|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Owner
|
|
Common
Stock(1)
|
|
Rights to
Acquire(2)
|
|
Restricted
Stock(3)
|
|
Percent of
Common
Stock(4)
|
|
BGP Inc., China National Petroleum Corporation(5)
|
|
|
1,585,969
|
|
|
|
|
|
|
|
|
11.3
|
%
|
James M. Lapeyre, Jr.(6)
|
|
|
1,237,690
|
|
|
|
|
|
2,500
|
|
|
8.8
|
%
|
Laitram, L.L.C.(7)
|
|
|
979,816
|
|
|
|
|
|
|
|
|
7.0
|
%
|
Invesco Ltd.(8)
|
|
|
924,292
|
|
|
|
|
|
|
|
|
6.6
|
%
|
Empery Asset Management, LP(9)
|
|
|
727,250
|
|
|
|
|
|
|
|
|
5.2
|
%
|
Footprints Asset Management & Research, Inc.(10)
|
|
|
722,398
|
|
|
|
|
|
|
|
|
5.1
|
%
|
R. Brian Hanson(11)
|
|
|
105,455
|
|
|
95,857
|
|
|
49,536
|
|
|
1.8
|
%
|
Steven A. Bate
|
|
|
97,287
|
|
|
46,422
|
|
|
16,308
|
|
|
1.1
|
%
|
David H. Barr
|
|
|
20,433
|
|
|
|
|
|
2,500
|
|
|
*
|
|
Hao Huimin
|
|
|
7,256
|
|
|
|
|
|
2,500
|
|
|
*
|
|
Michael C. Jennings
|
|
|
10,433
|
|
|
|
|
|
2,500
|
|
|
*
|
|
Franklin Myers
|
|
|
25,633
|
|
|
|
|
|
2,500
|
|
|
*
|
|
S. James Nelson, Jr.
|
|
|
11,766
|
|
|
|
|
|
2,500
|
|
|
*
|
|
John N. Seitz
|
|
|
13,759
|
|
|
|
|
|
2,500
|
|
|
*
|
|
Matthew R. Powers
|
|
|
2,162
|
|
|
3,666
|
|
|
13,332
|
|
|
*
|
|
Christopher T. Usher
|
|
|
42,390
|
|
|
25,957
|
|
|
9,827
|
|
|
*
|
|
Kenneth G. Williamson
|
|
|
60,727
|
|
|
51,880
|
|
|
13,222
|
|
|
*
|
|
All directors and executive officers as a group (14 Persons)
|
|
|
1,695,807
|
|
|
256,866
|
|
|
133,936
|
|
|
14.6
|
%
|
-
*
-
Less
than 1%
-
(1)
-
Represents
shares for which the named person (a) has sole voting and investment power or (b) has shared voting and investment power. Excluded are
shares that (i) are unvested restricted stock holdings or (ii) may be acquired through stock option exercises.
-
(2)
-
Represents
shares of Common Stock that may be acquired upon the exercise of stock options held by our officers and directors that are currently exercisable or will
be exercisable on or before April 29, 2018.
-
(3)
-
Represents
unvested shares subject to a vesting schedule, forfeiture risk and other restrictions. Although these shares are subject to risk of forfeiture, the holder
has the right to vote the unvested shares unless and until they are forfeited.
-
(4)
-
Assumes
shares subject to outstanding stock options that such person has rights to acquire upon exercise, presently and on or before April 29, 2018, are
outstanding.
-
(5)
-
The
address for BGP Inc., China National Petroleum Corporation is No. 189 Fanyang Middle Road, ZhuoZhou City, HeBei Province 072750 P.R. China.
-
(6)
-
The
shares of Common Stock held by Mr. Lapeyre include 99,402 shares that Mr. Lapeyre holds as a custodian or trustee for the benefit of his children,
979,816 shares owned by Laitram, and 699
27
Table of Contents
shares
that Mr. Lapeyre holds as a co-trustee with his wife for the benefit of his children, in all of which Mr. Lapeyre disclaims any beneficial interest. Please read note 7
below. Mr. Lapeyre has sole voting power over only 157,773 of these shares of Common Stock.
-
(7)
-
The
address for Laitram, L.L.C. is 220 Laitram Lane, Harahan, Louisiana 70123. Mr. Lapeyre is the President and Chief Executive Officer of Laitram. Please
read note 6 above. Mr. Lapeyre disclaims beneficial ownership of any shares held by Laitram.
-
(8)
-
The
address for Invesco Ltd. is 1555 Peachtree Street NE, Atlanta, Georgia 30309.
-
(9)
-
The
address for Empery Asset Management, LP is 1 Rockefeller Plaza, Suite 1205, New York, New York 10020.
-
(10)
-
The
address for Footprints Asset Management & Research, Inc. is 11422 Miracle Hills Drive, Suite 208, Omaha, NE 68154.
-
(11)
-
The
shares of Common Stock held by Mr. Hanson include 666 shares owned by Mr. Hanson's wife, in which Mr. Hanson disclaims any beneficial
interest.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires directors and certain officers of ION, and persons who own more than 10% of ION's Common
Stock, to file with the SEC and the NYSE initial statements of beneficial ownership on Form 3 and changes in such ownership on Forms 4 and 5. Based on our review of the copies of such
reports, we believe that during 2017 our directors, executive officers and shareholders holding greater than 10% of our outstanding shares complied with all
applicable filing requirements under Section 16(a) of the Exchange Act, and that all of their filings were timely made.
28
Table of Contents
EXECUTIVE OFFICERS
Our executive officers are as follows:
|
|
|
|
|
|
Name
|
|
Age
|
|
Position with ION
|
R. Brian Hanson
|
|
|
53
|
|
President, Chief Executive Officer and Director
|
Steven A. Bate
|
|
|
55
|
|
Executive Vice President and Chief Financial Officer
|
Colin T. Hulme
|
|
|
66
|
|
Executive Vice President, Strategic Marketing and New Technologies and CEO OceanGeo
|
Matthew R. Powers
|
|
|
42
|
|
Executive Vice President, General Counsel and Corporate Secretary
|
Scott P. Schwausch
|
|
|
43
|
|
Vice President and Corporate Controller
|
Christopher T. Usher
|
|
|
57
|
|
Executive Vice President and Chief Operating Officer, Operations Optimization
|
Kenneth G. Williamson
|
|
|
53
|
|
Executive Vice President and Chief Operating Officer, E&P Technology & Services
|
For
a description of the business background of Mr. Hanson, please see
"Item 1Election of DirectorsClass I Director
Nominees for Re-Election for Term Expiring in 2018"
above.
Mr. Bate
is currently our Executive Vice President and Chief Financial Officer. Mr. Bate rejoined ION in May 2013 as Senior Vice President, Systems Division, became the
Executive Vice President and Chief Operating Officer, Systems Division in February 2014 and became the Executive Vice President and Chief Financial Officer in November 2014. Mr. Bate originally
joined ION in 2005 as Chief Financial Officer of our GX Technology business unit. In 2007, he was appointed Senior Vice President, Sensor business unit and in 2009, his area of responsibility
broadened to our Land Imaging Systems Division. Following our formation in March 2010 of INOVA Geophysical, a land seismic equipment joint venture with BGP, Mr. Bate was appointed as INOVA
Geophysical's first President and
Chief Executive Officer, and served in that role until October 2012. Prior to joining ION in 2005, Mr. Bate founded a consulting business and served as President of a residential construction
company. Mr. Bate holds a Bachelor of Business Administration degree from the University of Houston.
