her Separation Agreement ($30,000) and the payment of an amount to fund three months of continuing health insurance coverage under the Consolidated Omnibus Reconciliation Act ($2,817).
|
(F)
|
The amount reported for Mr. Austin represents amounts paid to Mr. Austin in 2017 pursuant to McDermott’s tax equalization program. For more information on McDermott’s tax equalization program, see “Compensation Discussion and Analysis — 2017 Other Compensation Elements — Expatriate Benefits.”
|
33
Table of Contents
Grants of Plan-Based Awards
|
The following Grants of Plan-Based Awards table provides additional information about stock awards and equity and non-equity incentive plan awards we granted to our NEOs during the year ended December 31, 2017.
|
|
|
|
|
|
Estimated Possible Payouts
Under Non-Equity Incentive
Plan Awards
(1)
|
|
Estimated Future Payouts
Under Equity Incentive
Plan Awards
(2)
|
|
All Other
Stock Awards:
Number of
Shares of
Stock or
Units
(3)
|
|
Grant Date
Fair Value
of Stock
and Option
Awards
($)
(4)
|
Name/
Award Type
|
|
Grant
Date
|
|
Committee
Action
Date
|
|
Threshold
($)
|
|
Target
($)
|
|
Maximum
($)
|
|
Threshold
(#)
|
|
Target
(#)
|
|
Maximum
(#)
|
|
|
Mr. Dickson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EICP
|
|
02/28/17
|
|
02/28/17
|
|
488,125
|
|
976,250
|
|
1,952,500
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
PUnits
|
|
02/28/17
|
|
02/28/17
|
|
—
|
|
—
|
|
—
|
|
163,043
|
|
326,086
|
|
652,172
|
|
—
|
|
2,399,993
|
RSUs
|
|
02/28/17
|
|
02/28/17
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
326,085
|
|
2,399,986
|
Mr. Spence
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EICP
|
|
02/28/17
|
|
02/28/17
|
|
187,969
|
|
375,938
|
|
751,87680
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
PUnits
|
|
02/28/17
|
|
02/28/17
|
|
—
|
|
—
|
|
—
|
|
50,951
|
|
101,902
|
|
203,804
|
|
—
|
|
749,999
|
RSUs
|
|
02/28/17
|
|
02/28/17
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
101,901
|
|
749,991
|
Mr. Austin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EICP
|
|
02/28/17
|
|
02/28/17
|
|
103,125
|
|
206,250
|
|
412,500
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
PUnits
|
|
02/28/17
|
|
02/28/17
|
|
—
|
|
—
|
|
—
|
|
13,586
|
|
27,173
|
|
54,346
|
|
—
|
|
199,993
|
RSUs
|
|
02/28/17
|
|
02/28/17
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
27,171
|
|
199,979
|
Mr. McLaughlin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EICP
|
|
02/28/17
|
|
02/28/17
|
|
110,625
|
|
221,250
|
|
442,500
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
PUnits
|
|
02/28/17
|
|
02/28/17
|
|
—
|
|
—
|
|
—
|
|
13,586
|
|
27,173
|
|
54,346
|
|
—
|
|
199,993
|
RSUs
|
|
02/28/17
|
|
02/28/17
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
27,171
|
|
199,979
|
Mr. Munro
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EICP
|
|
02/28/17
|
|
02/28/17
|
|
103,125
|
|
206,250
|
|
412,500
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
PUnits
|
|
02/28/17
|
|
02/28/17
|
|
|
|
|
|
|
|
13,586
|
|
27,173
|
|
54,346
|
|
—
|
|
199,993
|
RSUs
|
|
02/28/17
|
|
02/28/17
|
|
|
|
|
|
|
|
—
|
|
—
|
|
—
|
|
27,171
|
|
199,979
|
Ms. Hinrichs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EICP
|
|
02/28/17
|
|
02/28/17
|
|
170,428
|
|
340,856
|
|
681,712
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
PUnits
|
|
02/28/17
|
|
02/28/17
|
|
|
|
|
|
|
|
33,967
|
|
67,934
|
|
135,868
|
|
—
|
|
499,994
|
RSUs
|
|
02/28/17
|
|
02/28/17
|
|
|
|
|
|
|
|
—
|
|
—
|
|
—
|
|
67,932
|
|
499,979
|
(1)
|
These columns reflect the threshold, target and maximum payout opportunities under the Executive Incentive Compensation Plan, or EICP. On February 28, 2017, our Compensation Committee established target EICP awards expressed as a percentage of the NEO’s 2017 annual base salary earned, as follows: Mr. Dickson – 110%, Mr. Spence – 75%, Mr. Austin – 60%, Mr. McLaughlin – 60%, Mr. Munro – 60%, and Ms. Hinrichs – 70%. The target amounts shown for Messrs. Dickson, Spence, Austin, McLaughlin and Munro and Ms. Hinrichs were computed by multiplying their annual base earned during 2017 by their target award percentage. For all of the NEOs, the threshold amounts are equal to 50% of the respective target amounts and the maximum amounts are equal to 200% of the respective target amounts. See “Compensation Discussion and Analysis – What We Pay and Why: Elements of Total Direct Compensation – Annual Incentive” and “Compensation Discussion and Analysis – 2017 NEO Compensation” for a detailed description of the EICP and discussions regarding the determinations made with respect to the 2017 EICP awards. Actual payouts under the EICP in respect of 2017 are included above in the Summary Compensation Table under the column “Non-Equity Incentive Plan Compensation.”
|
(2)
|
These columns reflect the target, threshold and maximum payout opportunities of 2017 grants of performance units under the 2016 LTIP. Each grant represents the right to receive the value of one share of McDermott common stock for each vested performance unit, paid in shares of McDermott common stock, cash equal to the fair market value of the shares otherwise deliverable, or any combination thereof, in the sole discretion of the Compensation Committee. The amount of performance units that vest, if any, will be based on McDermott’s relative ROAIC improvement as compared to a competitor peer group over a three-year measurement period (January 1, 2017 – December 31, 2019). If the threshold performance goal is achieved, a number of performance units between 50% and 200% of the target award may be earned, depending on the three-year aggregate relative ROAIC performance. See “Compensation Discussion and Analysis – What We Pay and Why: Elements of Total Direct Compensation – Long-Term Incentives” and “2017 NEO Compensation” for a detailed description of the performance units awarded in 2017.
