DIRECTOR COMPENSATION - 2018 (a)
Name
|
Fees Earned
or Paid in
Cash
($)
|
Stock
Awards
($)(b)
|
All Other
Compensation
($)
|
Total
($)
|
Joel F. Gemunder
|
81,000
|
|
91,106
|
|
-
|
|
172,106
|
|
Patrick P. Grace
|
115,500
|
|
91,106
|
|
-
|
|
206,606
|
|
Walter L. Krebs
|
82,000
|
|
91,106
|
|
-
|
|
173,106
|
|
Sandra E. Laney
|
20,000
|
|
91,106
|
|
-
|
|
111,106
|
|
Andrea R. Lindell
|
82,000
|
|
91,106
|
|
-
|
|
173,106
|
|
Thomas P. Rice
|
89,500
|
|
91,106
|
|
-
|
|
180,606
|
|
Donald E. Saunders
|
91,500
|
|
91,106
|
|
-
|
|
182,606
|
|
George J. Walsh III
|
245,000
|
|
91,106
|
|
-
|
|
336,106
|
|
Frank E. Wood
|
82,000
|
|
91,106
|
|
-
|
|
173,106
|
|
(a)
|
The Director Compensation Table excludes executive compensation figures for Messrs. McNamara and Hutton who are employees of the Company.
|
|
|
(b)
|
Amounts for each of Messrs. Germunder, Grace, Krebs, Rice, Saunders, Walsh, Wood, Ms. Lindell and Ms. Laney include contributions of $6,000 of Capital Stock held in the Chemed Director Deferred Compensation Plan.
|
Directors Emeriti
The Board of Directors has a policy of conferring the honorary designation of Director Emeritus upon former
directors who made valuable contributions to the Company and whose continued advice is believed to be of value to the Board of Directors. The designation as Director Emeritus is customarily conferred by the Board on an annual basis but
may be conferred at such other times and for such other periods as the Board may determine. Each Director Emeritus is furnished with a copy of all agendas and other materials furnished to members of the Board of Directors generally, and
is invited to attend all meetings of the Board; however, a Director Emeritus is not entitled to vote on any matters presented to the Board. A Director Emeritus is paid an annual fee of $18,000 and $500 for each meeting attended.
Ms. Laney, who served as a director of the Company from 1986-2009, was initially designated a Director Emeritus in
May 2009 and has been so designated in each subsequent May. In 2018, the Company paid Ms. Laney $20,000 in cash fees, $6,000 in Capital Stock deposited to the Director Deferred Compensation Plan, and granted her $85,106 in the form of a
fully vested stock award of 255 shares of Capital Stock in her capacity as a Director Emeritus.
Majority Voting in Director Elections
The Company’s bylaws require a majority voting standard for uncontested elections of directors. As described above
under “Election of Directors,” each director must receive the affirmative vote of the majority of the votes cast to be elected in an uncontested election. Each incumbent director nominee has submitted an irrevocable letter of resignation
as director that becomes effective if he or she does not receive the affirmative vote of the majority of the votes cast in an uncontested election and the Board of Directors accepts the resignation. In contested elections, each director
must receive a plurality of the votes cast. An election is contested if (a) a stockholder has nominated any person(s) for election to the Board of Directors in compliance with our bylaws or otherwise in accordance with applicable law and
(b) such nomination has not been withdrawn on or prior to the fourteenth day prior to the date the Company first mails its notice of meeting.
Committees and Meetings of the Board
The Company has the following Committees of the Board of Directors: Audit Committee, Compensation Committee and
Nominating Committee.
Audit Committee
The Audit Committee (a) is directly responsible for the appointment, compensation and oversight of a firm of independent registered accountants to audit the consolidated financial statements of the Company, (b) reviews and reports to the
Board of Directors on the Company’s annual financial statements and the independent accountants’ report on such financial statements, (c) meets with the Company’s senior financial officers, internal auditors and independent accountants to
review audit plans and work regarding the Company’s accounting, financial reporting and internal control systems and other non-audit services, and (d) confers quarterly with senior management, internal audit staff and the independent
accountants to review quarterly financial results. Each member of the Audit Committee is independent as defined under the listing standards of the New York Stock Exchange. The Committee conducts an annual self-evaluation that is shared
with the Board. A copy of the Audit Committee Charter is available on the Company’s Web site, www.chemed.com.