Mr. Hulme
is currently our Executive Vice President, Strategic Marketing and New Technologies and Chief Executive Officer of OceanGeo. Mr. Hulme joined ION in April 2012 as
Senior Vice President, Strategic Marketing and in November 2013 was promoted to Senior Vice President, Ocean Bottom Services, and appointed to serve as the chief executive officer of
OceanGeo B.V., a joint venture controlled by ION, became our Executive Vice President, Ocean Bottom Services in February 2015 and was named Executive Vice President, Strategic Marketing and New
Technologies in February 2018. Prior to joining ION, Mr. Hulme held a variety of senior management positions at Schlumberger, Ltd., a global oilfield and information services company,
from 1989 through 2011, including serving as Technical DirectorDeep Reading for Schlumberger Wireline from 2006 to 2011, Vice President and General Manager of Seismic Data Processing for
WesternGeco, a seismic solutions and technology subsidiary of Schlumberger, from 2002 to 2006, Vice President and General Manager for Reservoir Products, Schlumberger Information Services, from 2000
to 2002, Vice President and Business Manager for Asia Region, Schlumberger Information Services, from 1998 to 2000, and Corporate Marketing and Commercialization Manager for WesternGeco from 1994 to
1998. Prior to joining Schlumberger, Mr. Hulme began his career at Digicon Geophysical.
Mr. Powers
joined ION in 2013 as Senior Legal Counsel and held that position until February 2016 when he was promoted to Deputy General Counsel. In September 2017, he was promoted
to General Counsel and Corporate Secretary, and was further promoted to Executive Vice President in October 2017. Prior to joining ION, Mr. Powers held a variety of positions in the Houston
offices of Mayer Brown LLP (beginning in 2005 and ending in 2012) and Sidley Austin LLP (beginning in 2012 and ending in 2013). Mr. Powers holds a Juris Doctor from the University
of Chicago Law School and
29
Table of Contents
a
Bachelor's degree in Economics, summa cum laude, from the University of ColoradoDenver. He is licensed to practice in Texas.
Mr. Schwausch
joined ION in 2006 as Assistant Controller and held that position until June 2010 when he became Director of Financial Reporting. In May 2012, he became Controller,
Solutions Business Unit, and in May 2013 became Vice President and Corporate Controller. Mr. Schwausch held a variety of positions at Deloitte & Touche, LLP, a public accounting
firm, from 2000 until he joined ION. Mr. Schwausch is a Certified Public Accountant and a Certified Management Accountant. He received a Bachelor of Science degree in accounting from Brigham
Young University.
Mr. Usher
is our Executive Vice President and Chief Operating Officer, Operations Optimization. Mr. Usher joined ION in November 2012 as the Executive Vice President and
Chief Operating Officer, GeoScience Division. Prior to joining our Company, Mr. Usher served as the Senior Vice President, Data Processing, Analysis and Interpretation and Chief Technology
Officer (including significant merger and acquisitions responsibility) of Global Geophysical Services, Inc., a NYSE-listed seismic products and services company, since January 2010. Prior to
joining Global, Mr. Usher served from October 2005 to January 2010 as Senior Director at Landmark Software and Services (including significant merger and acquisition responsibility), a division
of Halliburton Company, an oilfield services company. From 2004 to 2005, he was Senior Corporate Vice President, Integrated Services, at Paradigm Geotechnology, an E&P software company. From 2000 to
2003, Mr. Usher served as President of the global data processing division of Petroleum Geo-Services (PGS), a marine geophysical contracting company. He began his career at Western Geophysical
where he served in a number of roles over his 17-year tenure before becoming the Worldwide VP Technology. Mr. Usher holds a Bachelor of Science degree in geology and geophysics from Yale
University.
Mr. Williamson
is our Executive Vice President and Chief Operating Officer, E&P Technology & Services. Mr. Williamson originally joined ION as Vice President of our
GeoVentures business unit in September 2006, became a Senior Vice President in January 2007, and became Executive Vice President and Chief Operating Officer, GeoVentures Division, in November 2012 and
Executive Vice President and Chief Operating Officer of E&P Technology & Services in February of 2015. Between 1987 and 2006, Mr. Williamson was employed by Western Geophysical, which in
2000 became part of WesternGeco, a seismic solutions and technology subsidiary of Schlumberger, Ltd., a global oilfield and information services company. While at WesternGeco,
Mr. Williamson served as Vice President, Marketing from 2001 to 2003, Vice President, Russia and Caspian Region, from 2003 to 2005 and Vice President, Marketing, Sales &
Commercialization of WesternGeco's electromagnetic services and technology division from 2005 to 2006. Mr. Williamson holds a Bachelor of Science degree in geophysics from Cardiff University in
Wales.
30
Table of Contents
EXECUTIVE COMPENSATION
Introductory note: The following discussion of executive compensation contains descriptions of various
employee benefit plans and employment-related agreements. These descriptions are qualified in their entirety by reference to the full text or detailed descriptions of the plans and agreements, which
are filed or incorporated by reference as exhibits to our annual report on Form 10-K, as amended, for the year ended December 31, 2017. In this discussion, the terms "ION," "we," "our"
and "us" refer to ION Geophysical Corporation and its consolidated subsidiaries, except where the context otherwise requires or as otherwise indicated.
31
Table of Contents
Compensation Discussion and Analysis
This Compensation Discussion and Analysis provides an overview of the Compensation Committee of the Company's Board of Directors, a discussion
of the background and objectives of our compensation programs for our senior executives, and a discussion of all material elements of the compensation of each of the executive officers identified in
the following table, whom we refer to as our named executive officers ("NEOs"):
|
|
|
Name
|
|
Title
|
R. Brian Hanson
|
|
President, Chief Executive Officer and Director
|
Steven A. Bate
|
|
Executive Vice President and Chief Financial Officer
|
Matthew R. Powers
|
|
Executive Vice President, General Counsel and Corporate Secretary
|
Christopher T. Usher
|
|
Executive Vice President and Chief Operating Officer, Operations Optimization
|
Kenneth G. Williamson
|
|
Executive Vice President and Chief Operating Officer, E&P Technology & Services
|
Executive Summary
General.
Our executive compensation program provides our NEOs with total annual compensation that includes three principal elements:
base salary,
performance-based annual non-equity incentive plan compensation (annual cash bonuses), and long-term equity-based incentive awards. (For the purposes of this Compensation Discussion and Analysis, our
stock appreciation rights awards ("SARs") are categorized as long-term equity-based incentive awards because, while they are cash-settled, their value is determined by the spread between the price of
the Company's common stock on the date they are granted and the price of the Company's common stock on date they are exercised). A significant portion of each NEOs' total annual compensation is
performance based and is at risk and dependent upon our Company's achievement of specific, measurable performance goals. Our performance-based pay closely aligns our NEOs' interests with those of our
shareholders and promotes the creation of shareholder value, without encouraging excessive risk-taking. In addition, our equity programs, combined with our executive share ownership requirements are
designed to reward long-term stock performance and encourage investment in the Company.
Restoration of Base Salaries.
Due to the difficulties the Company, its customers, and the industry experienced in the recent downturn,
base salaries
for all of our NEOs were decreased by 10% on April 27, 2015. This decrease remained in effect throughout 2016 and most of 2017. In consultation with the Compensation Committee, the Company
restored base salaries of our NEOs to their April 26, 2015 levels in August 2017. In total, base salary reductions remained in place for approximately 27 months.
Annual Bonus Incentive Plan.
Payments under our annual cash bonus incentive plan for 2017 (which were made in February 2018) reflected
the Company's
performance and the level of achievement of
our 2017 plan performance goals. NEOs' bonus targets range from 60% to 100% of their annual base salaries. In 2014, NEOs (other than the CEO) could earn up to 200% of their bonus targets in a given
year, depending on their individual performance and the performance of the Company. Commencing in 2015, in view of the extremely challenging business climate that the Company faced, the Compensation
Committee reduced the maximum amount earnable by these NEOs to 125% of their respective targets. This cap was continued through 2016 but lifted in 2017 in view of the improved performance of the
Company and improved business climate. The total dollars that could have been achieved under the bonus plan pool were increased from $9.2 million in 2016 to a maximum of $14 million in
2017.
32
Table of Contents
The
Compensation Committee determined that the bonus available for awards paid to our NEOs under the 2017 plan should be based on a combination of long-term strategic initiatives and
cash generation goals. In early 2018, the Compensation Committee reviewed the Company's progress towards the achievement of the strategic initiatives and cash generated from operations, and approved a
bonus for each NEO based on each individual's achievement of key objectives and company performance. In approving the individual awards to our NEOs in February 2018, the Compensation Committee noted
that our NEOs' efforts had helped to drive our cash generation objectives during the most challenging economic period for our industry in several decades, helped position us to take advantage of the
next upturn in the energy cycle by pursuing the long-term strategic initiatives, and helped us to achieve substantial year-over-year improvements from 2016.
Equity Investment Program and Early Exercise of SARs.