|
34
Table of Contents
(3)
|
This column reflects grants of restricted stock units under the 2016 LTIP. The restricted stock units are generally scheduled to vest in one-third increments on the first, second and third anniversaries of the date of grant. Each restricted stock unit represents the right to receive one share of McDermott common stock, cash equal to the fair market value of the share otherwise deliverable, or any combination thereof, in the sole discretion of the Compensation Committee.
|
(4)
|
This column reflects the full grant date fair values of the equity awards computed in accordance with FASB ASC Topic 718. Grant date fair values are determined using the closing price of our common stock on the date of grant, as reported on the NYSE. For more information regarding the compensation expense related to 2017 awards, see Note 16 to the Consolidated Financial Statement included in the Original Filing.
|
Outstanding Equity Awards at Fiscal Year-End
|
The following Outstanding Equity Awards at Fiscal Year-End table summarizes the equity awards we have made to our NEOs which were outstanding as of December 31, 2017.
|
|
|
|
Option Awards
(1)
|
|
Stock Awards
|
Name
|
|
Grant
Date
|
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
|
|
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
|
Number
of Shares
or Units
of Stock
That
Have Not
Vested
|
|
Market
Value of
Shares
or Units
of Stock
That
Have Not
Vested
($)
(2)
|
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That Have
Not Vested
($)
(3)
|
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($)
(2)
|
Mr. Dickson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs
(4)
|
|
03/05/15
|
|
|
|
|
|
|
|
|
|
|
|
247,279
|
|
1,627,096
|
|
—
|
|
—
|
RSUs
(4)
|
|
02/26/16
|
|
|
|
|
|
|
|
|
|
|
|
395,646
|
|
2,603,351
|
|
—
|
|
—
|
RSUs
(4)
|
|
02/28/17
|
|
|
|
|
|
|
|
|
|
|
|
326,085
|
|
2,145,639
|
|
—
|
|
—
|
PUnits
|
|
03/05/15
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
370,919
|
|
2,440,650
|
PUnits
|
|
02/26/16
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
296,735
|
|
1,952,520
|
PUnits
|
|
02/28/17
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
163,043
|
|
1,072,823
|
Mr. Spence
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs
(4)
|
|
03/05/15
|
|
|
|
|
|
|
|
|
|
|
|
59,347
|
|
390,503
|
|
—
|
|
—
|
RSUs
(4)
|
|
02/26/16
|
|
|
|
|
|
|
|
|
|
|
|
138,476
|
|
911,172
|
|
—
|
|
—
|
RSUs
(4)
|
|
02/28/17
|
|
|
|
|
|
|
|
|
|
|
|
101,901
|
|
670,509
|
|
—
|
|
—
|
PUnits
|
|
03/05/15
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
89,020
|
|
585,755
|
PUnits
|
|
02/26/16
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
103,857
|
|
683,382
|
PUnits
|
|
02/28/17
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
50,951
|
|
335,258
|
Mr. Austin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs
(4)
|
|
03/05/15
|
|
|
|
|
|
|
|
|
|
|
|
24,727
|
|
162,704
|
|
—
|
|
—
|
RSUs
(5)
|
|
03/05/15
|
|
|
|
|
|
|
|
|
|
|
|
12,363
|
|
81,349
|
|
—
|
|
—
|
RSUs
(4)
|
|
02/26/16
|
|
|
|
|
|
|
|
|
|
|
|
39,564
|
|
260,331
|
|
—
|
|
—
|
RSUs
(4)
|
|
02/28/17
|
|
|
|
|
|
|
|
|
|
|
|
27,171
|
|
178,785
|
|
—
|
|
—
|
PUnits
|
|
02/26/16
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
29,673
|
|
195,252
|
PUnits
|
|
02/28/17
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
13,586
|
|
89,399
|
35
Table of Contents
|
|
|
|
Option Awards
(1)
|
|
Stock Awards
|
Name
|
|
Grant
Date
|
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
|
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
|
Number
of Shares
or
Units
of Stock
That
Have Not
Vested
|
|
Market
Value of
Shares
or
Units
of Stock
That
Have Not
Vested
($)
(2)
|
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That Have
Not Vested
($)
(3)
|
|
Equity
Incentive
Plan
Awards:
Market
or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($)
(2)
|
Mr.
McLaughlin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NQSO
|
|
03/05/12
|
|
3,237
|
|
—
|
|
—
|
|
14.44
|
|
03/05/19
|
|
|
|
|
|
|
|
|
NQSO
|
|
03/05/13
|
|
7,008
|
|
|
|
—
|
|
10.50
|
|
03/05/20
|
|
|
|
|
|
|
|
|
RSUs
(4)
|
|
03/05/15
|
|
|
|
|
|
|
|
|
|
|
|
13,847
|
|
91,113
|
|
—
|
|
—
|
RSUs
(4)
|
|
02/26/16
|
|
|
|
|
|
|
|
|
|
|
|
39,564
|
|
260,331
|
|
—
|
|
—
|
RSUs
(4)
|
|
02/28/17
|
|
|
|
|
|
|
|
|
|
|
|
27,171
|
|
178,785
|
|
—
|
|
—
|
PUnits
|
|
03/05/15
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
8,902
|
|
58,575
|
PUnits
|
|
02/26/16
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
29,673
|
|
195,252
|
PUnits
|
|
02/28/17
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
13,586
|
|
89,399
|
Mr.
Munro
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs
(5)
|
|
03/06/14
|
|
|
|
|
|
|
|
|
|
|
|
9,566
|
|
62,944
|
|
—
|
|
—
|
RSUs
(4)
|
|
03/05/15
|
|
|
|
|
|
|
|
|
|
|
|
19,782
|
|
130,166
|
|
—
|
|
—
|
RSUs
(4)
|
|
02/26/16
|
|
|
|
|
|
|
|
|
|
|
|
39,564
|
|
260,331
|
|
—
|
|
—
|
RSUs
(4)
|
|
02/28/17
|
|
|
|
|
|
|
|
|
|
|
|
27,171
|
|
178,785
|
|
—
|
|
—
|
PUnits
|
|
03/05/15
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
29,673
|
|
195,252
|
PUnits
|
|
02/26/16
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
29,673
|
|
195,252
|
PUnits
|
|
02/28/17
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
13,586
|
|
89,399
|
Ms.