Compensation
Committee
The executive compensation program is administered by the Compensation Committee. The Compensation Committee makes recommendations to the Board of Directors concerning (a) base salary and annual cash incentive
compensation for executives of the Company, (b) establishment of incentive compensation plans and programs generally, (c) adoption and administration of certain employee benefit plans and programs, (d) additional year-end contributions by
the Company under the Chemed/Roto-Rooter Savings & Retirement Plan (as amended, supplemented or otherwise modified as of the date hereof, the “Retirement Plan”), and (e) non-employee director compensation. In addition, the
Compensation Committee administers the 2010 Incentive Plan, the 2015 Incentive Plan, and the 2018 Stock Incentive Plan (the “Stock Incentive Plans”), under which it reviews and approves the granting of cash, stock options and performance
share units. The Compensation Committee determines annually whether to retain or terminate any compensation advisor, after considering specific independence factors. It is directly responsible for the appointment, compensation and
oversight of such advisor. Each member of the Compensation Committee is independent as defined under the listing standards of the New York Stock Exchange. The Committee conducts an annual self-evaluation that is shared with the Board.
A copy of the Compensation Committee Charter, as revised in 2018, is available on the Company’s Web site, www.chemed.com.
Nominating
Committee
The Nominating Committee (a) recommends to the Board of Directors the candidates for election to the Board at each Annual Meeting of Stockholders of the Company, (b) recommends to the Board of Directors candidates for
election by the Board to fill vacancies on the Board, (c) considers candidates submitted to the Nominating Committee by directors, officers, employees, stockholders and others, and (d) performs such other functions as may be assigned by
the Board.
The Nominating Committee Chair leads the annual Board evaluation and the self-evaluation of the Nominating Committee, which is shared with the
Board.
Procedures
Regarding Director Candidates
In identifying and evaluating nominees for director, the Nominating Committee considers candidates with a wide variety of academic backgrounds and professional and business experiences. After
reviewing the candidates’ backgrounds and qualifications, the Nominating Committee personally interviews those candidates it believes merit further consideration. Once it has completed this process, the Nominating Committee makes its
final recommendations to the Board. Stockholders wishing to submit a candidate for election to the Board should submit the candidate’s name and a supporting statement to the Company’s Secretary at Suite 2600, 255 East Fifth Street,
Cincinnati, Ohio 45202-4726. The Nominating Committee has no formal policy with regard to the consideration of director candidates recommended by stockholders because it believes such recommendations are sufficiently rare that they may
be effectively considered on a case-by-case basis. The Nominating Committee considers diversity in identifying nominees. It assesses the effectiveness of the Company’s diversity policy every year as part of the nomination process for
the annual election of directors by the Company stockholders.
The Committee is committed to including, in the initial list of candidates from which new
director nominees are chosen by the Board, candidates with a diversity of race, ethnicity and gender.
Having reviewed the collective background and experience of all nominees, the Board has concluded they provide significant
diversity. Its policy is to select the most appropriate candidates for election. Board membership should reflect diversity in its broadest sense, including geography, gender, race, experience, professions, skills and backgrounds. The
Nominating Committee does not assign specific weights to particular criteria. The background and qualifications of all directors, considered as a group, should provide a significant composite mix of experience, knowledge and abilities
that allow the Board to fulfill its responsibilities. Each member of the Nominating Committee is independent as defined under the listing standards of the New York Stock Exchange. A copy of the Nominating Committee Charter is available
on the Company’s Web site,
www.chemed.com
.
The following table shows the current membership of each committee and the number of meetings held by each
committee during 2018:
Director
|
Audit
Committee
|
Compensation
Committee
|
Nominating
Committee
|
J. F. Gemunder
P. P. Grace*
W. L. Krebs
A. R. Lindell
T. P. Rice*
D. E. Saunders*
G. J. Walsh III
F. E. Wood
|
Chair
x
x
|
x
x
Chair
x
|
x
Chair
x
|
Number of Meetings
|
7
|
4
|
1
|
*Audit Committee Financial Expert as defined by Securities and Exchange Commission regulations.