In 2016, the Compensation Committee awarded SARs to several of its key employees,
including all
of the NEOs, with the intent of keeping the management team highly focused on executing the Company's strategy to drive recovery in the Company's stock price. These SARs were scheduled to vest in
three equal trancheson March 1 of 2017, 2018 and 2019, respectivelyand had a ceiling of $22.50 a share. Because of the significant upward movement in the Company's
stock price in 2017, the Compensation Committee perceived a real possibility of the stock price hitting or exceeding $22.50 per share in the first quarter of 2018, which would have resulted in the
automatic exercise of the SARs and a cash obligation to the Company of approximately $13 million. In order to minimize the potential cash flow impact of such an auto-exercise of the SARs in the
first quarter of 2018, to mitigate the ongoing mark to market accounting requirements for cash-settled SARs, and to afford the SARs participants liquidity to invest in common stock of the Company in
connection with an equity investment program (described below), the Compensation Committee accelerated the vesting of the second tranche of these SARs awards from March 1, 2018 to
December 13, 2017. Additionally, in order to encourage the Company's executive officers and other key employees to purchase common stock of the Company and further align their interests with
those of the Company's stockholders, the Board authorized and approved an equity investment program (the "EIP"), pursuant to which all of the NEOs, and certain other key employees of the Company, were
permitted, but not obligated, to purchase unregistered shares of common stock of the Company directly from the Company at market prices. In connection with any such purchases, the Compensation
Committee authorized and approved a grant, by the Company, to such purchasing NEOs and other key employees, of a certain number of shares of restricted stock. The
Compensation Committee also authorized and approved to grant the EIP participants a certain number of shares of restricted stock in connection with certain purchases of shares of the Company's common
stock in the open market. Specifically, for each five (5) shares directly purchased from the Company or in the open market between December 13, 2017 and December 31, 2017, the
Company agreed to issue one (1) share of restricted stock, subject to certain limitations as to the total number of restricted shares to be issued by the Company. Grants of the restricted stock
occurred on March 1, 2018, and will vest ninety days thereafter, subject to the other terms and conditions of the Company's form of restricted stock agreement and the Company's long-term
incentive plan. All of the NEOs, and many additional key employees, elected to exercise their first two tranches of SARs on December 15, 2017, and elected to participate in the EIP. Based on
the continued rise in our stock price, the early exercise of these SARs by our NEOs and several other employees saved the Company about $7 million of cash in 2018.
Except
for the award of restricted stock in connection with the EIP, the Compensation Committee approved equity compensation for only one NEO in 2017: Mr. Powers, who was awarded
restricted stock and stock options in connection with his promotion to General Counsel, Corporate Secretary and Executive Vice President in 2017.
33
Table of Contents
Corporate Governance
Compensation Committee
The Compensation Committee of our Board reviews and approves, or recommends to the Board for approval, all salary and other remuneration for our
NEOs and oversees matters relating to our employee compensation and benefit programs. No member of the Compensation Committee is an employee of ION. The Board has determined that each member of the
Compensation Committee satisfies the definition of "independent" as established in the NYSE corporate governance listing standards. In determining the independence of each member of the Compensation
Committee, the Board considered all factors specifically relevant to determining whether the director has a relationship to our Company that is material to the director's ability to be
independent from management in the execution of his duties as a Compensation Committee member, including, but not limited to:
-
-
the source of compensation of the director, including any consulting, advisory or other compensatory fee paid by us to the director; and
-
-
whether the director is affiliated with our Company, a subsidiary or affiliate.
When
considering the director's affiliation with us for purposes of independence, the Board considered whether the affiliate relationship places the director under the direct or indirect
control of our Company or its senior management, or creates a direct relationship between the director and members of senior management, in each case, of a nature that would impair the director's
ability to make independent judgments about our executive compensation.
The
Compensation Committee operates pursuant to a written charter that sets forth its functions and responsibilities. A copy of the charter can be viewed on our website at
http://ir.iongeo.com/phoenix.zhtml?c=101545&p=irol-govhighlights
. For a description of the responsibilities of the Compensation Committee, see
"Item 1.Election of
DirectorsCommittees of the BoardCompensation Committee"
above.
During
2017, the Compensation Committee met four times.
Compensation Consultants
The Compensation Committee has the authority and necessary funding to engage, terminate and pay compensation consultants, independent legal
counsel and other advisors in its discretion. Prior to retaining any such compensation consultant or other advisor, the Compensation Committee evaluates the independence of such advisor and evaluates
whether such advisor has a conflict of interest. In 2015 and 2016, the Compensation Committee engaged Aon Hewitt to provide advisory services with regard to the preparation of the proxy statement. No
advisory services were utilized for this year's proxy statement.
Role of Management in Establishing and Awarding Compensation
On an annual basis, our Chief Executive Officer, with the assistance of our Human Resources department, recommends to the Compensation Committee
any proposed increases in base salary, bonus payments and equity awards for our NEOs other than himself. No NEO is involved in determining his own salary increase, bonus payment or equity award. When
making officer compensation recommendations, our Chief Executive Officer takes into consideration compensation benchmarks, which include industry standards for similar sized organizations serving
similar markets, as well as comparable positions, the level of inherent importance and risk associated with the position and function, and the executive's job performance over the previous year. See
"
Objectives of Our Executive Compensation ProgramsBenchmarking
" and
"Elements of
CompensationBase Salary"
below.
34
Table of Contents
Our
Chief Executive Officer, with the assistance of our Human Resources department and input from our senior management, also formulates and proposes to the Compensation Committee an
employee bonus incentive plan for the ensuing year. For a description of our process for formulating the employee bonus incentive plan and the factors that we consider, see
"
Elements of CompensationBonus Incentive Plan
" below.
The
Compensation Committee reviews and approves all compensation and awards to NEOs and all bonus incentive plans. With respect to equity compensation awarded to employees other than
NEOs, the Compensation Committee reviews and approves all grants of restricted stock and stock options above 5,000 shares, generally based upon the recommendation of the Chief Executive Officer, and
has delegated option and restricted stock granting authority to the Chief Executive Officer as permitted under Delaware law for grants to non-NEOs of up to 5,000 shares.
Of
its own initiative, at least once a year, the Compensation Committee reviews the performance and compensation of our Chief Executive Officer and, following discussions with the Chief
Executive Officer and other members of the Board, establishes his compensation level. Where it deems appropriate, the Compensation Committee will also consider market compensation information from
independent sources. See "
Objectives of Our Executive Compensation ProgramsBenchmarking
" below.
Certain
members of our senior management generally attend most meetings of the Compensation Committee, including our Chief Executive Officer and our Executive Vice President, General
Counsel & Corporate Secretary. However, no member of management votes on items being considered by the Compensation Committee. The Compensation Committee and Board do solicit the views of our
Chief Executive Officer on compensation matters, particularly as they relate to the compensation of the other NEOs and the other members of senior management reporting to the Chief Executive Officer.
The Compensation Committee often conducts an executive session during meetings, during which members of management are not present.
Objectives of Our Executive Compensation Programs
General Compensation Philosophy and Policy
Through our compensation programs, we seek to:
-
-
attract and retain qualified and productive executive officers and key employees by providing total compensation competitive with that of other
executives and key employees employed by companies of similar size, complexity and industrial sector;
-
-
encourage our executives and key employees to drive the Company's financial and operational performance;
-
-
structure compensation to create meaningful links between corporate performance, individual performance and financial rewards;
-
-
align the interests of our executives with those of our shareholders by providing a significant portion of total pay in the form of
equity-based incentives;
-
-
encourage long-term commitment to our Company; and
-
-
limit corporate perquisites to seek to avoid perceptions both within and outside of our Company of "soft" compensation.
Our
governing principles in establishing executive compensation have been:
Long-Term and At-Risk Focus.
Compensation opportunities should be composed of long-term, at-risk pay to focus our management on the
long-term
interests of our Company.
35
Table of Contents
Equity Orientation.
Equity-based plans should comprise a major part of the at-risk portion of total compensation to instill ownership
thinking and to
link compensation to corporate performance and shareholder interests.
Competitive.
We emphasize total compensation opportunities consistent on average with our peer group of companies. Competitiveness of
annual base pay
and annual bonuses is independent of stock
performance. However, overall competitiveness of total compensation is generally contingent on long-term, equity-based compensation programs. Base salary, annual bonuses and employee benefits should
be close to competitive levels when compared to similarly situated companies.
Focus on Total Compensation.
In making decisions with respect to any element of an NEO's compensation, the Compensation Committee
considers the total
compensation that may be awarded to the NEO, including salary, annual cash bonus and long-term equity-based incentive compensation. The Compensation Committee analyzes all of these elements of
compensation (including the compensation mix) as well as the aggregate total amount of actual and projected compensation. In its most recent review of total compensation, the Compensation Committee
determined that annual compensation amounts for our Chief Executive Officer and our other NEOs remained generally consistent with the Compensation Committee's expectations. However, the Compensation
Committee reserves the right to make changes that it believes are warranted.