Hinrichs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NQSO
|
|
03/04/11
|
|
22,080
|
|
—
|
|
—
|
|
25.64
|
|
03/04/18
|
|
|
|
|
|
|
|
|
NQSO
|
|
03/05/12
|
|
35,970
|
|
—
|
|
—
|
|
14.44
|
|
03/05/19
|
|
|
|
|
|
|
|
|
NQSO
|
|
03/05/13
|
|
56,700
|
|
—
|
|
—
|
|
10.50
|
|
03/05/20
|
|
|
|
|
|
|
|
|
RSUs
(4)
|
|
03/05/15
|
|
|
|
|
|
|
|
|
|
|
|
47,532
|
|
312,761
|
|
—
|
|
—
|
RSUs
(4)
|
|
02/26/16
|
|
|
|
|
|
|
|
|
|
|
|
95,064
|
|
625,521
|
|
—
|
|
—
|
RSUs
(4)
|
|
02/28/17
|
|
|
|
|
|
|
|
|
|
|
|
65,292
|
|
429,621
|
|
|
|
|
PUnits
|
|
03/05/15
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
74,183
|
|
488,127
|
PUnits
|
|
02/26/16
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
74,183
|
|
488,127
|
PUnits
|
|
02/28/17
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
33,967
|
|
223,503
|
(1)
|
The awards in this column represent grants of stock options, which generally became exercisable in one-third increments on each of the first, second and third anniversaries of the grant date.
|
(2)
|
Market values in these columns are based on the closing price of our common stock as reported on the NYSE as of December 29, 2017 ($6.58).
|
(3)
|
The awards in this column represent grants of performance shares or performance units, which generally may vest on the third anniversary of the grant date, based on the attainment of stated performance levels. The number and value of the 2015, 2016 and 2017 performance units listed are based on achieving threshold performance as of the nearest year-end measurement date under the applicable grant agreement.
|
(4)
|
These awards represent grants of restricted stock units, which generally vest in one-third increments on each of the first, second and third anniversaries of the grant date.
|
(5)
|
These awards represent one-time awards of restricted stock units made to Messrs. Austin and Munro to compensate them for the forfeiture of incentives from their prior employer. The restricted stock units awarded to Mr. Austin generally vest in one-third increments on each of the first, second and third anniversaries of the grant date. The restricted stock units awarded to Mr. Munro generally vest in one-fourth increments on each of the first, second, third and fourth anniversaries of the grant date.
|
36
Table of Contents
Option Exercises and Stock Vested
|
The following Option Exercises and Stock Vested table provides information about the value realized by our NEOs and Ms. Hinrichs on vesting of stock awards during the year ended December 31, 2017.
|
|
Option
Awards
|
|
Stock
Awards
(1)
|
Name
|
|
Shares
Acquired
on
Exercise
(#)
|
|
Value
Realized
on
Exercise
|
|
Shares
Acquired
on
Vesting
(#)
|
|
Value
Realized
on
Vesting
($)
|
Mr.
Dickson
|
|
0
|
|
N/A
|
|
961,703
|
|
6,637,542
|
Mr.
Spence
|
|
0
|
|
N/A
|
|
295,252
|
|
1,980,951
|
Mr.
Austin
|
|
0
|
|
N/A
|
|
56,872
|
|
398,896
|
Mr.
McLaughlin
|
|
0
|
|
N/A
|
|
43,834
|
|
311,609
|
Mr.
Munro
|
|
0
|
|
N/A
|
|
78,041
|
|
545,846
|
Ms.
Hinrichs
|
|
0
|
|
N/A
|
|
218,342
|
|
1,522,298
|
(1)
|
The number of shares acquired on vesting reflected in this table represents the aggregate number of shares that vested during 2017 in connection with awards of restricted stock, restricted stock units (“RSUs”) and performance shares (“PShares”). The value realized on vesting was calculated based on the fair market value of the underlying shares on the vesting date. The final installment of the RSUs awarded in 2014, which vested on March 6, 2017, were settled entirely in cash, as determined in the sole discretion of the Compensation Committee. The PShares awarded in 2014, which vested on March 6, 2017, were settled one-half in shares and one-half in cash, as determined in the sole discretion of the Compensation Committee. As a result, no shares of stock were actually acquired upon the vesting of: 102,040 RSUs and 153,062 PShares for Mr. Dickson; 8,503 RSUs for Mr. McLaughlin; 13,605 RSUs and 7,653 PShares for Mr. Munro; 85,586 RSUs and 40,540 PShares for Mr. Spence; and 25,510 RSUs and 38,265 PShares for Ms. Hinrichs. Mr. Austin was not awarded any RSUs or PShares in 2014 as he was not employed by the Company at that time. The following table sets forth the amount of shares attributable to restricted stock or RSUS and PShares, for each NEO:
|
|
|
Performance
Shares
|
|
Restricted
Stock Units/
Restricted Stock
|
Name
|
|
Shares
Acquired
on
Exercise
(#)
|
|
Value
Realized
on
Exercise
|
|
Shares
Acquired
on
Vesting
(#)
|
|
Value
Realized
on
Vesting
($)
|
Mr. Dickson
|
|
306,122
|
|
2,099,997
|
|
655,581
|
|
4,537,545
|
Mr. Spence
|
|
81,081
|
|
556,216
|
|
214,171
|
|
1,424,736
|
Mr. Austin
|
|
0
|
|
N/A
|
|
56,872
|
|
398,896
|
Mr. McLaughlin
|
|
0
|
|
N/A
|
|
43,834
|
|
311,609
|
Mr. Munro
|
|
15,306
|
|
104,999
|
|
62,735
|
|
440,847
|
Ms. Hinrichs
|
|
87,375
|
|
598,308
|
|
130,967
|
|
923,990
|
The following table sets forth the number of shares withheld by McDermott to satisfy withholding taxes upon vesting of the restricted stock, RSUs and PShares noted in the table above:
Name
|
Shares Withheld
by McDermott on
Vesting of Stock Awards
(#)
|
Mr. Dickson
|
449,479
|
Mr. Spence
|
170,321
|
Mr. Austin
|
19,904
|
Mr. McLaughlin
|
15,232
|
Mr. Munro
|
31,902
|
Ms. Hinrichs
|
103,352
|
37
Table of Contents
The following table shows the present value of accumulated benefits payable to Ms. Hinrichs under the U.S. Retirement Plan and the U.S. Excess Plan. None of the NEOs are participants in the U.S. Retirement, the U.S. Excess Plan or any other defined benefit pension plan that we sponsor.