Board Meetings
The Board of Directors has five scheduled meetings a year, at which it reviews and discusses reports by management on the performance of the Company and its operating subsidiaries, its plans and properties, as well as immediate issues
facing the Company. The Board also meets during its meetings in executive session, without executives or management directors present. Such sessions are presided over by the Chairman of the Board.
During 2018, there were five meetings of the Board of Directors and two meetings of the Executive Committee. Each
director attended at least 80% of the Board meetings and his or her applicable Committee meetings. While the Company does not have a formal policy with regard to Board members’ attendance at the Annual Meeting of Stockholders, all
members of the Board are encouraged to attend. All members of the Board attended last year’s Annual Meeting of Stockholders held on May 21, 2018.
Director
Independence
The Board and the Nominating Committee undertake an annual review of director and nominee independence. They consider transactions and relationships between each director or nominee or any member of such
director’s or nominee’s immediate family or any other person sharing such director’s or nominee’s home and the Company and its subsidiaries and affiliates, including those reported under the heading “Transactions With Related Persons”
below. The Board and the Nominating Committee also examine transactions and relationships between directors and nominees and their respective affiliates and members of the Company’s senior management and their affiliates. The purpose of
this review is to determine whether any such relationships or transactions are inconsistent with a determination that the director or nominee is independent under the New York Stock Exchange corporate governance listing standards.
As a result of its most recent review, the Board and the Nominating Committee affirmatively determined that, under
the New York Stock Exchange listing standards, the following directors and nominees, constituting a majority of the individuals nominated for election as directors at the Annual Meeting, are independent of the Company and its management:
Messrs. Gemunder, Grace, Krebs, Rice, Saunders, Walsh and Wood and Ms. Lindell.
Risk Oversight
The
Board receives periodic reports from management on matters involving risk exposures such as regulatory changes, material litigation, cybersecurity, and recommended policy revisions.
Management maintains a formal Enterprise Risk Management (“ERM”) program that monitors management’s actions in
response to the key risks facing the Company. The Audit Committee reviews various aspects of the ERM program periodically throughout the year. It oversees our risk identification and mitigation process. It reviews material financial
risk exposures including regulatory matters, acquisitions, cybersecurity, economic conditions and interest rate exposures. Members of our management, including our Chief Financial Officer, Chief Legal Officer, Vitas Compliance Officer,
and our Director of Internal Audit, report to the Audit Committee regarding on-going risk management process activities. The Audit Committee also reviews legal matters that may have a material impact on the Company’s financial
statements. These Audit Committee reviews are conducted on at least an annual basis, or more frequently if a significant risk exposure matter develops.
While the Board has responsibility for the Company’s risk oversight, management is responsible for day-to-day risk
management processes. We believe this division of responsibilities most effectively addresses the risks we face, and that our Board leadership structure supports this approach.
Compensation Risk
Management has reviewed the compensation policies and practices for our employees and has concluded that they do not create risks that are reasonably likely to have a material adverse effect on us.
The Compensation Committee oversees our risks related to compensation programs and philosophy. It ensures our
compensation programs do not encourage excessive risk taking. Determining incentive awards based on a variety of performance metrics diversifies the risk associated with any one performance indicator. The mix of fixed and variable,
annual and long-term, and cash and equity compensation is also designed to encourage actions in the Company’s long-term best interests. The Committee works periodically with our independent compensation consultant to ensure our executive
compensation plans are appropriately balanced and incentivize management to act in the best interests of our stockholders.
As described in more detail below under “Compensation Discussion and Analysis”, long-term compensation programs for
our named executive officers have been structured such that long-term compensation is linked to our long-term relative and absolute performance. This model of linking long-term compensation to our performance applies not only to our
named executive officers, but has also been applied to other senior corporate personnel. We believe that our compensation plans reflect sound risk management practices and do not encourage excessive or inappropriate risk taking.
Compensation
Committee Interlocks and Insider Participation
The Compensation Committee is comprised of Messrs. Walsh, Krebs and Wood and Ms. Lindell. No member of the Compensation Committee has any direct or indirect material interest in
or relationship with the Company, other than holdings of Capital Stock as set forth under the heading “Security Ownership of Certain Beneficial Owners and Management” below and as related to his or her position as a director. During
2018, no executive officer of the Company served on the compensation committee of any other entity where an executive officer of such entity also served on the Board of Directors, and no executive officer of the Company served on the
board of directors of any other entity where an executive officer of such entity also served on the Compensation Committee.