Internal Pay Equity.
Our core compensation philosophy is to pay our NEOs competitive levels of compensation that best reflect their
individual
responsibilities and contributions to our Company, while providing incentives to achieve our business and financial objectives. While comparisons to compensation levels at other companies are helpful
in assessing the overall competitiveness of our compensation program, we believe that our executive compensation program also must be internally consistent and equitable in order for our Company to
achieve our corporate objectives. Over time, there have been variations in the comparative levels of compensation of NEOs and changes in the overall composition of the management team and the overall
accountabilities of the individual NEOs; however, we and the Compensation Committee are satisfied that total compensation received by NEOs reflects an appropriate differential for executive
compensation.
These
principles apply to compensation policies for all of our NEOs and key employees. We do not follow the principles in a mechanistic fashion; rather, we apply experience and judgment
in determining the appropriate mix of compensation for each individual. This judgment also involves periodic review of discernible measures to determine the progress each individual is making toward
agreed-upon goals and objectives.
Benchmarking
When making compensation decisions, we also look at the compensation of our Chief Executive Officer and other NEOs relative to the compensation
paid to similarly situated executives at companies that we consider to be our industry and market peersa practice often referred to as "benchmarking." We believe, however, that a
benchmark should be just thata point of reference for measurementbut not the determinative
factor for our executives' compensation. The purpose of the comparison is not to supplant the analyses of internal pay equity, total wealth accumulation and the individual performance of the NEOs that
we consider when making compensation decisions. Because the comparative compensation information is just one of the several analytic tools that are used in setting executive compensation, the
Compensation Committee has discretion in determining the nature and extent of its use. Further, given the limitations associated with comparative pay information for setting individual executive
compensation, including the difficulty of assessing and comparing wealth accumulation through equity gains, the Compensation Committee may elect not to use the comparative compensation information at
all in the course of making compensation decisions.
36
Table of Contents
In
most years, at least once each year, our Human Resources department, under the oversight of the Compensation Committee, reviews data from market surveys, independent consultants and
other sources to assess our competitive position with respect to base salary, annual bonuses and long-term incentive compensation. When reviewing compensation data in October 2017, we utilized data
primarily from the 2017 Radford salary surveys, the 2017 Towers Watson surveys and the 2017 Mercer Total Compensation Survey for the Energy Sector ("2017 MTCS").
The
overall results of the compensation surveys provide a starting point for our compensation analysis. We believe that the surveys contain relevant compensation information from
companies that are representative of the sector in which we operate, have relative size as measured by market capitalization and experience relative complexity in the business and the executives'
roles and responsibilities. Beyond the survey numbers, we look extensively at a number of other factors, including our estimates of the compensation at our most comparable competitors and other
companies that were closest to our Company in size, profitability and complexity. We also consider an individual's current performance, the level of responsibility, and the employee's skills and
experience, collectively, in making compensation decisions.
In
the case of our Chief Executive Officer and some of our other NEOs, we also consider our Company's performance during the person's tenure and the anticipated level of compensation
that would be required to replace the person with someone of comparable experience and skill.
In
addition to our periodic review of compensation, we also regularly monitor market conditions and will adjust compensation levels from time to time as necessary to remain competitive
and retain our most valuable employees. When we experience a significant level of competition for retaining current employees or hiring new employees, we will typically reevaluate our compensation
levels within that employee group in order to ensure our competitiveness.
Elements of Compensation
The primary components of our executive compensation program are as follows:
Below
is a summary of each component:
Base Salary
General.
The general purpose of base salary for our NEOs is to create a base of cash compensation for the officer that is consistent on
average with
the range of base salaries for executives in similar positions and with similar responsibilities at comparable companies. In addition to salary norms for persons in comparable positions at comparable
companies, base salary amounts may also reflect the nature and scope of responsibility of the position, the expertise and experience of the individual employee and the competitiveness of the market
for the employee's services. Base salaries of
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executives
other than our Chief Executive Officer may also reflect our Chief Executive Officer's evaluation of the individual NEO's job performance. As a result, the base salary level for each
individual may be above or below the target market value for the position. The Compensation Committee also recognizes that the Chief Executive Officer's compensation should reflect the greater
policy-and decision-making authority that he holds and the higher level of responsibility he has with respect to our strategic direction and our financial and operating results. As of
December 31, 2017, our Chief Executive Officer's annual base salary was 55% higher than the annual base salary for the next highest-paid NEO and 70% higher than the average annual base salary
for all of our other NEOs. The Compensation Committee does not intend for base salaries to be the vehicle for long-term capital and value accumulation for our executives.
2017 Actions.
In typical years, base salaries are reviewed at least annually and may also be adjusted from time to time to realign
salaries with
market levels after taking into account individual responsibilities and changes in responsibilities, performance and contribution to ION, experience, impact on total compensation, relationship of
compensation to other ION officers and employees, and changes in external market levels.
Restoration of 2015 Level Base Salaries; No Annual Raises.
Commencing in late 2014, our business experienced a significant decline due
in large part
to the historic decline in oil and gas prices, which negatively impacted demand for our products and services and thus adversely affected our financial results. We took a number of actions to reduce
costs in our business and to improve our operating performance, including substantial reductions in our work force. In mid-2015, we also implemented a base salary reduction program in a further effort
to reduce our operating costs. Under the salary reduction program, base salaries for all employees in the United States and United Kingdom who earned more than a certain designated
annual threshold (which included all NEOs) were reduced by 10%. In consultation with the Compensation Committee, the Company discontinued the salary reduction program effective August 15, 2017.
Aside from the restoring of base salaries to their
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pre-reduction
levels, no increases in base salary were approved for any NEO except for Mr. Powers, as described below:
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|
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Named Executive Officer
|
|
Action
|
R. Brian Hanson
|
|
Mr. Hanson's salary was reduced by 10% from $600,000 to $540,000 in 2015 and remained at that level through mid-August 2017. At that time, his base salary returned to $600,000. The 2017 MTCS Survey
indicated that the mean CEO base salary for surveyed companies in the Services and Drilling sector was $603,000.
|
Steven A. Bate
|
|
Mr. Bate's salary was reduced by 10% from $375,000 to $337,500 in 2015 and remained at that level through mid-August 2017. At that time, his base salary returned to $375,000. The 2017 MTCS Survey
indicated that the mean of CFO base salary for surveyed companies in the Services and Drilling sector was $445,700.
|
Matthew R. Powers
|
|
Mr. Powers was promoted from Deputy General Counsel to General Counsel and Corporate Secretary in September 2017. His salary was set at $250,000. In October 2017, Mr. Powers was further
promoted to Executive Vice President and his salary was increased to $275,000. The 2017 MTCS Survey indicated that the mean Top Legal Executive base salary for surveyed companies in the Services and Drilling sector was $398,500.
|
Christopher T. Usher
|
|
Mr. Usher's salary was reduced by 10% from $378,560 to $340,704 in 2015 and remained at that level through mid-August 2017. At that time, his base salary was returned to $378,560. The 2017 MTCS
Survey indicated that the mean Chief Operating OfficerSubsidiary/Group/Division base salary for surveyed companies in the Services and Drilling sectors was $426,600.
|
Kenneth G. Williamson
|
|
Mr. Williamson's salary was reduced by 10% from $387,213 to $348,492 in 2015 and remained at that level through mid-August 2017. At that time, his base salary was returned to $387,213. The 2017
MTCS Survey indicated that the mean Chief Operating OfficerSubsidiary/Group/Division base salary for surveyed companies in the Services and Drilling sectors was $426,600.
|
Bonus Incentive Plan
Our employee annual bonus incentive plan is intended to promote the achievement each year of the Company's performance objectives, the
employee's particular business unit's performance objectives, and to recognize those employees who contributed to the Company's achievements. The plan provides cash compensation that is at-risk on an
annual basis by establishing bonus pools for each business unit contingent on achievement of annual business and operating objectives. The plan also provides for individual awards designed to reward
company and individual performance. This provides all participating employees the opportunity to share in the Company's performance through the achievement of established financial and individual
objectives. The financial and individual objectives within the plan are intended to measure an increase in the value of our Company.
For
several consecutive years, the Compensation Committee has approved an annual bonus incentive plan. Performance under the annual bonus incentive plan is measured with respect to the
designated plan fiscal year. Payments under the plan are paid in cash in an amount reviewed and
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approved
by the Compensation Committee and are ordinarily made in the first quarter following the completion of a fiscal year, after the financial results for that year have been determined.