Name
|
|
Plan
Name
|
|
Number
of
Years
Credited
Service
|
|
Present
Value of
Accumulated
Benefit
($)
|
|
Payments
During
2017
($)
|
Mr.
Dickson
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
Mr.
Spence
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
Mr.
Austin
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
Mr.
McLaughlin
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
Mr.
Munro
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
Ms.
Hinrichs
|
|
U.S. Retirement Plan
(1)
|
|
11.167
|
|
558,909
|
|
0
|
|
|
U.S. Excess Plan
(1)
|
|
11.167
|
|
233,970
|
|
0
|
(1)
|
The present value of accumulated benefits reflected above for the U.S. Retirement Plan and the U.S. Excess Plan is based on a 3.60% discount rate and the RP2014 mortality table for annuitants projected with generational mortality improvement scale MP2017.
|
U.S. Retirement Plan
We refer to our qualified defined benefit pension plan as the U.S. Retirement Plan. Ms. Hinrichs participated in the U.S. Retirement Plan, which plan has been frozen since 2006 and under which she accrued no additional benefits after such time. The U.S. Retirement Plan is funded by a trust, and includes provisions related to eligibility, participation and benefit formulas for applicable employees.
Under the U.S. Retirement Plan, normal retirement is the later of (1) age 65 or (2) the fifth anniversary of the date an employee becomes a participant. The normal form of payment is a single-life annuity or a 50% joint and survivor annuity, depending on the employee’s marital status when payments are scheduled to begin. Early retirement eligibility and benefits under the Retirement Plan depend on the employee’s date of hire and age. For employees hired on or after April 1, 1998 (including Ms. Hinrichs), an employee is eligible for early retirement upon the latter of completing at least 15 years of continuous service and attaining the age of 55. Early retirement benefits are based on the same formula as normal retirement, but the pension benefit is generally reduced 0.4% for each month that benefits commence before age 62. Ms. Hinrichs was eligible for early retirement under the U.S. Retirement Plan.
Ms. Hinrichs’ benefits under the U.S. Retirement Plan are calculated as follows: 1.2% of final average monthly compensation as of June 30, 2010 up to the Social Security limit times credited service up to 35 years, plus 1.65% of final average monthly compensation as of June 30, 2010 in excess of the Social Security limit times credited service up to 35 years. Final average monthly compensation excludes bonuses and commissions.
U.S. Excess Plan
We refer to our nonqualified pension plan as the U.S. Excess Plan. Ms. Hinrichs also participated in the U.S. Excess Plan, which plan has been frozen since 2006 and under which she accrued no additional benefits after such time. To the extent benefits payable under the U.S. Retirement Plan are limited by Section 415(b) or 401(a)(17) of the U.S. Internal Revenue Code, pension benefits will be paid under the terms of the U.S. Excess Plan. Because benefits entitlement under the U.S. Excess Plan and the U.S. Retirement Plan are linked, benefits under the U.S. Excess Plan have been frozen since 2006, when benefit accruals under the U.S. Retirement Plan were frozen.
For more information on our retirement plans, see “Compensation Discussion and Analysis - 2017 Other Compensation Elements - Retirement and Excess Plans.”
38
Table of Contents
Nonqualified Deferred Compensation
|
The following Nonqualified Deferred Compensation table summarizes our NEOs’ compensation under the Deferred Compensation Plan. The compensation shown in this table is entirely attributable to the Deferred Compensation Plan.
The Deferred Compensation Plan is an unfunded, defined contribution retirement plan for officers of McDermott and its subsidiaries selected to participate by our Compensation Committee. Benefits under the Deferred Compensation Plan are based on: (1) the participant’s deferral account, which is comprised of the notional account balance reflecting any executive contributions of deferred compensation; and (2) the participant’s vested percentage in his or her company account, which is comprised of the notional account balance reflecting any contributions by us. A participant is at all times 100% vested in his or her deferral account. A participant generally vests in his or her company account 20% each year, subject to accelerated vesting for death, disability, termination of service by McDermott without cause or the occurrence of a change in control.
Name
|
|
Executive
Contributions
in
2017
($)
(1)
|
|
Company
Contributions
in
2017
($)
(2)
|
|
Aggregate
Earnings
in
2017
($)
(3)
|
|
Aggregate
Withdrawals/
Distributions
($)
|
|
Aggregate
Balance
at
12/31/17
($)
(4)
|
|
Percentage
Vested
at
12/31/17
($)
|
Mr. Dickson
|
|
0
|
|
114,767
|
|
51,976
|
|
0
|
|
337,675
|
|
60%
|
Mr. Spence
|
|
0
|
|
52,019
|
|
22,431
|
|
0
|
|
129,599
|
|
40%
|
Mr. Austin
|
|
0
|
|
22,455
|
|
3,875
|
|
0
|
|
26,331
|
|
0%
|
Mr. McLaughlin
|
|
0
|
|
26,332
|
|
4,757
|
|
0
|
|
49,571
|
|
20%
|
Mr. Munro
|
|
0
|
|
27,763
|
|
4,038
|
|
0
|
|
31,801
|
|
0%
|
Ms. Hinrichs
|
|
0
|
|
91,994
|
|
52,287
|
|
0
|
|
435,177
|
|
100%
|
(1)
|
In November 2010, our Compensation Committee approved the deferral of eligible executives’ compensation beginning January 1, 2011. Under the terms of our Deferred Compensation Plan, an eligible executive may defer up to 50% of his or her annual salary and/or up to 100% of any bonus earned in any year.
|
(2)
|
We make annual contributions to specified participants’ notional accounts equal to a percentage of the participant’s prior-year compensation. Under the terms of the Deferred Compensation Plan, the contribution percentage does not need to be the same for each participant. Additionally, our Compensation Committee may make a discretionary contribution to a participant’s account at any time. Our contributions on behalf of participants equaled 5% of their respective Compensation (as defined in the Deferred Compensation Plan) received in 2016. All of our 2017 contributions are included in the Summary Compensation Table above as “All Other Compensation.”