Board Leadership
Structure
The Board has separated the functions of Chief Executive Officer and Chairman of the Board. Mr. Walsh currently serves as Chairman. The Board believes this separation of function promotes independence and enhances
corporate governance.
Related Person
Policies and Procedures
The Audit Committee reviews all material transactions with related persons as identified by management. In February 2007, the Audit Committee adopted a written policy and set of procedures for reviewing
transactions between the Company and related persons, who include directors, nominees, executive officers and any person known to be the beneficial owner of more than 5% of the Company’s voting securities (each, a “related person”), any
immediate family member of a related person and any person sharing the household of a related person. The policy also covers any firm, corporation or other entity in which any related person is employed or is a partner or principal, or
in which such related person has a 5% or greater beneficial ownership interest. Prior to entering into a transaction with a related person, notice must be given to the Secretary of the Company containing (a) the related person’s
relationship to the Company and interest in the transaction, (b) the material facts of the transaction, (c) the benefits to the Company of the transaction, (d) the availability of any other sources of comparable products or services, and
(e) an assessment of whether the transaction is on terms comparable to those available to an unrelated third party. If the Company’s Secretary and Chief Financial Officer determine that it is a related party transaction exceeding
$100,000, the proposed transaction is submitted to the Audit Committee for its approval. The policy also provides for the quarterly review of related person transactions which have not previously been approved or ratified and any other
such transactions which come to the attention of the Company’s Chief Executive Officer, Chief Financial Officer, Controller or Secretary. If the transaction is pending or ongoing, it will be promptly submitted to the Audit Committee for
approval. If the transaction is completed, it will be submitted to the Audit Committee to determine if ratification or rescission is appropriate. This policy also covers charitable contributions or pledges by the Company to non-profit
organizations identified with a related person.
Code of Ethics
The Board of Directors has adopted Corporate Governance Principles and Policies on Business Ethics, which, along with the charters of the Audit, Compensation and Nominating Committees, are available on the Company’s Web site under
Corporate Governance — Governance Documents (www.chemed.com). Printed copies may be obtained from the Company’s Secretary at Suite 2600, 255 East Fifth Street, Cincinnati, Ohio 45202-4726.
Stockholder
Communications
Stockholders and others wishing to communicate with members of the Board should mail such communications to the Company’s Secretary at Suite 2600, 255 East Fifth Street, Cincinnati, Ohio 45202-4726. The
Secretary will forward these communications to the Board and, if applicable, to specified individual directors.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
This Compensation Discussion and Analysis explains the material elements of the compensation of the Company’s named
executive officers. The Company’s named executive officers for 2018 are Kevin J. McNamara, President and Chief Executive Officer; David P. Williams, Executive Vice President and Chief Financial Officer; Nicholas M. Westfall, Executive
Vice President; Spencer S. Lee, Executive Vice President; and Naomi C. Dallob, Vice President, Secretary and Chief Legal Officer.
Consideration of the 2018 Say On Pay Vote
Following our 2018 Annual Meeting of Stockholders, the Compensation Committee and the Board of Directors reviewed
the results of the non-binding stockholder advisory vote on our executive compensation (“2018 Say On Pay Vote”). Stockholders voted in favor of Say On Pay, with 95.50% positive votes, 4.09% negative votes and .40% abstentions
(percentages rounded to nearest hundredth of a percent). Based on the strong favorable vote and with input solicited from Company stockholders, the Compensation Committee and Board maintained its executive compensation policies and
practices, that include the following changes from earlier practices (abbreviated terms are defined below):
●
|
Replacement of the previous annual incentive program, which was based on a multiple of historical growth rates in Adjusted
EPS applied to prior year actual payouts, with a target bonus plan based on achieving goals related to Adjusted EPS and Return on Assets;
|
●
|
Replacement of the previous long-term incentive plan with performance share units subject to performance-based vesting
related to a cumulative three-year Adjusted EPS target and a three-year relative TSR performance metric. Prior to 2013, time-based restricted stock awards generally cliff vested on the fourth anniversary of the grant date;
|
●
|
A policy that, beginning in 2013, stock incentive compensation is subject to a “double trigger” in the event of a change in
control of the Company. New incentives vest only upon employment termination without good cause or for good reason after a change in control; and
|
●
|
A clawback policy such that the Compensation Committee will review all performance-based compensation awarded to, or earned
by, certain officers during the three-year period prior to any restatement of the Company’s financial results. If the Compensation Committee determines such compensation would have been lower had it been calculated based on the
restated financial statement, the Compensation Committee may seek to recover the excess amount.