Our
annual bonus incentive plan is usually consistent with our operating plan for the same year. In early 2017, we prepared a consolidated-company operating budget for 2017 and
individual operating budgets for each operating unit. The budgets took into consideration our views on market opportunities, customer and sale opportunities, technology enhancements for new products,
product manufacturing and delivery schedules and other operating factors known or foreseeable at the time. The Board analyzed the proposed budgets with management extensively and, after analysis and
consideration, the Board approved the consolidated 2017 operating plan. During early 2017, our Chief Executive Officer worked with our Human Resources department and members of senior management to
formulate our 2017 bonus incentive plan, consistent with the 2017 operating plans approved by the Board.
At
the beginning of 2017, the Compensation Committee approved our 2017 bonus incentive plan for executives and certain designated non-executive employees. The computation of awards
generated under the plan is required to be approved by the Compensation Committee. In February 2018, the Compensation Committee reviewed the Company's actual performance against each of the plan
performance goals established at the beginning of 2017 and evaluated the individual performance of each NEO during 2017. The results of operations of our Company for 2017 and individual performance
evaluations determined the appropriate payouts under the annual bonus incentive plan.
The
Compensation Committee has discretion in circumstances it determines are appropriate to authorize discretionary bonus awards that might exceed amounts that would otherwise be payable
under the terms of the bonus incentive plan. These discretionary awards can be payable in cash, stock options, restricted stock, restricted stock units, SARs, or a combination thereof. Any stock
options, restricted stock, restricted stock units or SARs awarded would be granted under one of our existing long-term equity compensation plans or stock appreciation rights plans. The Compensation
Committee also has the discretion, in appropriate circumstances, to grant a lesser bonus award, or no bonus award at all, under the bonus incentive plan.
Our
bonus incentive plans are designed for payouts that generally track the financial performance of our Company. The general intent of the plans is to reward key employees based on the
Company's and the employee's performance, in each case measured against internal targets and plans. In most years when our Company financial performance is strong, cash bonus payments are generally
higher. Likewise, when our financial performance is low as compared to our internal targets and plans, cash bonus payments are generally lower. There are occasionally exceptions to this general trend.
For example, in 2008 and 2011, we achieved improved financial performance over the previous year, but average cash bonus awards under our annual bonus incentive plans were relatively lower because we
did not achieve our internal financial and growth objectives for the relevant years. In 2012, we achieved improved financial performance over the previous year, but our average bonus award paid to our
NEOs remained at approximately the same level as 2011 because our internal financial objectives for 2012 were higher than in 2011. This history demonstrates a clear and consistent link between our NEO
bonus incentive compensation and our performance.
Below
are general descriptions of our 2017 bonus incentive plan and our Company performance criteria applicable to the plan.
2017 Bonus Incentive Plan.
The purpose of the 2017 bonus incentive plan was to provide an incentive for our participating employees to
achieve their
highest level of individual and business unit performance and to align the employees to accomplish and share in the achievement of our Company's 2017 strategic and financial goals.
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The
bonus program includes a three-step process:
-
1.
-
The
total bonus pool is established in our annual operating plan based on approximate percentages of base salary and our expected headcount. As discussed below, the
total bonus pool consists of two variable components (i) the achievement of certain long-term strategic initiatives, and (ii) the satisfaction of cash generation criteria.
-
2.
-
The
total bonus pool is allocated among our business units based on satisfaction of both the strategic initiatives and the cash generation objectives.
-
3.
-
Once
the bonus pool for each business unit is funded, individual bonuses are determined by business unit managers by evaluating each eligible employee's individual
and team performance, and the computation of individual awards is approved by the Compensation Committee.
Achievement
of our strategic initiatives and cash generation target establishes a guideline funding level of the bonus pool available to our NEOs. The final actual amount paid to our
NEOs are at the discretion of the Compensation Committee based on its overall assessment of other qualitative and quantitative corporate and individual criteria in accordance with the compensation
philosophy and policy described above.
Designated
employees, including our NEOs, were eligible to participate in our 2017 bonus incentive plan. Under the 2017 plan, approximately 35% of the funds allocated for distribution
were available for awards to eligible employees based on achievement of certain long-term strategic initiatives in 2017 and approximately 65% of the funds allocated for distribution were available for
distribution to eligible employees only to the extent we satisfied the designated 2017 cash generation criteria. In addition, the 2017 plan was structured to be capped at 165% achievement, with the
65% upside being fundable based on over-achieving the cash generation target. This was in contrast to no upside for over performance in 2016 (that is, the maximum funding opportunity was 100%); 150%
in 2015; and 200% in 2014. The amount of total dollars available for distribution under the bonus incentive plan was directly tied to the Company's achievement of financial objectives.
Our
2017 bonus incentive plan established the achievement of long-term strategic initiatives and cash generation as the performance goals. The strategic initiatives were selected to
ensure that the Company's cash generation and expense reduction efforts did not result in long-term harm to the Company and appropriately balanced short-term savings against ensuring the long-term
viability of our Company. For 2017, the Compensation Committee selected strategic initiatives focused on achieving break-even cash flow; developing a commercialization strategy for our next generation
ocean bottom seismic acquisition system that would position us to launch it in 2018; protecting and expanding our software business; fostering the long-term integrity of our multi-client business by
growing our data library; and implementing several cultural initiatives and objectives designed to foster a "customer first" culture of continuous improvement and technical innovation. The Company
reported progress on all of the initiatives to the Board throughout the year. At the conclusion of 2017, the Compensation Committee determined that five out of the five strategic objectives had been
met or exceeded and recommended funding 100% of the 35% target or $3.0 million dollars related to the strategic initiatives.
In
addition to the strategic initiatives, the Compensation Committee also established a critical emphasis on metrics for cash generated from operations. Cash from operations was the cash
ION recorded in its bank accounts globally, based on collection of customer payments, offset by the payment of vendors, employee payroll taxes, utilities, and similar matters, and excluding cash from
external funding arrangements, interest payments and any other special items or modifications as approved by the Compensation Committee from time to time.
Cash
generation was selected as the most appropriate performance goal for our 2017 plan because the Compensation Committee believed that cash from operations was the best indicator of
our
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Company's
overall performance at that time and evidenced a direct correlation with the interests of our shareholders and the ability of our Company to persevere through the recent industry downturn.
As a result, 65% of the bonus pool was tied to the achievement of these objectives. When determining whether financial targets had been achieved under the 2017 plan, the Compensation Committee had the
discretion to modify or revise the targets as necessary to reflect any significant beneficial or adverse change that resulted in a substantial positive or negative effect on our performance as a
whole, such as sales of assets, mergers, acquisitions, divestitures, spin-offs or unanticipated matters such as economic conditions, indicators of growth or recession in our business segments, nature
of our operations or changes in or effect of applicable laws, regulations or accounting practices.
NEO's
bonus targets range from 60% to 100% of their respective annual base salaries. In years prior to 2015, every participating NEO other than our Chief Executive Officer could earn up
to 200% of their bonus targets in a given year, depending on their individual performance and the performance of the Company. Commencing in 2015, in view of the extremely challenging business climate
that the Company faced, the Compensation Committee reduced the maximum amount earnable by these NEO's to 125% of their respective targets. This cap was continued through 2016 but lifted in 2017 in
view of the improved performance of the Company and improved business climate. In 2017, each NEO, including our Chief Executive Officer, was eligible to receive up to 200% of his bonus target. The
Compensation Committee has the discretion to determine the amounts of individual bonus awards.
Performance Criteria.
In 2017, the Compensation Committee approved a plan that emphasized the critical importance placed on cash
generation as the
criteria for consideration of bonus awards to the NEOs and other covered employees under our 2017 bonus incentive plan:
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|
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|
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Threshold Adjusted
Cash from Operations
|
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Target Adjusted
Cash from Operations
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Maximum Adjusted
Cash from Operations
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$0.0 million
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$15.0 million
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$37.0 million
|
Where
an employee is primarily involved in a particular business unit, the financial performance criteria under the bonus incentive plan are weighted toward the operational performance
of the employee's business unit rather than consolidated company performance. The "
Non-Equity Incentive Plan Compensation
" column of the 2017 Summary
Compensation Table below reflects the payments that our NEOs earned and received under our 2017 bonus incentive plan, and the "
Bonus
" column of the same
table reflects any discretionary cash bonus payments received by our NEOs during 2017. Our 2017 cash from operations exceeded the threshold target performance criteria under our 2017 bonus incentive
plan by $6.1 million. However, given the difficult business climate of the past several years, the Compensation Committee authorized only $4.2 million for the portion of the bonus pool
determined by cash generation. This amount was 60% of what was authorized under the plan as adopted in early 2017. When combined with the amounts approved in connection with the achievement of
long-term strategic initiatives ($3.0 million) the total bonus pool available for distribution in 2017 was approximately $7.2 million.