|
(3)
|
The amounts reported in this column represent notional accrued gains or losses during 2017 on each indicated participant’s account. The accounts are “participant-directed,” in that each participant personally directs the investment of contributions made on his or her behalf. As a result, any accrued gains or losses are attributable to the performance of the notional mutual fund investments. No amount of the earnings shown is reported as compensation in the Summary Compensation Table.
|
(4)
|
The amounts reported in this column consist of contributions made by McDermott and notional accrued gains or losses as of December 31, 2017. The balances shown include contributions from previous years which have been reported as compensation to the NEOs in the Summary Compensation Table for those years – to the extent a NEO was included in the Summary Compensation Table during those years. The amounts of such contributions previously included in the Summary Compensation Table and years reported are as follows: we made contributions to Mr. Dickson’s account of $70,100 in 2016, $42,500 in 2015 and $42,500 in 2014; we made contributions to Mr. Spence’s account of $27,283 in 2016 and $23,750 in 2015; and we made contributions to Ms. Hinrichs’ account of $32,248 in 2016, $23,888 in 2015, and $38,682 in 2014.
|
Potential Payments Upon Termination or Change in Control
|
The following tables show potential payments to our NEOs under existing contracts, agreements, plans or arrangements, whether written or unwritten, for various scenarios under which a payment would be due (assuming each is applicable) involving a change in control or termination of employment of each of our NEOs, assuming a December 31, 2017 termination date and, where applicable, using the closing price of our common stock of $6.58 as of December 29, 2017 (as reported on the NYSE). These tables do not reflect amounts that would be payable to the NEOs pursuant to benefits or awards that are already vested.
39
Table of Contents
The amounts reported in the tables below for stock options, restricted stock, restricted stock units and performance shares or performance units represent the value of unvested and accelerated shares or units, as applicable, calculated by:
●
|
for stock options: multiplying the number of accelerated options by the difference between the exercise price and $6.58 (the closing price of our common stock on December 29, 2017, as reported on the NYSE); and
|
●
|
for restricted stock, restricted stock units and performance shares or performance units: multiplying the number of accelerated shares or units by $6.58 (the closing price of our common stock on December 29, 2017, as reported on the NYSE).
|
Ms. Hinrichs resigned from her position as Senior Vice President, General Counsel and Corporate Secretary effective August 13, 2017 and retired from McDermott effective December 31, 2017. In connection with Ms. Hinrichs’ resignation, we entered into a separation agreement with Ms. Hinrichs providing for various compensation-related benefits in exchange for, among other things, her agreement to comply with several restrictive covenants. See page [•] of this Amendment for information on compensation received by Ms. Hinrichs under that separation agreement.
Estimated Value of Benefits to Be Received Upon Termination Due to Death or Disability
The following table shows the value of payments and other benefits due the NEOs, assuming their death or disability as of December 31, 2017.
|
|
Dickson
($)
|
|
Spence
($)
|
|
Austin
($)
|
|
McLaughlin
($)
|
|
Munro
($)
|
Severance
Payments
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
EICP
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
Deferred
Compensation Plan
(1)
|
|
135,070
|
|
77,759
|
|
26,331
|
|
39,657
|
|
31,801
|
Stock Options
(2)
(unvested
and accelerated)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
Restricted
Stock Units
(3)
(unvested
and accelerated)
|
|
6,376,086
|
|
1,972,184
|
|
683,169
|
|
530,230
|
|
632,226
|
Performance
Units
(4)
(unvested)
|
|
10,931,986
|
|
3,208,790
|
|
569,302
|
|
686,452
|
|
959,805
|
Total
|
|
17,443,142
|
|
5,258,733
|
|
1,278,802
|
|
1,256,338
|
|
1,623,832
|
(1)
|
The amounts reported represent 40% of Mr. Dickson’s, 60% of Mr. Spence’s, 80% of Mr. McLaughlin’s and 100% of Messrs. Austin’s and Munro’s DCP balance as of December 31, 2017 that would become vested on death or disability.
|
(2)
|
Under the terms of the outstanding stock option awards held by each of the NEOs as of December 31, 2017, all unvested option awards would become vested and exercisable on death or disability. All outstanding stock options were fully vested as of December 31, 2017.
|
(3)
|
Under the terms of the outstanding restricted stock unit awards held by each of the NEOs as of December 31, 2017, all unvested restricted stock unit awards would become vested on his death or disability.
|
(4)
|
Under the terms of the outstanding 2015, 2016 and 2017 performance unit awards held by each of the NEOs as of December 31, 2017, 100% of the initial performance units granted would vest on the third anniversary of the grant date on his or her death or disability. The number of performance units that would vest is the number of performance units that would have vested based on actual performance had the NEO remained employed with McDermott until the third anniversary of the grant date. Accordingly, each NEO may vest in a number of performance units ranging from 0% - 200% of the initial performance units granted, depending on McDermott’s performance during the applicable measurement periods.
|
|
|
|
The amounts reported assume that a total of 100% of the initial performance units granted for the 2015, 2016 and 2017 awards will vest during the applicable measurement periods, all valued at the closing price of McDermott stock as reported on the NYSE on December 29, 2017. The actual value of performance units granted for the 2015, 2016 and 2017 awards that may vest could be $0 for each NEO and up to $21,863,971 for Mr. Dickson, $6,417,579 for Mr. Spence, $1,138,603 for Mr. Austin, $1,372,904 for Mr. McLaughlin and $1,919,610 for Mr. Munro, in each case, as applicable, representing a total of 200% of the initial performance units granted for the 2015, 2016 and 2017 awards. Additionally, the value of McDermott common stock could be greater or less than the amount used to value the performance shares or performance units for this table.
|
40
Table of Contents
Estimated Value of Benefits to Be Received Upon Change in Control and Termination
We have change in control agreements with various officers, including each of our NEOs. Generally, under these agreements, if a NEO is terminated within one year following a change in control either: (1) by our company for any reason other than cause or death or disability; or (2) by the NEO for good reason, McDermott is required to pay the NEO a severance payment based on the NEO’s salary and a severance payment based on the NEO’s target EICP percentage. In addition to these payments, the NEO would be entitled to various accrued benefits earned through the date of termination, such as earned but unpaid salary, earned but unused vacation and reimbursements.