|
●
|
Additionally, in 2018, the Board of Directors amended The Senior Executive Severance Policy and the Change in Control
Plan to limit any gross-up payments payable under the plans to the then-existing participants in the plans.
|
Overview of Compensation Program
The executive compensation program is administered by the Compensation Committee. The membership of the
Compensation Committee is comprised of four independent directors. The Compensation Committee is responsible for the review, approval and recommendation to the Board of Directors of matters concerning (a) base salary and annual cash
incentive compensation for executives of the Company, (b) establishment of incentive compensation plans and programs generally, (c) adoption and administration of certain employee benefit plans and programs, and (d) additional year-end
contributions by the Company under the Retirement Plan. The recommendations of the Compensation Committee on such matters must be approved by the non-employee members of the Board of Directors. The employee members of the Board of
Directors are not present when compensation recommendations are presented to the Board of Directors and discussed, and such members do not vote on compensation issues. The Compensation Committee also administers the Stock Incentive
Plans. Under authority granted it by those plans, it reviews and approves the granting of stock options and performance share units. The Compensation Committee also annually determines whether to retain or terminate the services of
independent compensation consultants to assist and advise it in administering the executive compensation program after considering certain independence factors. Currently, Compensation Strategies, Inc., an independent compensation
advisory firm, has been retained by, and reports directly and exclusively to, the Compensation Committee. The scope of these consulting services is limited to (a) advising the Compensation Committee regarding executive compensation, (b)
performing studies of general market and peer group compensation levels, and (c) advising the Board on director compensation, all upon request of the Compensation Committee. Compensation Strategies, Inc. does no other work for the
Company outside of providing these compensation advisory services.
How Compensation Decisions Are Made
Generally, in February of each year, certain senior executives of the Company, including the Chief Executive
Officer, prepare recommendations for annual cash incentives to be made to Company employees, based on the performance of the Company and its subsidiaries during the past year. For the past five years, the Compensation Committee granted
stock option awards in November, to more fully reflect the Company’s financial and stock price performances during that year. Beginning in 2019, the Compensation Committee will grant stock option awards on the day of the release of the
Company’s third quarter earnings results. The recommendations made by the Chief Executive Officer and other senior executives to the Compensation Committee, which include detailed memoranda and tally sheets, take into consideration
historical compensation, including base salaries, annual incentive compensation and long-term equity awards, performance of the Company as a whole, and performance of the individual business unit for which the employee is responsible.
The Compensation Committee then meets to determine the long-term equity awards for each executive and to review and consider the recommendations prepared by the Company’s senior executives in order to determine the recommendations that
the Compensation Committee will make to the non-employee members of the Board of Directors with respect to the amount of incentives for each executive. The Compensation Committee makes compensation recommendations to the non-employee
members of the Board of Directors regarding the compensation of the Chief Executive Officer without the input of any Company employees. The Compensation Committee can modify any recommendations of the Company’s senior executives.
Base salaries of executives are periodically reviewed by the Compensation Committee and approved by the
non-employee members of the Board of Directors. As a component of the review and approval process, the Compensation Committee and the non-employee members of the Board consider the recommendations of the Chief Executive Officer and
certain senior executives of the Company as to the base salaries of Company executives, other than the Chief Executive Officer. The Chief Executive Officer’s base salary is reviewed and determined without the input of Company employees.
In determining recommended base salaries for the Company’s executives, as more fully discussed under “Base Salaries” below, the Compensation Committee also considers each executive’s then-current base salary and their individual
performance.
The Compensation Committee directly grants compensation under the Stock Incentive Plans.