In
addition to overall company performance, when considering the 2017 bonus incentive plan awards paid to our NEOs, the Compensation Committee also considered the individual performances
and accomplishments of each officer. In considering the bonus award paid to Mr. Hanson, the Compensation Committee considered Mr. Hanson's achievement of each of the five key strategic
objectives for the Company as well as the Company's achievement of its cash target. As previously stated, the five strategic objectives were (i) achieving break-even cash flow;
(ii) developing a commercialization strategy for our next generation ocean bottom seismic acquisition system that would position us to launch it in 2018; (iii) protecting and expanding
our software business; (iv) to foster the long-term integrity of our multi-client business by growing our data library; and (v) implementing several cultural initiatives and objectives
designed to foster a "customer first" culture of continuous improvement and technical innovation. The Compensation Committee also evaluated Mr. Hanson
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against
the Company's achievement of the cash targets established for 2017. Finally, the Compensation Committee took into consideration Mr. Hanson's effective leadership in our achievement of
several important strategic objectives during the year and substantial year-over-year improvements from 2016. Like the pool established for the Company, the bonus awarded by the Compensation Committee
to Mr. Hanson reflects the substantial achievement of his five objectives and the Company exceeding its cash target.
When
considering the bonus award paid to Mr. Bate, the Compensation Committee took into consideration his performance against the objectives set for Mr. Bate.
Mr. Bate's objectives included (i) achieving break-even cash flow; (ii) establishing a project funding mechanism for significant strategic initiatives; (iii) addressing and
finalizing a plan to deal with the 2018 bond maturity through capital structure management; and (iv) increasing marketing efforts for the Company's shares to position the Company for increased
analyst coverage in 2018. In addition to his objectives, the Compensation Committee also considered his leadership in reducing the Company's operating costs and his leadership and engagement with
shareholders that helped to drive the Company's improved performance when coming out of a difficult and critical time for the Company and the industry. In the bonus awarded to Mr. Bate, the
Compensation Committee determined that Mr. Bate achieved four of the four objectives. In addition, Mr. Bate successfully oversaw the execution of the EIP and the related early retirement
of the first two tranches of the 2016 SARs noted in the Executive Summary of this Compensation Discussion and Analysis.
The
annual performance objectives for NEOs that report to our Chief Executive Officer are typically determined by our Chief Executive Officer, in collaboration with the NEO, in January
or February. Because Mr. Powers was promoted to the role of General Counsel in September of 2017, he and Mr. Hanson did not set performance objectives for Mr. Powers in that role
for 2017. When considering the bonus award paid to Mr. Powers, the Compensation Committee took into consideration his performance in 2017 against the objectives set for the Company.
When
considering the bonus award paid to Mr. Usher, the Compensation Committee took into consideration his performance against the objectives set for Mr. Usher.
Mr. Usher's objectives included (i) protecting and expanding the Company's command and control software business; (ii) expanding the Company's software business into new markets:
(iii) driving the commercial launch of the Company's Devices segment's incremental offerings; and (iv) crafting and implementing a medium-term strategy for the Company's Devices segment.
In the bonus awarded to Mr. Usher, the Compensation Committee determined that Mr. Usher achieved four of the four objectives. In addition, the Compensation Committee determined that
Mr. Usher successfully led strategic efforts to expand Company offerings to alternative markets.
When
considering the bonus award paid to Mr. Williamson, the Compensation Committee took into consideration his performance against the objectives set for Mr. Williamson.
Mr. Williamson's objectives included (i) commencing two new multiclient programs in 2017 that involved large scale 3D reprocessing or new acquisitions, with prefunding or financing
vehicles in place to maintain the Company's exposure to program cost at predetermined levels; (ii) establishing a master services partnership agreement with a 3D seismic services provider to
provide an integrated proprietary services offering and engage in a qualification process with two E&P companies that the provider was not previously qualified to operate with; developing and entering
into at least one large scale E&P Advisory services agreement with a combination of fee for service and a material upside potential with a host government or other E&P focused entity; and
(iv) obtaining more than $4 million of commitments to new data processing proprietary business models using the Company's accelerated workflow or Galaxy portal. In the bonus awarded to
Mr. Williamson, the Compensation Committee determined that Mr. Williamson achieved four of the four objectives. In addition, the Compensation Committee determined that
Mr. Williamson successfully integrated several vertical subgroups within his segment to drive integrated offerings and oversaw one of our most successful multiclient offerings.
The
total compensation paid to each NEO is set forth in the graph titled "
Summary Compensation Table
".
The
Compensation Committee reviews the annual bonus incentive plan each year to ensure that the key elements of the plan continue to meet the objectives described above.
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Long-Term Stock-Based Incentive Compensation
We have structured our long-term incentive compensation to provide for an appropriate balance between rewarding performance and encouraging
employee retention and stock ownership. There is no pre-established policy or target for the allocation between either cash or non-cash or short-term and long-term incentive compensation; however, at
executive management levels, the Compensation Committee strives for compensation to focus increasingly on longer-term incentives. In conjunction with the Board, executive management is responsible for
setting and achieving long-term strategic goals. In support of this responsibility, compensation for executive management, and most particularly our Chief Executive Officer, tends to be weighted
towards rewarding long-term value creation for shareholders.
The
below table illustrates the mix of total compensation received by Mr. Hanson, our CEO, and our other current NEOs during 2017:
The
Compensation Committee noted in last year's proxy that they would not approve any equity compensation in 2017. However, circumstances evolved in 2017 that led the Compensation
Committee to revise this decision.
First,
our former General Counsel, Executive Vice President and Corporate Secretary, Ms. Jamey Seely, left the Company in September of 2017. Mr. Powers was promoted to
General Counsel and Corporate Secretary in September 2017, and promoted to Executive Vice President in October 2017. In connection with his promotion to Executive Vice President, Mr. Powers was
granted stock options and restricted stock. He was the only NEO who was granted any such awards in 2017.
Second,
seven high-performing employees were promoted or transitioned to new roles in 2017. In connection with their promotion and retention, the Compensation Committee approved a grant
of 120,000 stock options and 30,000 shares of restricted stock or restricted stock units amongst these seven employees. Of the total stock options and restricted stock employee awards made by ION
during 2017, 79% were in the form of stock options and 21% were in the form of restricted stock or restricted stock units.
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Lastly,
the Compensation Committee approved the granting of restricted stock to the NEOs and other key employees who elected to participate in the EIP described above. Those grants,
however, were made effective March 1, 2018.
Our
long-term incentive plans, and, in 2017, the EIP, have provided the principal method for our NEOs to acquire equity or equity-linked interests in our Company.
Stock Options.
Under our equity plans, stock options may be granted having exercise prices equal to the closing price of our stock on
the date before
the date of grant. In any event, all awards of stock options are made at or above the market price at the time of the award. The Compensation Committee will not grant stock options having exercise
prices below the market price of our stock on the date of grant, and will not reduce the exercise price of stock options (except in connection with adjustments to reflect recapitalizations, stock or
extraordinary dividends, stock splits, mergers, spin-offs and similar events, as required by the relevant plan) without the consent of our shareholders. Our stock options generally vest ratably over
four years, based on continued employment, and the terms of our 2013 LTIP require stock options granted under that plan to follow that vesting schedule unless the Compensation Committee approves a
different schedule when approving the grant. Prior to the exercise of an option, the holder has no rights as a shareholder with respect to the shares subject to such option, including voting rights
and the right to receive dividends or dividend equivalents. New option grants normally have a term of ten years.
The
purpose of stock options is to provide equity compensation with value that has been traditionally treated as entirely at-risk, based on the increase in our stock price and the
creation of shareholder value. Stock options also allow our NEOs and key employees to have equity ownership and to share in the appreciation of the value of our stock, thereby aligning their
compensation directly with increases in shareholder value. Stock options only have value to their holder if the stock price appreciates in value from the date options are granted.