Under these agreements, a “change in control” generally occurs on the occurrence of any of the following:
●
|
a person becomes the beneficial owner of 30% or more of the combined voting power of McDermott’s then outstanding voting stock unless such acquisition is made directly from McDermott in a transaction approved by a majority of McDermott’s incumbent directors;
|
●
|
individuals who are incumbent directors cease for any reason to constitute a majority of McDermott’s board;
|
●
|
completion of a merger or consolidation of McDermott with another company or an acquisition by McDermott or its subsidiaries, unless immediately following such merger, consolidation or acquisition: (1) all or substantially all of the individuals or entities that were the beneficial owners of outstanding McDermott voting securities immediately before such merger, consolidation or acquisition beneficially own at least 50% of the then outstanding shares of voting stock of the parent corporation resulting from the merger, consolidation or acquisition in the same relative proportions as their ownership immediately before such merger, consolidation or acquisition; (2) if such merger, consolidation or acquisition involves the issuance or payment by McDermott of consideration to another entity or its stockholders, the total fair market value of such consideration plus the principal amount of the consolidated long-term debt of the entity or business being acquired, does not exceed 50% of the sum of the fair market value of the outstanding McDermott voting stock plus the principal amount of our consolidated long-term debt; (3) no person beneficially owns 30% or more of the then outstanding shares of the voting stock of the parent company resulting from such merger, consolidation or acquisition; and (4) a majority of the members of the board of directors of the parent corporation resulting from such merger, consolidation or acquisition were incumbent directors of McDermott immediately before such merger, consolidation or acquisition;
|
●
|
completion of the sale or disposition of 50% or more of the assets of McDermott and its subsidiaries on a consolidated basis, unless immediately following such sale or disposition: (1) the individuals and entities that were beneficial owners of outstanding McDermott voting stock immediately before such sale or disposition beneficially own at least 50% of the then outstanding shares of voting stock of McDermott and of the entity that acquires the largest portion of such assets, and (2) a majority of the members of the McDermott Board (if it continues to exist) and the board of directors of the entity that acquires the largest portion of such assets were incumbent directors of McDermott immediately before the completion of such sale or disposition; or any other set of circumstances is deemed by the Board in its sole discretion to constitute a change in control.
|
The change in control agreements do not provide for excise tax gross-ups. They do, however, provide for the potential reduction in payments to the applicable officer in order to avoid excise taxes.
The completion of the proposed business combination transaction with CB&I is expected to constitute a “change in control” for purposes of the change in control agreements described above. However, no payment to an NEO will be triggered under any change in control agreement with an NEO unless that NEO’s employment with us terminated under any of the circumstances described above within one year of the completion of that transaction.
41
Table of Contents
The following table shows the estimated value of payments and other benefits due the NEOs, assuming a change in control and termination as of December 31, 2017.
|
|
Dickson
($)
|
|
Spence
($)
|
|
Austin
($)
|
|
McLaughlin
($)
|
|
Munro
($)
|
Salary-Based Severance Payment
(1)
|
|
4,690,625
|
|
1,771,875
|
|
556,250
|
|
1,192,500
|
|
556,250
|
EICP-Based Severance Payment
(2)
|
|
990,000
|
|
382,500
|
|
210,000
|
|
225,000
|
|
210,000
|
Deferred Compensation Plan
(3)
|
|
135,070
|
|
77,759
|
|
26,331
|
|
39,657
|
|
31,801
|
Stock Options
(4)
(unvested and accelerated)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
Restricted Stock Units
(4)
(unvested and accelerated)
|
|
6,376,086
|
|
1,972,184
|
|
683,169
|
|
530,230
|
|
632,226
|
Performance Shares or Units
(4)
(unvested and accelerated)
|
|
10,931,986
|
|
3,208,790
|
|
569,302
|
|
686,452
|
|
959,805
|
Total
|
|
23,123,767
|
|
7,413,108
|
|
2,045,052
|
|
2,673,839
|
|
2,390,082
|
(1)
|
The salary-based severance payment made to Mr. Dickson in connection with a change in control would be a cash payment equal to 250% of the sum of his annual base salary prior to termination and his EICP target award applicable to the year in which the termination occurs. The severance payment made to Messrs. Spence and McLaughlin in connection with a change in control would be a cash payment equal to 200% of the sum of his annual base salary prior to termination and his EICP target award applicable to the year in which the termination occurs. The severance payment made to Messrs. Austin and Munro in connection with a change in control would be a cash payment equal to the sum of his annual base salary prior to termination and his EICP target award applicable to the year in which the termination occurs.
For a hypothetical termination as of December 31, 2017, the salary-based severance payment under a change in control would have been calculated based on the following base salary and target EICP awards. See “Grants of Plan-Based Awards” above for more information on the calculation of target EICP awards.
|
NEO
|
|
Annual
Base
Salary
($)
|
|
Target EICP
Award
($)
|
Mr. Dickson
|
|
900,000
|
|
976,250
|
Mr. Spence
|
|
510,000
|
|
375,938
|
Mr. Austin
|
|
350,000
|
|
206,250
|
Mr. McLaughlin
|
|
375,000
|
|
221,250
|
Mr. Munro
|
|
350,000
|
|
206,250
|
(2)
|
Each NEO could receive up to two EICP-based severance payments in connection with a change in control depending on the timing of the termination relative to the payment of an EICP award, as follows:
|
●
|
If an EICP award for the year prior to termination is paid to other EICP participants after the date of the NEO’s termination, the NEO would be entitled to a cash payment equal to the product of the NEO’s target EICP percentage (or, if greater, the actual amount of the bonus determined under the EICP for the year prior to termination) and the NEO’s annual base salary for the applicable period. No such payment would have been due a NEO on a December 31, 2017 termination, because the 2016 EICP awards had already been paid.