Stock
option award decisions are generally based on past business and individual performance. In determining the number of options to be awarded, we also consider the grant recipient's
qualitative and quantitative performance, the size of stock option and other stock based awards in the past, and expectations of the grant recipient's future performance. In 2017, eight employees
received option awards, covering 156,000 shares of Common Stock. In 2017, only one NEO received an option award of 36,000 shares of Common Stock, which was approximately 23% of the total options
awarded. The total number of options awarded in 2017 represent a 62% reduction when compared to 2016.
Restricted Stock and Restricted Stock Units.
We use restricted stock and restricted stock units to focus executives on our long-term
performance and
to help align their compensation more directly with shareholder value. Vesting of restricted stock and restricted stock units typically occurs ratably over three years, based solely on continued
employment of the recipient-employee, and the terms of our 2013 LTIP require restricted stock and restricted stock units granted under that plan to follow that vesting schedule unless the Compensation
Committee approves a different schedule when approving the grant. In 2017, eight employees received awards of restricted stock and shares underlying restricted stock units for a total of 42,000
shares. Only one NEO received an award of 12,000 shares of restricted stock, which was approximately 29% of the total shares of restricted stock awarded.
Awards
of restricted stock units have been made to certain of our foreign employees in lieu of awards of restricted stock. Restricted stock units provide certain tax benefits to our
foreign employees as the
result of foreign law considerations, so we expect to continue to award restricted stock units to designated foreign employees for the foreseeable future.
The
total number of shared of restricted stock and shares underlying restricted stock units awarded in 2017 represent a 78% reduction when compared to 2016.
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Stock Appreciation Rights.
To enhance the performance-based focus of ION's compensation programs, the Compensation Committee elected to
have a
substantial portion of the equity-based compensation paid in SARs instead of restricted stock or stock options in 2016. The SARs grants approved by the Compensation Committee are 100% cash-settled and
were granted pursuant to our 2008 Stock Appreciation Rights Plan. The vesting of the SARs is achieved through both a market condition and a service condition. The market condition is achieved, in part
or in full, in the event that during the four-year period beginning on the date of grant the 20-day trailing volume-weighted average price per share of Common Stock is (i) greater than 120% of
the exercise price for the first 1/3 of the awards, (ii) greater than 125% of the exercise price for the second 1/3 of the awards and (iii) greater than 130% of the exercise price for
the final 1/3 of the awards. The exercise condition restricts the ability of the holders to exercise awards until certain service milestones have been reached such that (i) no more than 1/3 of
the awards may be exercised, if vested, on and after the first anniversary of the date of grant, (ii) no more than 2/3 of the awards may be exercised, if vested, on and after the second
anniversary of the date of grant and (iii) all of the awards may be exercised, if vested, on and after the third anniversary of the date of grant. In 2015, the Company granted 3,108,107 SARs
(on a pre-split basis). In 2016, the Company granted 1,210,100 SARs, or 61% less than similar compensation issued in 2015. No SARs were granted in 2017.
Approval and Granting Process.
As described above, the Compensation Committee reviews and approves all stock appreciation rights, stock
option,
restricted stock and restricted stock unit awards made to NEOs, regardless of amount. With respect to equity compensation awarded to employees other than NEOs, the Compensation Committee reviews and
approves all grants of stock appreciation rights, restricted stock, stock options and restricted stock units above 5,000 shares, generally based upon the recommendation of our Chief Executive Officer.
The Compensation Committee has granted to our Chief Executive Officer the authority to approve grants to any employee other than an NEO of (i) up to 5,000 shares of restricted stock and
(ii) stock options for not more than 5,000 shares. Our Chief Executive Officer is also required to provide a report to the Compensation Committee of all awards of options and restricted stock
made by him under this authority. We believe that this policy is beneficial because it enables smaller grants to be made more efficiently. This flexibility is particularly important with respect to
attracting and hiring new employees, given the increasingly competitive market for talented and experienced technical and other personnel in locales in which our employees work.
All
grants of stock appreciation rights, restricted stock, restricted stock units and stock options to employees or directors are granted on one of four designated quarterly grant dates
during the year: March 1, June 1, September 1 or December 1. The Compensation Committee approved these four dates because they are not close to any dates on which earnings
announcements or other announcements of material events would normally be made by us. For an award to a current employee, the grant date for the award is the first designated quarterly grant date that
occurs after approval of the award. For an award to a newly hired employee who is not yet employed by us at the time the award is approved, the grant date for the award is the first designated
quarterly grant date that occurs after the new employee commences work. We believe that this process of fixed quarterly grant dates is beneficial because it serves to remove any perception that the
grant date for an award could be capable of manipulation or change for the benefit of the recipient. In addition, having all grants occur on a maximum of four days during the year simplifies certain
fair value accounting calculations related to the grants, thereby minimizing the administrative burden associated with tracking and calculating the fair values, vesting schedules and tax-related
events upon vesting of restricted stock and also lessening the opportunity for inadvertent calculation errors.
Beginning
March 1, 2015, the Compensation Committee decided that all awards of restricted stock, stock options and SARs would be made in annual grants occurring on March 1
of each year. In 2016, the Company also awarded annual equity grants on March 1. This date was selected because (i) it enables the Board and Compensation Committee to consider individual
performance after the full year
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has
been completed, (ii) it simplifies the annual budgeting process by having the expense resulting from the equity award incurred at the same time as incentive compensation and
(iii) the date aligns with the time the Company normally pays annual bonuses. Awards made in connection with significant promotions, new hires, new directors joining the Board or unusual
circumstances, including but not limited to its employees and directors, will be granted on one of four designated dates during the year: March 1, June 1, September 1 or
December 1.
Clawback Policy
We have a Compensation Recoupment Policy (commonly referred to as a "clawback" policy), which provides that, in the event of a restatement of
our financial results due to material noncompliance with applicable financial reporting requirements, the Board will, if it determines appropriate and subject to applicable laws and the terms and
conditions of our applicable stock plans, programs or arrangements, seek reimbursement of the incremental portion of
performance-based compensation, including performance-based bonuses and long-term equity-based incentive awards, paid to current or former NEOs within three years of the restatement date, in excess of
the compensation that would have been paid had the compensation amount been based on the restated financial results.
Personal Benefits, Perquisites and Employee Benefits
Our Board and executives have concluded that we will not offer most perquisites traditionally offered to executives of similarly sized
companies. As a result, perquisites and any other similar personal benefits offered to our NEOs are substantially the same as those offered to our general salaried employee population. These offered
benefits include medical and dental insurance, life insurance, disability insurance, a vision plan, charitable gift matching (up to designated limits), a 401(k) plan with a company match of certain
levels of contributions, flexible spending accounts for healthcare and dependent care and other customary employee benefits. Business-related relocation benefits may be reimbursed on a case-by-case
basis. We intend to continue applying our general policy of not providing specific personal benefits and perquisites to our executives; however, we may, in our discretion, revise or add to any
executive's personal benefits and perquisites if we deem it advisable.
Risk Management Considerations
The Compensation Committee believes that our Company's bonus and equity programs create incentives for employees to create long-term shareholder
value. The Compensation Committee has considered the concept of risk as it relates to our compensation programs and has concluded that our compensation programs do not encourage excessive or
inappropriate risk-taking. Several elements of the compensation programs are designed to promote the creation of long-term value and thereby discourage behavior that leads to excessive
risk:
-
-
The compensation programs consist of both fixed and variable compensation. The fixed (or salary) portion is designed to provide a steady income
regardless of the Company's stock price performance so that executives do not focus exclusively on stock price performance to the detriment of other important business metrics. The variable (cash
bonus and equity) portions of compensation are designed to reward both short- and long-term corporate performance. The Compensation Committee believes that the variable elements of compensation are a
sufficient percentage of overall compensation to motivate executives to produce positive short- and long-term corporate results, while the fixed element is also sufficiently high such that the
executives are not encouraged to take unnecessary or excessive risks in doing so.
-
-
The financial metrics used to determine the amount of an executive's bonus are measures the Compensation Committee believes contribute to
long-term shareholder value and ensure the continued viability of the Company. Moreover, the Compensation Committee attempts to set
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ranges
for these measures that encourage success without encouraging excessive risk taking to achieve short-term results. In addition, the overall maximum bonus for each participating NEO other than
our Chief Executive Officer is not expected to exceed 150% of the executive's base salary under the bonus plan, and the overall bonus for our Chief Executive Officer under his employment agreement
will not exceed 200% of his base salary under the bonus plan, in each case no matter how much the Company's financial performance exceeds the ranges established at the beginning of the year.
-
-
We have strict internal controls over the measurement and calculation of the financial metrics that determine the amount of an executive's
bonus, designed to keep it from being susceptible to manipulation by an employee, including our executives.
-
-
Stock options become exercisable over a four-year period and remain exercisable for up to ten years from the date of grant, encouraging
executives to look to long-term appreciation in equity values.
-
-
Restricted stock becomes exercisable over a three-year period, again encouraging executives to look to long-term appreciation in equity values.
-
-
Senior executives, including our NEOs, are required to acquire over time and hold shares of our Company's stock having a value of between one
and four times the executive's annual base salary, depending on the level of the executive. The Compensation Committee believes that the stock ownership guidelines provide a considerable incentive for
management to consider the Company's long-term interests, since a portion of their personal investment portfolio consists of our Common Stock.
-
-
In addition, we do not permit any of our NEOs or directors to enter into any derivative or hedging transactions involving our stock, including
short sales, market options, equity swaps and similar instruments, thereby preventing executives from insulating themselves from the effects of poor company stock price performance. Please refer to
"
Stock Ownership Requirements; Hedging Policy
" below.
-
-
We have a compensation recoupment (clawback) policy that provides, in the event of a restatement of our financial results due to material
noncompliance with financial reporting requirements, for reimbursement of the incremental portion of performance-based compensation, including performance-based cash bonuses and long-term equity-based
incentive awards, paid to current or former NEOs within three years of the restatement date, in excess of the compensation that would have been paid had such compensation amount been based on the
restated financial results. Please refer to "
Clawback Policy
" above.
Consideration of Say-On-Pay Result.
At our 2017 Annual Meeting of Shareholders held on May 17, 2016, our shareholders approved all
of our
director nominees and proposals, including a non-binding advisory vote to approve the compensation of our NEOs ("say-on-pay"). In the advisory executive compensation vote, over 70% of the votes cast
on the proposal voted in favor of our executive compensation. Our general goal since our 2016 Annual Meeting has been to continue to act consistently with the established practices that were approved
by our shareholders. We believe that we have accomplished that goal. At our 2017 Annual Meeting, our shareholders also voted on a non-binding advisory vote on the frequency of advisory votes on
executive compensation ("say-on-frequency") and approved "every year". The Board intends to hold advisory votes on executive compensation within the time frame approved by the shareholders. When and
if our Board determines that it is in the best interest of our Company to hold our say-on-pay vote with a different frequency, we will propose such a change to our shareholders at the next annual
meeting of shareholders to be held following the Board's determination. Presently, under SEC rules, we are not required to hold another say-on-frequency vote again until our 2023 Annual Meeting of
Shareholders.
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Indemnification of Directors and Executive Officers
Our Bylaws provide certain rights of indemnification to our directors and employees (including our NEOs) in connection with any legal action
brought against them by reason of the fact that they are or were a director, officer, employee or agent of our Company, to the full extent permitted by law. Our Bylaws also provide, however, that no
such obligation to indemnify exists as to proceedings initiated by an employee or director against us or our directors unless (a) it is a proceeding (or part thereof) initiated to enforce a
right to indemnification or (b) was authorized or consented to by our Board.
As
discussed below, we have also entered into employment agreements with certain of our NEOs that provide for us to indemnify the executive to the fullest extent permitted by our
Restated Certificate of Incorporation, as amended, and our Bylaws. The agreements also provide that we will provide the executive with coverage under our directors' and officers' liability insurance
policies to the same extent as provided to our other executives.
Stock Ownership Requirements; Hedging Policy
We believe that broad-based stock ownership by our employees (including our NEOs) enhances our ability to deliver superior shareholder returns
by increasing the alignment between the interests of our employees and our shareholders. Accordingly, the Board has adopted stock ownership guidelines applicable to each of our senior executives,
including our NEOs. The policy requires each executive to retain direct ownership of at least 50% of all shares of our Company's stock received upon exercise of stock options and vesting of awards of
restricted stock or restricted stock units until the executive owns shares having an aggregate value equal to the following multiples of the executive's annual base salary:
President
and Chief Executive Officer4x
Executive Vice President2x
Senior Vice President1x
The
Compensation Committee and our Chief Executive Officer may, in their discretion, grant temporary exemptions from the guidelines to prevent severe hardships to senior executives. As
of the date of this Proxy Statement, all of our senior executives were in compliance with the stock ownership requirements. In addition, we do not permit any of our NEOs or directors to enter into any
derivative or hedging transactions with respect to our stock, including short sales, market options, equity swaps and similar instruments.
Impact of Regulatory Requirements and Accounting Principles on Compensation
The financial reporting and income tax consequences to our Company of individual compensation elements are important considerations for the
Compensation Committee when it is analyzing the overall level of compensation and the mix of compensation among individual elements. Under Section 162(m) of the Internal Revenue Code and the
related federal treasury regulations, we may not deduct annual compensation in excess of $1 million paid to certain employeesgenerally our Chief Executive Officer and our three
other most highly compensated NEOs, other than our Chief Financial Officerunless that compensation qualifies as "performance-based" compensation. Pursuant to the 2017 Tax Cuts and Jobs
Act, signed into law on December 22, 2017 (the "Tax Act"), for fiscal years beginning after December 31, 2017, the compensation of our Chief Financial Officer is also subject to the
deduction limitation. Overall, the Compensation Committee seeks to balance its objective of ensuring an effective compensation package for the NEOs with the need to maximize the immediate
deductibility of compensationwhile ensuring an appropriate (and transparent) impact on reported earnings and other closely followed financial measures.
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In
making its compensation decisions, the Compensation Committee has considered the limitations on deductibility within the requirements of Internal Revenue Code Section 162(m)
and its related Treasury regulations. As a result, for periods prior to January 1, 2018, the Compensation Committee has designed much of the total compensation packages for the NEOs to qualify
for the exemption of "performance-based" compensation from the deductibility limit. However, the Compensation Committee does have the discretion to design and use compensation elements that may not be
deductible within the limitations under Section 162(m), if the Compensation Committee considers the tax consequences and determines that those elements are in our best interests.
As
a result, certain payments to our NEOs under our 2017 annual bonus plan may not qualify as performance-based compensation under Section 162(m) because the awards were
calculated and paid in a manner that may not meet the requirements under Section 162(m) and the related Treasury regulations.
Pursuant
to the Tax Act, subject to certain transition rules, for fiscal years beginning after December 31, 2017, the performance-based compensation exception to the deduction
limitations under Section 162(m) will no longer be available. As a result, for fiscal years beginning after December 31, 2017, any compensation in excess of $1 million paid to our
executive officers may not be deductible. The Compensation Committee believes that the potential deductibility of the compensation payable under the annual bonus plan and the Company's other incentive
compensation plans and arrangements should be only one of a number of relevant factors taken into consideration in establishing those plans and arrangements for our executive officers and not the sole
governing factor. For that reason, for the 2018 fiscal year, the Compensation Committee intends to structure our annual bonus plan and the Company's other incentive compensation plans and arrangements
in a manner similar to the 2017 fiscal year, acknowledging that a portion of those compensation payments may not be deductible under Section 162(m), in order to assure appropriate levels of
total compensation for our executive officers based on the Company's performance.
Likewise,
the impact of Section 409A of the Internal Revenue Code is taken into account, and our executive compensation plans and programs are, in general, designed to comply with
the requirements of that section so as to avoid possible adverse tax consequences that may result from non-compliance.
For
accounting purposes, we apply the guidance in ASC Topic 718 to record compensation expense for our equity-based compensation grants. ASC Topic 718 is used to develop the assumptions
necessary and the model appropriate to value the awards as well as the timing of the expense recognition over the requisite service period, generally the vesting period, of the award.
Executive
officers will generally recognize ordinary taxable income from stock option awards when a vested option is exercised. We generally receive a corresponding tax deduction for
compensation expense in the year of exercise. The amount included in the NEO's wages and the amount we may deduct is equal to the Common Stock price when the stock options are exercised less the
exercise price, multiplied by the number of shares under the stock options exercised. We do not pay or reimburse any NEO for any taxes due upon exercise of a stock option. We have not historically
issued any tax-qualified incentive stock options under Section 422 of the Internal Revenue Code.
Executives
will generally recognize taxable ordinary income with respect to their shares of restricted stock at the time the restrictions lapse (unless the recipient elects to accelerate
recognition as of the date of grant). Restricted stock unit awards are generally subject to ordinary income tax at the time of
payment or issuance of unrestricted shares of stock. We are generally entitled to a corresponding federal income tax deduction at the same time the executive recognizes ordinary income.
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