|
●
|
The NEO would be entitled to a prorated EICP payment based upon the NEO’s target EICP percentage for the year in which the termination occurs and the number of days in which the NEO was employed with us during that year. Based on a hypothetical December 31, 2017 termination, each NEO would have been entitled to an EICP payment equal to 100% of his or her 2017 target EICP percentage times annual base salary, calculated based on the following base salary and target EICP percentage:
|
NEO
|
Annual
Base Salary
($)
|
|
Target EICP
Percentage
($)
|
Mr. Dickson
|
900,000
|
|
110%
|
Mr. Spence
|
510,000
|
|
75%
|
Mr. Austin
|
350,000
|
|
60%
|
Mr. McLaughlin
|
375,000
|
|
60%
|
Mr. Munro
|
350,000
|
|
60%
|
42
Table of Contents
(3)
|
The amounts reported represent 40% of Mr. Dickson’s, 60% of Mr. Spence’s, 80% of Mr. McLaughlin’s and 100% of Messrs. Austin’s and Munro’s DCP balance as of December 31, 2017 that would become vested on a qualifying termination within one year following a change in control (as defined in the change in control agreements) pursuant to the executive’s change in control agreements. Under the Deferred Compensation Plan, vesting will also occur upon a change in control, and for purposes of this plan a “change in control” generally occurs if:
|
●
|
a person (other than a McDermott employee benefit plan or a corporation owned by McDermott stockholders in substantially the same proportion as the ownership of McDermott voting shares) is or becomes the beneficial owner of 30% or more of the combined voting power of McDermott’s then outstanding voting stock;
|
●
|
during any period of two consecutive years, individuals who at the beginning of such period constitute McDermott’s Board of Directors, and any new director whose election or nomination by McDermott’s Board was approved by at least two-thirds of the directors of McDermott’s Board then still in office who either were directors at the beginning of the period or whose election or nomination was previously approved, cease to constitute a majority of McDermott’s Board;
|
●
|
a merger or consolidation of McDermott with any other corporation or entity has been completed, other than a merger or consolidation which results in the outstanding McDermott voting securities immediately prior to such merger or consolidation continuing to represent at least 50% of the combined voting power of the voting securities of McDermott or the surviving entity outstanding immediately after such merger or consolidation;
|
●
|
McDermott’s stockholders approve (1) a plan of complete liquidation of McDermott; or (2) an agreement for the sale or disposition by McDermott of all or substantially all of McDermott’s assets; or
|
●
|
within one year following the completion of a merger or consolidation transaction involving McDermott, (1) individuals who, at the time of execution and delivery of definitive agreements completing such transaction constituted the Board, cease for any reason (excluding death, disability or voluntary resignation) to constitute a majority of the Board; or (2) either individual, who at the first execution and delivery of definitive agreements completing the transaction, served as Chief Executive Officer or Chief Financial Officer does not, for any reason (excluding death, disability or voluntary resignation), serve as the Chief Executive Officer or Chief Financial Officer, as applicable, of McDermott, or if McDermott does not continue as a registrant with a class of equity securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended, as the Chief Executive Officer or Chief Financial Officer, as applicable, of a corporation or other entity that is (A) a registrant with a class of equity securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended, and (B) the surviving entity in such transaction or a parent entity of the surviving entity or McDermott following the completion of such transaction; provided, however, that a change in control would not be deemed to have occurred pursuant to this clause in the case of a merger or consolidation which results in the voting securities of McDermott outstanding immediately prior to the completion of the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 55% of the combined voting power of the voting securities of the McDermott or the surviving entity outstanding immediately after such merger or consolidation.
|
(4)
|
Under the terms of the 2015 restricted stock unit awards outstanding, all unvested restricted stock units would become vested on a change in control, regardless of whether there is a subsequent termination of employment. Under the terms of the 2016 and 2017 restricted stock unit awards outstanding, all unvested restricted stock units would become vested on a change in control, regardless of whether there is a subsequent termination of employment, only if the awards are not assumed in the transaction. Under the terms of the 2015 performance unit awards outstanding, the greater of (1) 100% of the initial performance shares or performance units granted, or (2) the vested percentage of initial performance shares or performance units determined in accordance with the grant agreement would become vested on a change in control, regardless of whether there is a subsequent termination of employment. Under the terms of the 2016 and 2017 performance unit awards outstanding, the greater of (1) target level, or (2) the actual performance level measured through the date the change in control becomes effective as determined in accordance with the grant agreement would become vested on a change in control, regardless of whether there is a subsequent termination of employment, only if the awards are not assumed in the transaction. If the 2016 and 2017 performance unit awards are assumed in a change in control, such awards would only vest on a subsequent termination of employment by the employer without cause or by the executive for good reason. Under the 2014 LTIP, a “change in control” generally occurs under the same circumstances described in the first three bullets in note (3) above with respect to our Deferred Compensation Plan, as well as on the occurrence of the below circumstances:
|
●
|
McDermott’s stockholders approve a plan of complete liquidation of McDermott;
|
●
|
the consummation of a sale or disposition by McDermott of all or substantially all of McDermott’s assets other than to an entity that is under common control with McDermott or to an entity for which at least fifty percent (50%) of the combined voting power of its voting securities outstanding immediately after such sale or disposition are owned or controlled by the stockholders of McDermott immediately prior to such sale or disposition; or
|
43
Table of Contents
●
|
within one year following the completion of a merger or consolidation transaction involving McDermott, (1) individuals who, at the time of execution and delivery of definitive agreements relating to such transaction constituted the Board, cease for any reason (excluding death, disability or voluntary resignation) to constitute a majority of the Board; or (2) the individual, who at the first execution and delivery of definitive agreements relating to the transaction, served as Chief Executive Officer does not, for any reason (excluding death, disability or voluntary resignation), serve as the Chief Executive Officer of McDermott, or if McDermott does not continue as a registrant with a class of equity securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended, as the Chief Executive Officer of a corporation or other entity that is (A) a registrant with a class of equity securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended, and (B) the surviving entity in such transaction or a parent entity of the surviving entity or McDermott following the completion of such transaction; provided, however, that a change in control would not be deemed to have occurred pursuant to this clause in the case of a merger or consolidation which results in the voting securities of McDermott outstanding immediately prior to the completion of the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 55% of the combined voting power of the voting securities of the McDermott or the surviving entity outstanding immediately after such merger or consolidation.
|
Under
the 2016 LTIP, a “change in control” generally occurs under the same circumstances described in the first three bullets in note (3) above with respect to our Deferred Compensation Plan, and under the same circumstances described in the first two b
ullets above with respect to our 2014 LTIP, as well as on the occurrence of the below circumstance:
●
|
within one year following the consummation of a merger or consolidation transaction involving the Company (whether as a constituent corporation, the acquiror, the direct or indirect parent entity of the acquiror, the entity being acquired, or the direct or indirect parent entity of the entity being acquired), as a result of which the voting securities of the Company outstanding immediately prior thereto continue to represent more than fifty percent (50%) but less than fifty-five percent (55%) of the combined voting power of the voting securities of the Company or the surviving entity outstanding immediately after such merger or consolidation (a “Merger of Equals”): (i) individuals who, at the time of the execution and delivery of the definitive agreement pursuant to which such transaction has been consummated by the parties thereto (a “Definitive Transaction Agreement”) (or, if there are multiple such agreements relating to such Merger of Equals, the first time of execution and delivery by the parties to any such agreement) (the “Execution Time”), constituted the Board cease, for any reason (excluding death, disability or voluntary resignation but including any such voluntary resignation effected in accordance with any Definitive Transaction Agreement), to constitute a majority of the Board; or (ii) the individual who, at the Execution Time, served as the Chief Executive Officer of the Company does not, for any reason (excluding as a result of death, disability or voluntary termination but including any such voluntary termination effected in accordance with any Definitive Transaction Agreement), serve as the Chief Executive Officer of the Company or, if the Company does not continue as a registrant with a class of equity securities registered pursuant to Section 12(b) of the Exchange Act, as the Chief Executive Officer of a corporation or other entity that is (A) a registrant with a class of equity securities registered pursuant to Section 12(b) of the Exchange Act and (B) the surviving entity in such Merger of Equals or a direct or indirect parent entity of the surviving entity or the Company following the consummation of such Merger of Equals.
|
The amounts reported in the chart above represent a total of 100% of the initial performance units granted for the 2015, 2016 and 2017 awards.
44
Table of Contents
Compensation of Non-Employee Directors for Fiscal Year 2017
Under our 2017 nonemployee director compensation program, cash compensation for nonemployee directors consisted of retainers (paid monthly and prorated for partial terms) and meeting fees as follows:
|
($)
|
Annual Board Member Retainer
|
85,000
|
Audit Committee Chair Retainer
|
20,000
|
Compensation Committee Chair Retainer
|
20,000
|
Governance Committee Chair Retainer
|
10,000
|
Additional Retainer for Lead Director (if applicable)
|
20,000
|
Additional Retainer for Chair of the Board
|
150,000
|
Meeting fees for each meeting of the Board or a Committee (of which the director is a member)
attended in excess of the twelfth Board or Committee meeting per annual director term
|
2,500
|
From 2014 to 2016, our nonemployee director compensation was generally consistent with the above, with two exceptions. First, in 2017, we increased the annual Board member retainer from $75,000 to $85,000. Second, we increased the annual restricted stock award from $120,000 to $135,000. These increases were made following a market analysis performed by Pay Governance, our third party compensation consultant at such time, which showed that our nonemployee director compensation levels were below our peer median. Accordingly, Pay Governance recommended adjustments totaling $45,000 to reduce the gap relative to our peers. Based on information provided by Pay Governance, our Governance Committee approved of a $25,000 total increase to bring our nonemployee director compensation levels closer to our peer median. Even with this increase, our nonemployee director compensation levels remain below the peer median.
The table below summarizes the compensation earned by or paid to our nonemployee directors during the year ended December 31, 2017.
Name
|
|
Fees Earned or
Paid in Cash
($)
(1)
|
|
Stock
Awards
($)
(2)
|
|
Total
($)
|
Philippe Barril
|
|
28,333
|
|
88,393
|
|
116,726
|
John F. Bookout, III
|
|
84,166
|
|
134,998
|
|
219,164
|
Stephen G. Hanks
|
|
100,727
|
|
134,998
|
|
235,725
|
Erich Kaeser
|
|
84,166
|
|
134,998
|
|
219,164
|
Gary P. Luquette
|
|
234,166
|
|
134,998
|
|
369,164
|
William H. Schumann, III
|
|
104,166
|
|
134,998
|
|
239,164
|
Mary L. Shafer-Malicki
|
|
91,106
|
|
134,998
|
|
226,104
|
David A. Trice
|
|
90,711
|
|
134,998
|
|
225,709
|
(1)
|
The amounts reported in this column include the annual retainers paid to each director, additional retainers paid to the Chairman of the Board and Committee Chairs, and extra meeting fees, which were owed to all directors except for Mr. Barril as a result of their attending more than 12 meetings since May 5, 2017, the commencement of their annual terms.
|
(2)
|
Under our 2017 director compensation program, equity compensation for nonemployee directors included a discretionary annual stock grant. On May 5, 2017, each of the nonemployee directors then serving as a director received a grant of 20,579 shares of restricted stock valued at $134,998, which is the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718, using the closing market price of McDermott common stock on the date of grant ($6.56). Additionally, Mr. Barril received a grant of 14,234 shares of restricted stock valued at $88,393, which represented a prorated 2017 annual grant for his partial term of service upon joining the Board in September 2017. Under the terms of each award, the restricted stock vested immediately on the grant date and immediately became unrestricted shares of McDermott common stock. For a discussion of the valuation assumptions with respect to these awards, see Note 14 to our Consolidated Financial Statements included in the Original Filing.
|
45
Table of Contents
Risks Relating to Compensation Program Design
Regarding risks relating to the design of our compensation programs, the Compensation Committee, with assistance from its independent compensation consultant, Meridian, regularly reviews and assesses our compensation policies and practices to ensure that they are appropriate in terms of the level of risk-taking and in line with our business strategies and the interests of our stockholders. The Compensation Committee has designed our compensation programs to encourage performance focused on long-term stockholder value, promote company growth and allow for appropriate levels of risk-taking but to discourage excessive risk-taking. Based on the findings of the risk assessment performed at its November 2017 meeting, the Compensation Committee concluded that the risks arising from our compensation policies and practices are not reasonably likely to have a materially adverse impact on us.
Compensation Committee Interlocks and Insider Participation
All members of our Compensation Committee are independent in accordance with NYSE listing standards. No member of the Compensation Committee (1) was, during the year ended December 31, 2017, or had previously been, an officer or employee of McDermott or any of its subsidiaries, or (2) had any material interest in a transaction of McDermott or a business relationship with, or any indebtedness to, McDermott. No interlocking relationship existed during the year ended December 31, 2017 between any member of the Board of Directors or the Compensation Committee and an executive officer of McDermott.